-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E2d6g60Q9+r/RDIW6hjlMXb109wjZkTXZ5XNPUxLYLKbqP38VMi3I0J7RMtzwJkd onX0ZEEA+yM38rGKmL+1zQ== 0000950135-98-000149.txt : 19980119 0000950135-98-000149.hdr.sgml : 19980119 ACCESSION NUMBER: 0000950135-98-000149 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971025 FILED AS OF DATE: 19980116 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HADCO CORP CENTRAL INDEX KEY: 0000729533 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 042393279 STATE OF INCORPORATION: MA FISCAL YEAR END: 1030 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-12102 FILM NUMBER: 98507949 BUSINESS ADDRESS: STREET 1: 12A MANOR PKWY CITY: SALEM STATE: NH ZIP: 03079 BUSINESS PHONE: 6038988000 MAIL ADDRESS: STREET 1: 12A MONOR PARKWAY CITY: SALEM STATE: NH ZIP: 03079 10-K405 1 HADCO CORPORATION 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 25, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-12102 ------------------------ HADCO CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2393279 (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) 12A MANOR PARKWAY, SALEM, NEW HAMPSHIRE 03079 (Address of principal executive offices) (Zip Code) (603) 898-8000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.05 par value ------------------------ 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. [X] 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 . --- --- The aggregate market value of voting Common Stock held by non-affiliates of the registrant was $497,669,961 based on the price of the last reported sale on the over-the-counter National Market System on January 9, 1998 as reported by NASDAQ. As of January 9, 1998, there were 13,107,357 shares of Common Stock, $.05 per value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Company intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended October 25, 1997. Portions of such proxy statement are incorporated by reference into Part III of this Report. ================================================================================ 2 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. Hadco Corporation 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 "Factors That May Affect Future Results." 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," and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements. As used herein, the terms "Company" and "Hadco," unless otherwise indicated or the context otherwise requires, refer to Hadco Corporation and its subsidiaries, including Hadco Santa Clara, Inc. ("Hadco Santa Clara") (formerly Zycon Corporation ("Zycon")). However, all financial information for fiscal periods ended prior to January 10, 1997 (the date of Hadco's acquisition of Zycon), unless otherwise indicated or the context otherwise requires, is for Hadco Corporation alone and does not include Zycon. PART I ITEM 1. BUSINESS GENERAL Hadco is a leading manufacturer of advanced electronic interconnect products in North America. The Company offers a wide array of sophisticated manufacturing, engineering and systems integration services to meet its customers' electronic interconnect needs. The Company's principal products are complex multilayer rigid printed circuits and backplane assemblies. Hadco's largest customers during fiscal 1997 included leading companies in the electronics industry, such as Cabletron Systems, Compaq Computer, Lucent Technologies, Solectron and Sun Microsystems. Hadco acquired Zycon on January 10, 1997. This acquisition increased Hadco's net sales significantly, added approximately 600,000 square feet of manufacturing space (approximately a 100% increase) and substantially expanded the Company's manufacturing capabilities and geographic reach. The new manufacturing capabilities include state-of-the-art West Coast facilities for volume production of complex printed circuits and backplane assemblies, a quick-turn prototype and design facility on the East Coast, and a newly constructed facility for volume production in Malaysia. The acquisition of Zycon has also broadened the Company's customer base, expanded its involvement in various industry sectors, added new proprietary technologies, and increased its sales force. The Company was incorporated in Massachusetts in 1966. The Company's principal executive offices are located at 12A Manor Parkway, Salem, New Hampshire 03079, and its telephone number is (603) 898-8000. INDUSTRY OVERVIEW Printed circuits are the basic platforms used to interconnect microprocessors, integrated circuits and other components essential to the functioning of electronic products. Printed circuits consist of a pattern of electrical traces etched from copper laminated on an insulated base that is typically composed of rigid fiberglass or thin flexible circuits. To meet the increasing requirements of Original Equipment Manufacturers (OEMs) and contract manufacturers, printed circuit manufacturers have developed more complex multilayer designs with surface mount and other attachment technologies, narrower widths and separations of copper traces, advanced materials, and smaller diameters of vias and through-holes to connect internal circuitry. Backplane assemblies are generally larger and thicker printed circuits on which connectors are mounted to receive and interconnect printed circuits, integrated circuits and other electronic components. Electronic interconnect products are customized for specific electronic applications and are sold to OEMs and contract manufacturers in volumes that range from several units for prototypes and small quantities for pre-production to large quantities for volume production. In the 1980s, the electronic interconnect market was 1 3 largely comprised of military and personal computer applications. However, the proliferation of electronics and the emergence of new technologies have significantly broadened this market and reduced the amplitude of interconnect industry cycles in the 1990s. Electronic interconnects such as rigid printed circuits, flexible circuits and backplane assemblies are now used in a wide variety of industries and products, including data communications/telecommunications, workstations, servers, personal computers, peripherals, industrial automation, instrumentation, medical, transportation and defense. As electronic products have become smaller and more complex, the manufacture of interconnect products has required increasingly sophisticated engineering and manufacturing expertise and substantial capital investment. These advanced manufacturing process and technology requirements have caused OEMs to rely more heavily on independent manufacturers and to reduce dependence on their internal captive facilities. Industry sources estimate that 93% of the domestic printed circuit market was served by independent manufacturers in 1997 (compared to 66% in 1991). Captive manufacturing facilities serve the remaining 7% of the market. Historically, electronics OEMs used independent printed circuit manufacturers as offload capacity for their captive facilities. During economic downturns, independent facilities lost production orders as captives produced a greater percentage of demand internally. However, as a result of outsourcing of OEM printed circuit production, the Company believes independents are less affected by unused captive capacity during market downturns than was previously the case. Industry sources estimate that in 1997 the world-wide market for rigid printed circuits was approximately $29.5 billion, and the domestic market for rigid printed circuits was approximately $7.7 billion. In addition, industry sources estimate that the market for more complex multilayer printed circuits (eight layers and above) comprised approximately 40% of the total market in 1997, and has increased an average of 14% per year over the past two years. Despite its large size, the market for printed circuits remains highly fragmented. The Company believes that nine North American rigid printed circuit manufacturers had annual sales in excess of $100 million in 1997, which together would represent approximately 41% of the rigid printed circuit market. According to industry sources, the domestic market for backplane assemblies was approximately $1.2 billion in 1997. This market is less fragmented than that of printed circuits. The Company estimates that the ten largest producers of backplane assemblies accounted for a majority of the backplane assembly production in 1996. As in the printed circuit market, OEMs have increasingly come to rely on independent producers of backplane assemblies, allowing OEMs to reduce their capital investments, improve inventory management and purchasing power and take advantage of the process technology expertise of manufacturing specialists. PRODUCTS AND SERVICES The Company's products and services are designed to meet its customers' interconnect needs for complex multilayer printed circuits and backplane assemblies. In fiscal 1997, Hadco offered complementary processes and capabilities that spanned the period from product conception through delivery of volume products. The Company's offering includes the following: Development. Through development groups located at various facilities, Hadco identifies, develops and markets new technologies that benefit its customers. These development groups work closely with customers during all stages of product life-cycles. For instance, process design changes and refinements required for volume production are identified and implemented prior to production. The development groups also focus on the special requirements of the Company's customers, including increasing printed circuit densities, electronic packaging and advanced materials and products. When appropriate, the development groups have coordinated the acquisition of technology licenses, filed patent disclosures and applications, and registered trademarks on behalf of the Company. Design. The Company provides design and engineering assistance in the early stages of product development which assures both mechanical and electrical considerations are integrated to achieve a high quality and cost effective product. The Company also evaluates customer designs for manufacturability and, when appropriate, recommends design changes to reduce manufacturing costs or lead times or to increase manufacturing yields or the quality of finished printed circuits. The Company believes that this long-term view of manufacturing and customer relationships distinguishes the Company from many manufacturers which 2 4 compete primarily in the quick-turn market. By working closely with its customers, the Company also gains a better understanding of the future requirements of OEMs. This cooperative process shortens the time in transition from the development of the prototype design to volume manufacturing and facilitates the delivery of high quality products to customer premises in a timely fashion. Quick-Turn Prototype. Prototypes typically require lead times of three to seven days, and as short as 24 hours. The Company provides quick-turn prototype services to the product development groups of customers that require small test quantities. Hadco offers these services through its Tech Centers in Massachusetts, New Hampshire and California. Prototype development at these Centers has included multilayer printed circuits of up to 38 layers, embedded discrete components, Multichip Modules (MCM), Single Chip Carriers (SCC), planar magnetics, advanced surface finishes, and various high performance substrates for the high frequency microwave market. The Tech Centers also support advanced attachment technologies such as Tape Automated Bonding (TAB), Direct Chip Attach (DCA) and High Density Interposers (HDI). In combining the design of a printed circuit with the manufacture of the prototype, Hadco can reduce the length of the design/manufacture cycle. By working closely with customers at the design and prototype stage, the Company believes it strengthens long-term relationships with its customers and gains an advantage in securing a preferred vendor status when customers begin volume production. Pre-Production. Pre-production is the manufacture of limited quantities of electronic interconnects during the transition period from prototype to volume production. Pre-production generally requires quick-turn delivery to accommodate time-to-volume pressures or as a temporary solution for unforeseen customer demands. Pre-production is done in the Tech Centers and in volume production facilities. Volume Production. Volume production is characterized by longer lead times and increased emphasis on lower cost as the product moves to full-scale commercial production. As customers increasingly demand a quick transition from prototype to volume production, few independent manufacturers can provide complex printed circuits of 18 or more layers in the volume provided by Hadco's larger facilities. During 1996, the Tech Centers transitioned chip attachment technologies such as Ball Grid Array (BGA), Tape Automated Bonding (TAB), Direct Chip Attach (DCA), High Density Interposers (HDI), and other technologies including Multichip Module (MCM) and Single Chip Carriers (SCC) to volume production. The Company operates five facilities located in California, New York, New Hampshire and Malaysia for medium and high-volume printed circuit production. Backplane Assembly. Backplane assemblies are generally larger and thicker printed circuits on which connectors are mounted to interconnect printed circuits, integrated circuits and other electronic components. Hadco incorporates its own printed circuits in backplane assemblies to provide customers with a high level of printed circuit technology on a quick-turn and volume basis. Net sales of backplane assemblies accounted for 7%, 17% and 11% of total Company net sales during fiscal 1995, 1996 and 1997, respectively, and for 10% on a pro forma basis including Zycon during fiscal 1996. With its backplane assembly operations, Hadco is one of a few companies that provides its customers with the strategic advantage of an integrated offering to meet their needs from development and design through volume production and backplane assembly. The Company's advanced process capabilities enhance each of the above services and include: Manufacture of High Performance Printed Circuits. The Company produces technologically advanced printed circuits primarily for the high performance market at the Tech Centers and its volume production facilities. These printed circuits, used principally in the data communications and telecommunications industries, are designed to function in high temperature environments and at higher frequencies. Materials used by the Company for these products include Teflon(R), cyanate ester, GETEK(R), liquid crystal polymers, polymides, and bismaleimide triazine epoxies. Development of Emerging Technologies. The Company undertakes projects to develop advanced or improved processes, materials and product lines. Buried Capacitance(TM) and buried resistance are advanced materials being developed by the Company to provide improved electrical performance and greater interconnect densities. Sales of Buried Capacitance(TM)products by the Company in fiscal 1997 totaled $31.7 million, and the Company believes that buried resistance materials (ResistAIR(TM)) may generate additional future 3 5 revenue. In addition, the Company is developing the MicroPath(TM) family of micro via processes, which include liquid imaging, dry film imaging, plasma etching, and laser drilling. Micro vias provide a significant increase in printed circuit density. During fiscal 1996, the Company also began to produce rigid flex printed circuit products utilizing licensed HVRFlex(TM) technology. These products enable customers to fold a printed circuit and reduce the need for cable connectors in the portable computer and telecommunications markets. See "Item 2. Manufacturing and Facilities." MARKETS AND CUSTOMERS Hadco's customers are a diverse group of OEMs and contract manufacturers in the computing (mainly workstations, servers, mainframes, storage and notebooks), data communications/telecommunications and industrial automation industries, including process controls, automotive, medical and instrumentation. The following table shows, for the periods indicated, the Company's net sales and percentage of its net sales to the principal end-user markets it serves. The information reflected in the table does not include Zycon, except that the information in the column "October 25, 1997" includes the combined operations of Zycon and the Company since January 10, 1997.
FISCAL YEAR ENDED, ---------------------------------------------------- OCTOBER 28, OCTOBER 26, OCTOBER 25, MARKETS 1995 1996 1997 - -------------------------------------------- -------------- -------------- -------------- (DOLLARS IN MILLIONS) Computing................................... $ 84.9 32% $119.2 34% $205.0 32% Contract Assembly........................... 69.0 26 112.2 32 289.2 44 Data Communications/Telecommunications...... 90.2 34 94.7 27 119.1 18 Industrial Automation....................... 15.9 6 17.5 5 24.8 4 Other....................................... 5.2 2 7.1 2 10.5 2 ------ --- ------ --- ------ --- Total Net Sales............................. $265.2 100% $350.7 100% $648.6 100% ====== === ====== === ====== ===
The Company supplied its products and services to a diverse base of approximately 560 customers in fiscal 1997, including 77 customers with purchases in excess of $1 million. The Company attempts to market its products to customers who currently have, or have the potential to achieve, significant market share in their respective industries. The following list sets forth the Company's largest customers during fiscal 1997: Cabletron Systems Northern Telecom Celestica RSP Manufacturing Compaq Computer SCI Systems Jabil Circuits Solectron Lucent Technologies Sun Microsystems
During fiscal 1995, 1996 and 1997, no customer accounted for more than 7%, 15% and 15%, respectively, of Hadco's net sales, and the Company's ten largest customers together accounted for approximately 46%, 48% and 47%, respectively, during the same periods, and 43% in fiscal 1996 on a pro forma basis including Zycon. In fiscal 1997, one customer, Solectron, accounted for approximately 15% of the net sales of the Company. The Company generally does not obtain long-term purchase orders or commitments from its customers, and the orders received by the Company generally require delivery within 90 days. However, many of the Company's customers have maintained long-term purchasing relationships with the Company. SALES AND MARKETING The Company markets its products through its own sales and marketing organization and independent manufacturers' representatives. As of October 25, 1997, the Company employed 102 sales and marketing employees, of which 51 are direct sales representatives at nine locations. The Company is also represented by 13 independent manufacturers' representatives at 24 locations in North America, Europe, Mexico, Asia, Australia and the Middle East. Regional direct sales offices are located in the states of Arizona, California, 4 6 Colorado, Georgia, Minnesota, New Hampshire, North Carolina, Oregon, Pennsylvania, Texas and the Province of Ontario, Canada. The Company's sales organization is divided into four territories, and each direct sales representative and each manufacturer's representative works within one of the four territories. Each territory also has a support staff of sales engineers and technical service personnel responsible for technical liaison and problem solving, development of product and market opportunities, market research and marketing communications. The Company focuses on developing close relationships with customers beginning at the earliest development and design phases and continuing throughout all stages of product production. The Company's Advanced Packaging Development Group identifies, develops and markets new technologies that benefit its customers and is intended to position the Company as an important source for these solutions. This group also assists marketing efforts by hosting the Regional Technology Symposiums at which the Company's technical capabilities are presented to, and industry technical trends are discussed with, customers of the Company. These Symposiums attract engineers and designers from electronics OEMs and facilitate an interactive discussion of the latest technologies in the manufacture of complex printed circuits. SUPPLIER RELATIONSHIPS Historically, the majority of raw materials used in the Company's manufacture of printed circuits and components used in backplane assemblies have been readily available. However, product changes and the overall demand for electronic interconnect products could increase the industry's use of new laminate materials, standard laminate materials, multilayer blanks, electronic components and other materials, and therefore such materials may not be readily available to the Company in the future. Zycon has experienced shortages of certain types of raw materials in the past. There can be no assurance that shortages of certain types of raw materials or components will not occur in the future. To date, material shortages or price fluctuations have not had a materially adverse effect on the Company, but there can be no assurance that material shortages or price fluctuations will not have a material adverse effect on the Company in the future. The Company works with its suppliers to develop just-in-time supply systems which reduce inventory carrying costs. The Company also maintains a Supplier Certification Program which evaluates potential vendors on the basis of such factors as quality, on-time delivery, cost, technical capability, and potential technical advancement. Certification is based on both actual performance and audits of vendors' manufacturing sites. Key suppliers are reviewed quarterly to preserve strong relationships with these suppliers and maintain regular dialogue on quality, cost and technical advancement issues. Many suppliers attend the Company's Supplier Symposium, where the Company's goals and objectives are discussed with vendors. COMPETITION The electronic interconnect industry is highly fragmented and characterized by intense competition. The Company believes that its major competitors are the large U.S. and international independent and captive producers that also manufacture multilayer printed circuits and provide backplane and other electronic assemblies. Some of these competitors have significantly greater financial, technical and marketing resources, greater name recognition and a larger installed customer base than the Company. In addition, these competitors may have the ability to respond more quickly to new or emerging technologies, may adapt more quickly to changes in customer requirements and may devote greater resources to the development, promotion and sale of their products than the Company. During periods of recession or economic slowdown in the electronics industry and other periods when excess capacity exists, electronics OEMs become more price sensitive, which could have a material adverse effect on interconnect pricing. In addition, the Company believes that price competition from printed circuit manufacturers in Asia and other locations with lower production costs may play an increasing role in the printed circuit markets in which the Company competes. The Company's basic interconnect technology is generally not subject to significant proprietary protection, and companies with significant resources or international operations may enter the market. Increased competition could result in price reductions, reduced 5 7 margins or loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations. The demand for printed circuits has continued to be affected by the development of smaller, more powerful electronic components requiring less printed circuit area. Expansion of the Company's existing products or services could expose the Company to new competition. Moreover, new developments in the electronics industry could render existing technology obsolete or less competitive and could potentially introduce new competition into the industry. There can be no assurance that the Company will continue to compete successfully against present and future competitors or that competitive pressures faced by the Company will not have a material adverse effect on the Company's business, financial condition and results of operations. Hadco competes on the basis of product quality, timeliness of delivery, price, customer technical support and its integrated offering, from development and design through volume production and backplane assembly. PRODUCT PROTECTION The Company has obtained ten United States and two foreign patents. Although Hadco seeks to protect certain proprietary technology and other intangible assets through patents and trademark filings, it has relatively few patents and relies primarily on trade secret protection. There can be no assurance that the Company will be able to protect its trade secrets or that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets. The future success of the Company will depend on the continued development of processes and capabilities. The Company believes that its accumulated experience with respect to materials and process technology is also important to its operations. RELEASED BACKLOG The Company's released backlog as of October 25, 1997 was $122.3 million, compared with $77.7 million as of October 26, 1996. The Company anticipates delivering approximately 92% of its released backlog during its first quarter of fiscal 1998. Released backlog consists of orders for which artwork has been received, a delivery date has been scheduled and the Company anticipates it will manufacture and deliver the order. Cancellation and postponement charges, to the extent they exist with respect to released backlog, generally vary depending upon the time of cancellation or postponement, and a significant portion of the Company's released backlog at any time may be subject to cancellation or postponement without penalty. Variations in the size, timing and delivery schedules of purchase orders received by the Company, as well as changes in customers' delivery requirements, may result in substantial fluctuations in released backlog from period to period. Accordingly, the Company believes that released backlog is not a meaningful indicator of future quarterly or annual financial results. EMPLOYEES As of October 25, 1997, the Company had 6,142 employees, compared to 3,005 employees as of October 26, 1996. The employees are not represented by a union, and the Company has never experienced any labor problems resulting in a work stoppage. ENVIRONMENTAL MATTERS The Company is required to comply with all federal, state, county and municipal regulations regarding protection of the environment. There can be no assurance that more stringent environmental laws will not be adopted in the future and, if adopted, the costs of compliance with more stringent environmental laws could be substantial. Waste treatment and disposal are major considerations for printed circuit manufacturers. The Company uses chemicals in the manufacture of its products that are classified by the Environmental Protection Agency (EPA) as hazardous substances. The Company is aware of certain chemicals that exist in the ground at certain of its facilities. The Company has notified various governmental agencies and continues to work with them to monitor and resolve these matters. During March 1995, the Company received a Record 6 8 Of Decision (ROD) from the New York State Department of Environmental Conservation (NYSDEC), regarding soil and groundwater contamination at its Owego, New York facility. Based on a Remedial Investigation and Feasibility Study (RIFS) for apparent on-site contamination at that facility and a Focused Feasibility Study (FFS), each prepared by environmental consultants of the Company, the NYSDEC has approved a remediation program of groundwater withdrawal and treatment and iterative soil flushing. The Company recently executed a Modification of the Order on Consent to implement the approved ROD. The cost, based upon the FFS, to implement this remediation is estimated to be $4.6 million, and is expected to be expended as follows: $260,000 for capital equipment and $4.3 million for operation and maintenance costs which will be incurred and expended over the estimated life of the program of 30 years. NYSDEC has requested that the Company consider taking additional samples from a wetland area near the Company's Owego facility. Analytical reports of earlier sediment samples indicated the presence of certain inorganics. There can be no assurance that the Company and/or other third parties will not be required to conduct additional investigations and remediation at that location, the costs of which are currently indeterminable due to the numerous variables described in the fifth paragraph of this "-- Environmental Matters" section. From 1974 to 1980, the Company operated a printed circuit manufacturing facility in Florida as a lessee of property that is now the subject of a pending lawsuit ("the Florida Lawsuit") and investigation by the Florida Department of Environmental Protection (FDEP). On June 9, 1992, the Company entered into a Cooperating Parties Agreement in which it and Gould, Inc., another prior lessee of the site have agreed to fund certain assessment and feasibility study activities at the site, and an environmental consultant has been retained to perform such activities. The cost of such activities is not expected to be material to the Company. In addition to the Cooperating Parties Agreement, Hadco and others are participating in alternative dispute resolution regarding the site with an independent mediator. In connection with the mediation, in February 1992 the FDEP presented computer-generated estimates of remedial costs, for activities expected to be spread over a number of years, that ranged from approximately $3.3 million to $9.7 million. Mediation sessions were conducted in March 1992 but have been suspended during the ongoing assessment and feasibility activities. Management believes it is likely that it will participate in implementing a continuing remedial program for the site, the costs of which are currently unknown. In June 1995, Hadco was named a third-party defendant in the Florida Lawsuit. See "Item 3. Legal Proceedings." The Company has commenced the operation of a groundwater extraction system at its Derry, New Hampshire facility to address certain groundwater contamination and groundwater migration control issues. Further investigation is underway to determine the areal extent of the groundwater contaminant plume. Because of the uncertainty regarding both the quantity of contaminants beneath the building at the site and the long-term effectiveness of the groundwater migration control system the Company has installed, it is not possible to make a reliable estimate of the length of time remedial activity will have to be performed. However, it is anticipated that the groundwater extraction system will be operated for at least 30 years. There can be no assurance that the Company will not be required to conduct additional investigations and remediation relating to the Derry facility. The total costs of such groundwater extraction system and of conducting any additional investigations and remediation relating to the Derry facility are not fully determinable due to the numerous variables described in the fifth paragraph of this "-- Environmental Matters" section. The City of Santa Clara has adopted an ordinance that, as of April 1, 1997, significantly reduces the amount of waste, including copper and nickel, that companies such as the Company may discharge into the city sanitary sewer. The new ordinance provides for substantial penalties for intentional or negligent violations. These penalties include fines ranging from $10,000 to $50,000 per day, revocation of required business permits, the issuance of a cease and desist order and, under certain circumstances, up to nine months imprisonment. Under the new ordinance, the Company is subject to stringent requirements on the amount of water it can discharge and is required to substantially reduce the concentrations of certain chemicals, including copper and nickel, which it currently discharges. Under the new ordinance, the concentration limit for Hadco's copper discharge is reduced from 2.70 milligrams per liter to 1.02 milligrams per liter, and the concentration limit for Hadco's nickel discharge is reduced from 2.60 milligrams per liter to 0.02 milligrams per liter. The Company believes it is currently in compliance with the new copper discharge limit which became effective April 1, 7 9 1997. On March 31, 1997, the San Jose/Santa Clara Water Pollution Control Plant (the "SJ/SC POTW") issued a new compliance schedule for the Company with respect to the nickel discharge limit, in part to allow the Company to complete a new Mass Audit Study for nickel. The Company filed the updated Mass Audit Study with the SJ/SC POTW in May 1997, and has not yet received notice of a new nickel discharge limit. Management believes the Company will be in compliance with applicable discharge limits through the implementation of additional changes in technology and raw materials and/or as a result of the SJ/SC POTW's reconsideration and upward revision of the Company's nickel discharge limit. However, there can be no assurances that the Company will be able to comply or that the costs of complying will not exceed the Company's current estimate. The Company estimates that the total equipment cost of complying with the new ordinance will be between $150,000 and $200,000. In addition, the Company anticipates an annual cost of approximately $120,000 to treat wastewater and to dispose of sludge off-site. The Company accrues estimated costs associated with known environmental matters, when such costs can be reasonably estimated. The cost estimates relating to future environmental clean-up are subject to numerous variables, the effects of which can be difficult to measure, including the stage of the environmental investigations, the nature of potential remedies, possible joint and several liability, the magnitude of possible contamination, the difficulty of determining future liability, the time over which remediation might occur, and the possible effects of changing laws and regulations. Management believes the ultimate disposition of above known environmental matters described in this "-- Environmental Matters" section will not have a material adverse effect upon the liquidity, capital resources, business or consolidated financial position of the Company. However, one or more of such environmental matters could have a significant negative impact on the Company's consolidated financial results for a particular reporting period. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 9 of Notes to the Company's Consolidated Financial Statements. The Company plans additional capital expenditures during fiscal 1998 to further reduce air emissions and reduce waste generation. See discussion under "Item 2. Manufacturing and Facilities" concerning the Company's capital expenditures relating to environmental control facilities and equipment, and under "Item 3. Legal Proceedings" relating to lawsuits regarding environmental matters. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows:
NAME AGE POSITION - ------------------------------------------- --- ------------------------------------------------ Horace H. Irvine II........................ 60 Chairman of the Board of Directors Andrew E. Lietz............................ 59 President, Chief Executive Officer and Director Timothy P. Losik........................... 38 Senior Vice President, Chief Financial Officer and Treasurer John D. Caruso, Jr......................... 49 Senior Vice President Christopher T. Mastrogiacomo............... 39 Senior Vice President Richard P. Saporito........................ 43 Senior Vice President Michael K. Sheehy.......................... 50 Senior Vice President Robert E. Snyder........................... 57 Senior Vice President James C. Hamilton.......................... 60 Clerk
Mr. Horace H. Irvine II is a founder of the Company and has been its Chairman of the Board since the Company was incorporated in 1966 and its Chief Executive Officer from 1966 until 1986. He was President of the Company from 1966 until 1980 and Treasurer of the Company from 1966 until 1984. He is Chairman of the Nominating Committee of the Board of Directors. 8 10 Mr. Lietz joined the Company in 1984 and has been President and Chief Executive Officer of the Company since October 1995. From July 1991 to October 1995 Mr. Lietz was the Chief Operating Officer and a Vice President of the Company. He has been a director of the Company since February 1993. Mr. Losik joined the Company in 1986 and has been the Chief Financial Officer, Vice President and Treasurer of the Company since March 1994, and a Senior Vice President since September 1997. He was the Controller of the Company from June 1992 to March 1994 and a Corporate Accounting Manager from March 1988 to June 1992. Mr. Caruso joined the Company in September 1997 as the Senior Vice President in charge of Eastern Operations. Prior to joining Hadco, Mr. Caruso was the Managing Director of Worldwide Manufacturing at Cabletron Systems, a data communications company, from 1990 to September 1997. Mr. Mastrogiacomo joined the Company in March 1988 and has been the Senior Vice President in charge of the Santa Clara volume operations as well as all North American value added manufacturing operations (backplane assembly) since September 1997. He was a Vice President from January 1997 to September 1997, and the Business Unit Manager in charge of the Derry volume printed circuit business unit from January 1994 to January 1997. From March 1988 to January 1994, Mr. Mastrogiacomo was Manufacturing Manager at the Company's Owego, New York facility. Mr. Saporito joined the Company in 1987 and has been a Vice President of the Company since December 1991 and a Senior Vice President since September 1997. He was the Director of Human Resources of the Company from 1989 to 1991. Mr. Sheehy joined the Company in 1994 and has been the Senior Vice President of worldwide sales and marketing since September 1997. He was the Vice President in charge of the value added manufacturing business unit (backplane assembly) from March 1995 to September 1997. Prior to joining Hadco, Mr. Sheehy was the Vice President of Logistic Operations and then Operations at Kendall Square Research Corp. from January 1991 to November 1994. Mr. Snyder joined the Company in January 1997 and has been a Senior Vice President since September 1997. Prior to joining the Company, Mr. Snyder was the Managing Director of Asian Operations of Zycon Corporation from January 1996 to January 1997. He was Vice President of materials and production control of Zycon Corporation from February 1990 to January 1996. Mr. Hamilton has been the Clerk of the Company since 1966. He is a partner in the law firm of Berlin, Hamilton & Dahmen, LLP, general counsel to the Company. ITEM 2. MANUFACTURING AND FACILITIES The need for high volume production of dense multilayer printed circuits has transformed the electronic interconnect industry into one that increasingly requires complex manufacturing processes and necessitates high levels of investment in facilities, advanced materials, production processes and product design capabilities. The Company has invested in production technology to manufacture large volumes of dense multilayer printed circuits utilizing advanced attachment strategies such as Surface Mount Technology (SMT), Tape Automated Bonding (TAB), High Density Interposers (HDI) and Ball Grid Array (BGA). The Company employs numerous advanced manufacturing techniques and systems, including Computer Aided Manufacturing (CAM) systems, Computer Integrated Manufacturing (CIM) systems, computer controlled drilling and routing, dry-film imaging, multi-purpose metals plating, high volume surface coating, dual-access electrical testing, automated optical inspection, high-volume photoimageable solder mask processing, and computer controlled high-volume lamination systems. These techniques enable Hadco to manufacture complex printed circuits of consistent quality, in high volume and on a timely basis. All of the Company's North American production facilities are ISO9002 certified. See "Item 1. Business -- Products and Services." 9 11 Hadco is able to provide a broad and integrated offering through a focused manufacturing strategy for each facility. The Company manufactures its products in ten facilities, consisting of five volume production facilities (in California, New Hampshire, New York and Malaysia), two backplane assembly facilities (in California and New Hampshire) and three quick-turn prototype facilities (in Massachusetts, New Hampshire and California). The production expertise of some facilities overlap, enabling Hadco to allocate production based on product type and available capacity. Hadco has pursued a strategy of expanding the capacity and geographic scope of its manufacturing facilities to better serve high growth segments of the electronics industry in key geographic markets. With the acquisition of Zycon in January 1997, the Company added a 310,000 square foot volume production facility in California, a 180,000 square foot volume production facility in Malaysia, a 71,000 square foot quick-turn prototype facility in Massachusetts, and a 29,000 square foot backplane assembly facility in California. In total, the Company leases or owns approximately 1.3 million square feet of manufacturing space. The Company's significant facilities are as follows:
FUNCTION LOCATION SQUARE FEET ---------------------------------------------- ------------------ ----------- Volume Production............................. Santa Clara and San Jose, CA 310,000 Owego, NY 292,000 Derry, NH 200,000 Kuching, Malaysia 180,000 Hudson, NH 54,000 Quick-Turn Prototype.......................... Haverhill, MA 71,000 Watsonville, CA 35,000 Salem, NH 27,000 Backplane Assembly............................ Salem, NH 60,000 Santa Clara, CA 29,000 Administrative................................ Santa Clara, CA 29,000 Salem, NH 35,000*
- --------------- * under renovation The Company owns its volume production facilities in Owego, New York and Derry, New Hampshire. The Company leases its volume production and backplane assembly facilities in Santa Clara and San Jose, California, which are located in four adjacent buildings; the leases for these four buildings expire in March 2009 and contain options to extend for up to two additional periods of five years each. The Company completed construction in calendar 1996 of its volume production facility in Kuching, Malaysia and leases the land on which this facility is located for a period of 60 years, expiring in November 2055. The Hudson, New Hampshire operations are located in two separate buildings, and their leases expire in December 1997 with options to extend until December 2000. Leases for the Company's quick-turn prototype facility in Haverhill, Massachusetts expire in December 2003, with options on two of the leases to extend for an additional five years and options on the third lease to extend for an additional ten years. The lease for the Watsonville, California quick-turn prototype facility expires in December 1999, with options to extend until December 2011. The lease for the quick-turn prototype facility in Salem, New Hampshire expires in May 1999, with an option to extend until May 2004. The lease for the backplane assembly facility in Salem, New Hampshire expires in March 2000, with options to extend until March 2006. The leases for the Santa Clara, California buildings include the 29,000 square feet of backplane assembly operations. The administrative and corporate offices in Salem, New Hampshire are located in three separate buildings, two of which are covered by leases that expire in October 2000, with options to extend until October 2006, and the third of which is a sublease expiring in July 2003, with options to extend until July 2009. The leases for the Santa Clara, California buildings include the 29,000 square feet of administrative space. 10 12 The Company also owns approximately six acres of land in Salem, New Hampshire, approximately five acres of land in Derry, New Hampshire, and approximately 29 acres of land in Owego, New York. In fiscal 1997, the Company's capital expenditures relating to its environmental control facilities and equipment totaled approximately $841,000. The Company estimates that it will make capital expenditures with respect to its environmental control facilities and equipment of approximately $4.0 million and $1.9 million in fiscal 1998 and 1999, respectively. ITEM 3. LEGAL PROCEEDINGS The Company is one of 33 entities which have been named as potentially responsible parties in a lawsuit pending in the federal district court of New Hampshire concerning environmental conditions at the Auburn Road, Londonderry, New Hampshire landfill site. Local, state and federal entities and certain other parties to the litigation seek contribution for past costs, totaling approximately $20 million, allegedly incurred to assess and remediate the Auburn Road site. In December 1996, following publication and comment period, the EPA amended the ROD to change the remedy at the Auburn Road site from active groundwater remediation to future monitoring. Other parties to the lawsuit also allege that future monitoring will be required. The Company is contesting liability, but is participating in mediation with 27 other parties in an effort to resolve the lawsuit. In connection with the "Florida Lawsuit" (as described in the second paragraph under "Item 1. Business -- Environmental Matters") pending in the Circuit Court for Broward County, Florida, Hadco and Gould, Inc., another prior lessee of the site of the printed circuit manufacturing facility in Florida, were each served with a third-party complaint in June 1995, as third-party defendants in such pending Florida Lawsuit by a party who had previously been named as a defendant when the Florida Lawsuit was commenced in 1993 by the FDEP. The Florida Lawsuit seeks damages relating to environmental pollution and FDEP costs and expenses, civil penalties, and declaratory and injunctive relief to require the parties to complete assessment and remediation of soil and groundwater contamination. The other parties include alleged owners of the property and Fleet Credit Corporation, a secured lender to a prior lessee of the property. See "Item 1. Business -- Environmental Matters." In March 1993, the EPA notified Hadco Santa Clara (formerly Zycon) of its potential liability for maintenance and remediation costs in connection with a hazardous waste disposal facility operated by Casmalia Resources, a California Limited Partnership, in Santa Barbara County, California. The EPA identified Hadco Santa Clara as one of the 65 generators which had disposed the greatest amounts of materials at the site. Based on the total tonnage contributed by all generators, Hadco Santa Clara's share is estimated at approximately 0.2% of the total weight. The Casmalia site was regulated by the EPA during the period when the material was accepted. There is no allegation that Hadco Santa Clara violated any law in the disposal of material at the site, rather the EPA's actions stemmed from the fact that Casmalia Resources may not have the financial means to implement a closure plan for the site and because of Hadco Santa Clara's status as a generator of hazardous waste. In June 1997, the United States District Court in Los Angeles, California approved and entered a Consent Decree among the EPA and 49 entities (including Hadco Santa Clara) acting through the Casmalia Steering Committee (CSC). The Consent Decree sets forth the terms and conditions under which the CSC will carry out work aimed at final closure of the site. Certain closure activities will be performed by the CSC. Later work will be performed by the CSC, if funded by other parties. Under the Consent Decree, the settling parties will work with the EPA to pursue the non-settling parties to ensure they participate in contributing to the closure and long-term operation and maintenance of the facility. The EPA will continue as the lead regulatory agency during the final closure work. Because long-term maintenance plans for the site will not be determined for a number of years, it has not yet been decided which regulatory agency will oversee this phase of the work plan or how the long-term costs will be funded. However, the Consent Decree provides a mechanism for ensuring that an appropriate federal, state or local agency will assume regulatory responsibility for long-term maintenance. 11 13 The future costs in connection with the lawsuits described in the preceding paragraphs are currently indeterminable due to such factors as the unknown timing and extent of any future remedial actions which may be required, the extent of any liability of the Company and of other potentially responsible parties, and the financial resources of the other potentially responsible parties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote to the Company's security holders during the fourth quarter of the fiscal year ended October 25, 1997. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the Nasdaq National Market under the symbol "HDCO." The following table sets forth, for the periods indicated, the range of high and low sale prices for the Company's Common Stock on the Nasdaq National Market.
HIGH LOW ---- ---- Fiscal 1996 First Quarter.............................................. 34 15/16 21 1/4 Second Quarter............................................. 35 3/4 23 3/4 Third Quarter.............................................. 30 3/4 18 1/4 Fourth Quarter............................................. 34 1/8 18 1/2 Fiscal 1997 First Quarter.............................................. 59 1/8 27 3/8 Second Quarter............................................. 57 1/8 33 1/8 Third Quarter.............................................. 75 5/8 41 Fourth Quarter............................................. 73 47 1/2
The Company has never declared or paid a cash dividend on its Common Stock, and it is anticipated that the Company will continue to retain its earnings for use in its business and not pay cash dividends. Declaration of dividends is within the discretion of the Company's Board of Directors, which will review such dividend policy from time to time. The Company's amended and restated senior revolving credit loan facility with BankBoston, N.A. (the "Amended Credit Facility") currently contains a covenant prohibiting the Company from paying a cash dividend. See Note 14 of Notes to Consolidated Financial Statements. As of January 9, 1998, there were approximately 311 holders of record of the Common Stock. On January 9, 1998, the last sale price reported on the Nasdaq National Market for the Company's Common Stock was $37 31/32 per share. ITEM 6. SELECTED FINANCIAL DATA The following table presents selected consolidated financial data for Hadco and subsidiaries. The selected consolidated financial data for each of the years ended October 30, 1993, October 29, 1994, October 28, 1995, October 26, 1996 and October 25, 1997 have been derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial data 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 and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." 12 14
FISCAL YEAR ENDED ---------------------------------------------------- OCT. 30, OCT. 29, OCT. 28, OCT. 26, OCT. 25, 1993 1994 1995 1996 1997(1) -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) CONSOLIDATED STATEMENTS OF OPERATIONS: Net sales................................... $189,494 $221,570 $265,168 $350,685 $648,705 Gross profit................................ 36,645 45,518 67,440 90,455 141,392 Write-off of acquired in-process research and development........................... -- -- -- -- 78,000 Income (loss) from operations............... 13,710 16,482 33,906 51,532 (1,194) Net income (loss)........................... $ 8,227 $ 9,943 $ 21,374 $ 32,014 $(36,493) Net income (loss) per share, primary(2)..... $ .76 $ .93 $ 1.98 $ 2.89 $ (3.18) Weighted average shares outstanding(2)...... 10,819 10,720 10,806 11,084 11,458 CONSOLIDATED BALANCE SHEET DATA: Working capital............................. $ 30,593 $ 31,829 $ 41,043 $ 43,561 $ 53,693 Total assets................................ 110,782 126,326 162,991 219,501 502,517 Long-term debt and capital lease obligations, net of current portion....... 9,382 4,526 2,387 1,515 109,716 Stockholders' investment.................... 68,431 77,440 100,774 138,841 239,912
- --------------- (1) Net loss for the year ended October 25, 1997 includes a non-recurring write-off relating to the acquisition of Zycon for in-process research and development. Before deducting the non-recurring write-off, income from operations was $76,806,000, net income was $41,507,000 and net income per share was $3.48 (based on weighted average shares outstanding of approximately 11,942,000). (2) See Note 1 of Notes to the Company's Consolidated Financial Statements for an explanation of the basis used to calculate net income (loss) per share. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements which involve risks and uncertainties. Hadco Corporation 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 this Item 7 under "Factors That May Affect Future Results." Actual results may vary materially from those projected, anticipated or indicated in any forward-looking statements. In this Item 7, the words "anticipates," "believes," "expects," "intends," "future," "could," and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements. As used herein, the terms "Company" and "Hadco," unless otherwise indicated or the context otherwise requires, refer to Hadco Corporation and its subsidiaries, including Hadco Santa Clara (formerly Zycon). However, all financial information for periods ended prior to January 10, 1997, unless otherwise indicated or the context otherwise requires, is for Hadco Corporation alone and does not include Zycon. ZYCON ACQUISITION On January 10, 1997, the Company purchased Zycon. The acquisition added state-of-the-art facilities for volume production of complex printed circuits and backplane assemblies in the Silicon Valley area, a quick-turn prototype and design facility in Massachusetts, and a newly constructed facility for volume production of printed circuits in Malaysia. Hadco acquired Zycon for $212 million and recorded the acquisition under the purchase method of accounting. As a result, a purchase price premium of $187 million was recorded on the transaction. Approximately $78 million of the premium was written off as acquired in-process research and development with no alternative future use as a non-recurring write-off to net income for the year ended October 25, 1997. The remaining premium of $109 million was allocated to identifiable intangibles and goodwill, and will be written off over 12 to 30 years, with an average amortization period of 17 years. The 13 15 acquisition was financed from a $250 million senior revolving credit facility, plus existing cash and short-term investments. The gross profit margin for Zycon for the fiscal year ended December 31, 1996 was 15.7%. The gross profit margin for Hadco for the fiscal years ended October 26, 1996 and October 25, 1997 was 25.8% and 21.8%, respectively. As a result of the Zycon acquisition, the Company expects that its gross profit margin will be lower in future quarters than has historically been the case for Hadco. RESULTS OF OPERATIONS The following table sets forth certain Consolidated Statements of Operations data and other data as a percentage of net sales. The table and the discussion below should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto, that appear elsewhere in this Annual Report on Form 10-K.
FISCAL YEAR ENDED --------------------------------- OCT. OCT. 28, OCT. 26, 25, 1995 1996 1997(1) -------- -------- ------- CONSOLIDATED STATEMENTS OF OPERATIONS: Net sales........................................................ 100.0% 100.0% 100.0% Cost of sales.................................................... 74.6 74.2 78.2 ----- ----- ----- Gross profit..................................................... 25.4 25.8 21.8 Operating expenses............................................... 12.6 11.1 9.2 Write-off of acquired in-process research and development........ -- -- 12.0 Amortization of acquired intangible assets....................... -- -- 0.8 ----- ----- ----- Income (loss) from operations.................................... 12.8 14.7 (0.2) Interest income (expense) and other, net......................... .4 .3 (1.2) ----- ----- ----- Income (loss) before provision for income taxes.................. 13.2 15.0 (1.4) Provision for income taxes....................................... 5.1 5.9 4.2 ----- ----- ----- Net income (loss)................................................ 8.1% 9.1% (5.6)% ===== ===== =====
- --------------- (1) Net loss for the year ended October 25, 1997 includes a non-recurring write-off relating to the acquisition of Zycon for in-process research and development. As a percentage of net sales, income from operations was 11.8%, income before provision for income taxes was 10.7%, and net income was 6.4%, all before deducting the non-recurring write-off. Fiscal Years Ended October 25, 1997 and October 26, 1996 Net sales during 1997 increased 85% over 1996. The increase resulted from several factors including the acquisition of Zycon, which added $216.1 million in printed circuit net sales after January 10, 1997, and an increase in both backplane assembly and non-Zycon printed circuit net sales. Backplane assembly net sales increased due to higher product volume and shipments. Printed circuit net sales increased due to higher production volume and shipments and a shift towards products with more layers and greater densities. In addition, average pricing for printed circuits decreased 0.6% for 1997 over 1996. Net sales from backplane assemblies decreased to 16.2% of total net sales excluding Zycon, from 16.9% in 1996. The gross profit margin decreased to 21.8% in 1997 from 25.8% for 1996. The decrease resulted from increased investment in new capacity and technologies at certain facilities and lower overall gross margins from the Zycon operations (including ongoing start-up expenses associated with the volume production facility in Malaysia). Operating expenses, as a percent of net sales, decreased to 9.2% in 1997 from 11.1% in 1996, due to increased net sales and the fixed nature of the Company's operating expenses. The decrease was partially offset by goodwill and purchased intangibles amortization of $5,238,000. 14 16 Income from operations for 1997 was reduced by $78 million due to a non-recurring write-off relating to acquired in-process research and development recorded in connection with the Zycon acquisition. The remaining goodwill and purchased intangibles will be amortized over 12 to 30 years, with an average amortization period of 17 years, which will reduce income from operations by approximately $1.6 million per fiscal quarter. Excluding the non-recurring write-off of $78 million for acquired in-process research and development, operating margins decreased to 11.8% for 1997 from 14.7% in 1996, primarily as a result of the same factors affecting gross profit margins and from the goodwill amortization related to the Zycon acquisition. Interest income decreased in 1997 as compared to 1996 due to lower daily average cash balances available for investing. Interest expense increased in 1997 as compared to 1996 due to an increase in outstanding debt as a result of the Zycon acquisition. In accordance with generally accepted accounting principles, the Company provides for income taxes on an interim basis, using its effective annual income tax rate. Although the Company has incurred a loss before income taxes during 1997, the Company has recorded an income tax provision because the write-off of acquired in-process research and development is not deductible for income tax purposes. Without taking into consideration the write-off of acquired in-process research and development, the Company's effective annual income tax rate for 1997 was 40.0%, which is approximately equal to the combined federal and state statutory rates. The effective rate was increased by amortization of goodwill and acquired intangibles which is not tax deductible, and this item was offset by the tax benefit of the Company's foreign sales corporation and various state investment tax credits. The effective tax rate for 1997 is based on current tax laws. The Company includes in operating expenses charges for actual expenditures and accruals, based on estimates, for environmental matters. To the extent and in amounts Hadco believes circumstances warrant, it will continue to accrue and charge to operating expenses cost estimates relating to environmental matters. The Company believes the ultimate disposition of known environmental matters will not have a material adverse effect upon the liquidity, capital resources, business or consolidated financial position of the Company. However, one or more of such environmental matters could have a significant negative impact on the Company's consolidated financial results for a particular reporting period. See "Item 1. Business -- Environmental Matters," "Item 3. Legal Proceedings" and Note 9 of Notes to the Company's Consolidated Financial Statements. The Company believes that excess capacity may exist in the printed circuit and electronic assembly industries, as well as fluctuating growth rates in the electronics industry as a whole. Both factors could have a material adverse effect on future orders and pricing. Despite these beliefs regarding the electronics industry as a whole, it should be noted that the Company has historically needed to increase its own manufacturing capacity to maintain and expand its market position. However, the Company's manufacturing capacity needs could change at any time or times in the future. The Company also believes that the potential exists for a shortage of materials in such industries, which could have a material adverse effect on future unit costs. In response to such concerns, the Company engages in the normal industry practices of maintaining primary and secondary vendors and diversifying its customer base. There can be no assurances, however, that such measures would be sufficient to protect the Company against any shortages of materials. The Company is reviewing the areas within its business and operations which could be adversely affected by Year 2000 issues and evaluating the costs associated with modifying and testing its systems for the Year 2000. Although the Company is not yet able to estimate its incremental cost for Year 2000 issues, based on its preliminary review to date, the Company does not believe Year 2000 issues will have a material adverse effect on the Company's business, financial condition or results of operations. Fiscal Years Ended October 26, 1996 and October 28, 1995 Net sales during 1996 increased 32.3% over 1995. The change was due to a 15.1% increase in the volume of production and shipments and a shift in product mix to higher layer, higher density products, as compared to 1995. Average pricing per unit increased 6.1% compared to 1995. Sales of backplane and other electronic assemblies increased to 17% of the Company's net sales in 1996, versus 7% for 1995. 15 17 The gross profit margin increased to 25.8% in 1996 from 25.4% in 1995. The increase was a direct result of higher volume of shipments, an increase in the technology level of product mix, and improved pricing. These increases have been partially offset by increased costs relating to the implementation of new production lines and materials and the shift in mix to a higher level of value-added products. Operating expenses, as a percent of net sales, decreased to 11.1% during 1996 from 12.6% during 1995, due to increased revenue. Operating expenses increased to $38.9 million in 1996 from $33.5 million in 1995, primarily as a result of increased variable costs directly attributable to increased net sales. Included in operating expenses are charges for actual expenditures and accruals, based on estimates, for environmental matters. During 1996 and 1995, the Company made, and charged to operating expenses, actual payments of approximately $680,000 and $1,111,000 respectively, for environmental matters. In 1996 and 1995, the Company also accrued and charged to operating expenses approximately $1,825,000 and $2,740,000, respectively, as cost estimates relating to known environmental matters. In 1996, interest income decreased as a result of lower cash balances available for investment. Interest expense decreased in 1996 from 1995 due to decreased average debt balances during the year. The annual effective tax rate for 1996 and 1995 was 39.0%, which was less than the then current combined federal and state statutory rates. This difference was caused primarily by tax advantaged investments and the tax benefits of a foreign sales corporation. LIQUIDITY AND CAPITAL RESOURCES In fiscal 1997, the Company's financing requirements were satisfied principally from cash flows from operations, bank borrowings and the sale of Common Stock. Cash provided by operating activities was approximately $50.7 million, net bank borrowings were approximately $60.2 million, and the proceeds from the sale of Common Stock were $131.1 million. These funds were used to meet increased working capital needs and to acquire Zycon for $212 million, as well as for capital expenditures of approximately $69.0 million. At October 25, 1997, the Company had working capital of approximately $53.7 million and a current ratio of 1.48, compared to working capital of approximately $43.6 million and a current ratio of 1.62 at October 26, 1996. Cash, cash equivalents and short-term investments at October 25, 1997 were approximately $13.7 million, a decrease of $28.5 million from approximately $42.2 million at October 26, 1996. The Company currently anticipates that its capital expenditures for fiscal 1998 will be in excess of $90 million, of which approximately $17.8 million represents commitments to purchase manufacturing equipment and leasehold improvements. The majority of these capital expenditures is expected to be completed by the end of fiscal 1998. The amount of these anticipated capital expenditures will frequently change based on future changes in business plans and conditions of the Company and changes in economic conditions. In January 1997, the Company obtained a senior revolving credit loan facility for up to $250 million from BankBoston, N.A. (the "Credit Facility") (i) primarily to finance the purchase of the shares of Common Stock of Zycon pursuant to the tender offer commenced by the Company on December 11, 1996, (ii) to refinance Zycon's existing bank credit agreements, and (iii) for working capital and other general corporate purposes. At October 25, 1997, $100 million was outstanding under the Credit Facility. In December 1997, the Company negotiated a new $400 million senior revolving credit loan facility with BankBoston, N.A., which amends and restates the Credit Facility (the "Amended Credit Facility"). Interest on loans outstanding under the Amended Credit Facility is, at the Company's election, payable at either (1) the higher of the lender's base rate or a floating rate equal to 1.5% over the prevailing U.S. federal funds rate, or (2) a Eurodollar Rate, which is a fixed rate equal to an applicable Eurodollar rate margin plus the prevailing Eurodollar rate for interest periods of one, two, three or six months. The Amended Credit Facility matures in January 2002. The Company believes its existing working capital and borrowing capacity, coupled with the funds generated from the Company's operations will be sufficient to fund its anticipated working capital, capital expenditure and debt payment requirements through fiscal 1998. Because the Company's capital requirements cannot be predicted with certainty, however, there is no assurance that the Company will not require 16 18 additional financing during this period. There is no assurance that any additional financing will be available on terms satisfactory to the Company or not disadvantageous to the Company's security holders. FACTORS THAT MAY AFFECT FUTURE RESULTS This Annual Report on Form 10-K contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, without limitation, those set forth in the following risk factors and elsewhere in this Annual Report on Form 10-K. In addition to the other information included, the following risk factors should be considered carefully in evaluating the Company and its business. Dependence on Electronics Industry The Company's principal customers are electronics OEMs and contract manufacturers in the computing (mainly workstations, servers, mainframes, storage and notebooks), data communications/telecommunications and industrial automation industries, including process controls, automotive, medical and instrumentation. These industry segments, and the electronics industry as a whole, are characterized by intense competition, relatively short product life-cycles and significant fluctuations in product demand. In addition, the electronics industry is generally subject to rapid technological change and product obsolescence. Discontinuance or modifications of products containing components manufactured by the Company could have a material adverse effect on the Company's business, financial condition and results of operations. Further, the electronics industry is subject to economic cycles and has in the past experienced, and is likely in the future to experience, recessionary periods. A recession or any other event leading to excess capacity or a downturn in the electronics industry would likely result in intensified price competition, reduced gross margins and a decrease in unit volume, all of which would have a material adverse effect on the Company's business, financial condition and results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," "Item 1. Business -- Industry Overview" and "Item 1. Business -- Markets and Customers." Fluctuations in Quarterly Operating Results The Company's quarterly operating results have varied and may continue to fluctuate significantly. At times in the past, the Company's net sales and net income have decreased from the prior quarter. Operating results are affected by a number of factors, including the timing and volume of orders from and shipments to customers relative to the Company's manufacturing capacity, level of product and price competition, product mix, the number of working days in a particular quarter, trends in the electronics industry and general economic factors. In recent years, the Company's gross margins have varied primarily as a result of capacity utilization, product mix, lead times, volume levels and complexity of customer orders. There can be no assurance that the Company will be able to manage the utilization of manufacturing capacity or product mix in a manner that would maintain or improve gross margins or the Company's business, financial condition and results of operations. The timing and volume of orders placed by the Company's customers vary due to customer attempts to manage inventory, changes in customers' manufacturing strategies and variation in demand for customer products. An interruption in manufacturing resulting from shortages of parts or equipment, fire, earthquake or other natural disaster, equipment failure or otherwise would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's expense levels are relatively fixed and are based, in part, on expectations of future revenues. Consequently, if revenue levels are below expectations, this occurrence is likely to materially adversely affect the Company's business, financial condition and results of operations. Results of operations in any period are not necessarily indicative of the results to be expected for any future period. Due to all of the foregoing factors, it is possible that in some future quarter the Company's operating results may be below the expectations of public market analysts and investors. Such an event could have a material adverse effect on the price of the Company's Common Stock. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." 17 19 Variability of Orders The level and timing of orders placed by the Company's customers vary due to a number of factors, including customer attempts to manage inventory, changes in the customers' manufacturing strategies and variation in demand for customer products due to, among other things, technological change, new product introductions, product life-cycles, competitive conditions or general economic conditions. Since the Company generally does not obtain long-term purchase orders or commitments from its customers, it must anticipate the future volume of orders based on discussions with its customers. A substantial portion of sales in a given quarter may depend on obtaining orders for products to be manufactured and shipped in the same quarter in which those orders are received. The Company relies on its estimate of anticipated future volumes when making commitments regarding the level of business that it will seek and accept, the mix of products that it intends to manufacture, the timing of production schedules and the levels and utilization of personnel and other resources. A variety of conditions, both specific to the individual customer and generally affecting the customer's industry, may cause customers to cancel, reduce or delay orders that were previously made or anticipated. A significant portion of the Company's released backlog at any time may be subject to cancellation or postponement without penalty. The Company cannot assure the timely replacement of canceled, delayed or reduced orders. Significant or numerous cancellations, reductions or delays in orders by a customer or group of customers could materially adversely affect the Company's business, financial condition and results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 1. Business -- Released Backlog." Acquisitions The Company acquired 100% of the capital stock of Zycon, a manufacturer of electronic interconnect products, on January 10, 1997 (the "Zycon acquisition"). Zycon currently operates as a wholly-owned subsidiary of the Company under the name Hadco Santa Clara, Inc. The Company has limited experience in integrating acquired companies or technologies into its operations. Therefore, there can be no assurance that the Company will operate the acquired business profitably in the future. Contemporaneous with the Zycon acquisition, nine senior management personnel of Zycon were terminated. There can be no assurance that the Company will not be materially adversely affected by such terminations or that the Company will be able to retain key personnel at Zycon. Accordingly, operating expenses associated with the acquired business may have a material adverse effect on the Company's business, financial condition and results of operations in the future. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 1. Business -- General." The Company may from time to time pursue the acquisition of other companies, assets, products or technologies. The Company may incur additional indebtedness in connection with a future business acquisition, and the incurrence of substantial amounts of debt in connection with future acquisitions could increase the risk of the Company's operations. If the Company's cash flow and existing working capital are not sufficient to fund its general working capital requirements or to service its indebtedness, the Company would have to raise additional funds through the sale of its equity securities, the refinancing of all or part of its indebtedness or the sale of assets or subsidiaries. There can be no assurance that any of these sources of funds would be available in amounts sufficient for the Company to meet its obligations. The cost of debt financing may also impair the ability of the Company to maintain adequate working capital or to make future acquisitions. In addition, the issuance of additional shares of Common Stock in connection with future acquisitions could be dilutive to existing investors. Acquisitions involve a number of operating risks that could materially adversely affect the Company's operating results, including the diversion of management's attention to assimilate the operations, products and personnel of the acquired companies, the amortization of acquired intangible assets, and the potential loss of key employees of the acquired companies. Furthermore, acquisitions may involve businesses in which the Company lacks experience. There can be no assurance that the Company will be able to manage one or more acquisitions successfully, or that the Company will be able to integrate the operations, products or personnel gained through any such acquisitions without a material adverse effect on the Company's business, financial condition and results of operations. 18 20 Competition The electronic interconnect industry is highly fragmented and characterized by intense competition. The Company believes that its major competitors are the large U.S. and international independent and captive producers that also manufacture multilayer printed circuits and provide backplane and other electronic assemblies. Some of these competitors have significantly greater financial, technical and marketing resources, greater name recognition and a larger installed customer base than the Company. In addition, these competitors may have the ability to respond more quickly to new or emerging technologies, may adapt more quickly to changes in customer requirements and may devote greater resources to the development, promotion and sale of their products than the Company. During periods of recession or economic slowdown in the electronics industry and other periods when excess capacity exists, electronics OEMs become more price sensitive, which could have a material adverse effect on interconnect pricing. In addition, the Company believes that price competition from printed circuit manufacturers in Asia and other locations with lower production costs may play an increasing role in the printed circuit markets in which the Company competes. This price competition from Asian printed circuit manufacturers may intensify in times of Asian economic turmoil, currency devaluations or financial market instability, such as many Asian countries are currently experiencing. Moreover, the Company's basic interconnect technology is generally not subject to significant proprietary protection, and companies with significant resources or international operations may enter the market. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations. The demand for printed circuits has continued to be affected by the development of smaller, more powerful electronic components requiring less printed circuit area. Expansion of the Company's existing products or services could expose the Company to new competition. Moreover, new developments in the electronics industry could render existing technology obsolete or less competitive and could potentially introduce new competition into the industry. There can be no assurance that the Company will continue to compete successfully against present and future competitors or that competitive pressures faced by the Company will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Item 1. Business -- Industry Overview." Technological Change, Process Development and Process Disruption The market for the Company's products and services is characterized by rapidly changing technology and continuing process development. The future success of the Company's business will depend in large part upon its ability to maintain and enhance its technological capabilities, develop and market products and services that meet changing customer needs and successfully anticipate or respond to technological changes, on a cost-effective and timely basis. In addition, the electronic interconnect industry could in the future encounter competition from new technologies that render existing electronic interconnect technology less competitive or obsolete, including technologies that may reduce the number of printed circuits required in electronic components. There can be no assurance that the Company will effectively respond to the technological requirements of the changing market. To the extent the Company determines that new technologies and equipment are required to remain competitive, the development, acquisition and implementation of such technologies and equipment are likely to continue to require significant capital investment by the Company. There can be no assurance that capital will be available for this purpose in the future or that investments in new technologies will result in commercially viable technological processes or that there will be commercial applications for these technologies. Moreover, the Company's business involves highly complex manufacturing processes that have in the past and could in the future be subject to periodic failure or disruption. Process disruptions can result in delays in certain product shipments. There can be no assurance that failures or disruptions will not occur in the future. The loss of revenue and earnings to the Company from such a technological change, process development or process disruption, as well as any disruption of the Company's operations resulting from a natural disaster such as an earthquake, fire or flood, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Item 1. Business -- Industry Overview," and "Item 1. Business -- Products and Services." 19 21 Malaysia Facility Hadco Santa Clara (formerly Zycon) completed construction of a volume manufacturing facility for printed circuits in Malaysia in fiscal 1997. Hadco's management has no experience in operating foreign manufacturing facilities, and there can be no assurance that the Company will operate the new facility on a profitable basis. The Company expects that the Malaysia facility may continue to incur operating losses during future quarters of operations as a result of various factors, including, without limitation, initial operating inefficiencies, other start-up costs, and price competition for the products which the Company intends to produce at the new facility. International operations are also subject to a number of risks, including unforeseen changes in regulatory requirements, exchange rates, tariffs and other trade barriers, misappropriation of intellectual property, currency fluctuations, and political and economic instability. Malaysia and other Asian countries have recently experienced economic turmoil and a significant devaluation of their local currencies. There can be no assurance that this period of Asian economic turmoil will not result in increased price competition, restrictions on the transfer of funds overseas, employee turnover, labor unrest, the reversal of current policies encouraging foreign investment and trade, or other domestic Asian economic problems that could materially adversely affect the Company. Therefore, there can be no assurance that economic problems in Malaysia or other Asian countries will not have a material adverse impact on the Company's business, financial condition or results of operations. Customer Concentration During the past several years, the Company's sales to a small number of its customers have accounted for a significant percentage of the Company's annual net sales. During fiscal 1995, 1996 and 1997, the Company's ten largest customers accounted for approximately 46%, 48% and 47% of net sales, respectively, and 43% in fiscal 1996 on a pro forma basis including Zycon. In fiscal 1997, Solectron accounted for approximately 15% of the net sales of the Company. The Company generally does not obtain long-term purchase orders or commitments from its customers, and the orders received by the Company generally require delivery within 90 days. Given the Company's strategy of developing long-term purchasing relationships with high growth companies, the Company's dependence on a number of its most significant customers may increase. There can be no assurance that the Company will be able to identify, attract and retain customers with high growth rates or that the customers that it does attract and retain will continue to grow. Although there can be no assurance that the Company's principal customers will continue to purchase products and services from the Company at current levels, the Company expects to continue to depend upon its principal customers for a significant portion of its net sales. The loss of or decrease in orders from one or more major customers could have a material adverse effect on the Company's business, financial condition and results of operations. See "Item 1. Business -- Markets and Customers" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors that May Affect Future Results -- Variability of Orders." Manufacturing Capacity The Company believes its long-term competitive position depends in part on its ability to increase manufacturing capacity. The Company may obtain such additional capacity through acquisitions or expansion of its current facilities. Either approach would require substantial additional capital, and there can be no assurance that such capital will be available from cash generated by current operations. Further, there can be no assurance that the Company will be able to acquire sufficient capacity or successfully integrate and manage such additional facilities. In addition, the Company's expansion of its manufacturing capacity has significantly increased and will continue to significantly increase its fixed costs, and the future profitability of the Company will depend on its ability to utilize its manufacturing capacity in an effective manner. The failure to obtain sufficient capacity or to successfully integrate and manage additional manufacturing facilities could adversely affect the Company's relationships with its customers and materially adversely affect the Company's business, financial condition and results of operations. The Company has a large manufacturing facility in Santa Clara, California, and an earthquake or other natural disaster in that area that results in an interruption of manufacturing at such facility would have a material adverse effect on the Company's business, financial condition and results of operations. See "Item 2. Manufacturing and Facilities." 20 22 Management of Growth The Company has initiated significant expansion, including geographic expansion, of its operations, which has placed, and will continue to place, significant demands on the Company's management, operational, technical and financial resources. These demands are compounded by the Zycon acquisition. The Company expects that expansion will require additional management personnel and the development of further expertise by existing management personnel. The Company's ability to manage growth effectively, particularly given the increasing scope of its operations, will require it to continue to implement and improve its operational, financial and management information systems as well as to further develop the management skills of its managers and supervisors and to train, motivate and manage its employees. The Company's failure to effectively manage future growth, if any, could have a material adverse effect on the Company's business, financial condition and results of operations. Competition for personnel is intense, and there can be no assurance that the Company will be able to attract, assimilate or retain additional highly qualified employees in the future, especially engineering personnel. The failure to hire and retain such personnel could have a material adverse effect on the Company's business, financial condition and results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors that May Affect Future Results -- Acquisitions." Environmental Matters The Company is subject to a variety of local, state and federal environmental laws and regulations relating to the storage, use, discharge and disposal of chemicals, solid waste and other hazardous materials used during its manufacturing process, as well as air quality regulations and restrictions on water use. When violations of environmental laws occur, the Company can be held liable for damages and the costs of remedial actions and can also be subject to revocation of permits necessary to conduct its business. Any such revocations could require the Company to cease or limit production at one or more of its facilities, which could have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, the Company's failure to comply with present and future regulations could restrict the Company's ability to expand its facilities or could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violation. The Company operates in several environmentally sensitive locations and is subject to potentially conflicting and changing regulatory agendas of political, business and environmental groups. Changes or restrictions on discharge limits, emissions levels, or material storage or handling might require a high level of unplanned capital investment and/or relocation. There can be no assurance that compliance with new or existing regulations will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Item 1. Business -- Environmental Matters," "Item 3. Legal Proceedings" and Note 9 of Notes to the Company's Consolidated Financial Statements. Availability of Raw Materials and Components While the Company has not entered into any supply agreements and does not have any guaranteed sources of raw materials or components, it routinely purchases raw materials and components from several key material suppliers. Although alternative material suppliers are currently available, a significant unplanned event at a major supplier could have a material adverse effect on the Company's operations. Hadco Santa Clara has experienced shortages of certain types of raw materials in the past. The potential exists for shortages of certain types of raw materials or components and any such future shortages or price fluctuations in raw materials could have a material adverse effect on the Company's manufacturing operations and future unit costs, thereby materially adversely affecting the Company's business, financial condition and results of operations. Product changes and the overall demand for electronic interconnect products could increase the industry's use of new laminate materials, standard laminate materials, multilayer blanks, electronic components and other materials, and therefore such materials may not be readily available to the Company in the future. Electronic components used by the Company in producing backplane assemblies are purchased by the 21 23 Company and, in certain circumstances, the Company may bear the risk of component price fluctuations. There can be no assurance that shortages of certain types of electronic components will not occur in the future. Component shortages or price fluctuations could have a material adverse effect on the Company's backplane assembly business, thereby materially adversely affecting the Company's business, financial condition and results of operations. To the extent that the Company's backplane assembly business expands as a percentage of the Company's net sales, component shortages and price fluctuations could, to a greater extent, materially adversely affect the Company's business, financial condition and results of operations. See "Item 1. Business -- Supplier Relationships." Dependence on Key Personnel The Company's future success depends to a large extent upon the continued services of key managerial and technical employees, none of whom, except for the President/Chief Executive Officer, is bound by an employment agreement or a non-competition agreement. The President/Chief Executive Officer's non- competition agreement is for one year after the termination of his employment with the Company. The loss of the services of any of the Company's key employees could have a material adverse effect on the Company. The Company believes that its future success depends on its continuing ability to attract and retain highly qualified technical, managerial and marketing personnel. Competition for such personnel is intense, especially for engineering personnel, and there can be no assurance that the Company will be able to attract, assimilate or retain such personnel. If the Company is unable to hire and retain key personnel, the Company's business, financial condition and results of operations may be materially adversely affected. See "Item 1. Business -- Executive Officers of the Registrant." Intellectual Property The Company's success depends in part on its proprietary techniques and manufacturing expertise, particularly in the area of complex multilayer printed circuits. The Company has few patents and relies primarily on trade secret protection of its intellectual property. There can be no assurance that the Company will be able to protect its trade secrets or that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets. In addition, litigation may be necessary to protect the Company's trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of patent infringement. If any infringement claim is asserted against the Company, the Company may seek to obtain a license of the other party's intellectual property rights. There is no assurance that a license would be available on reasonable terms or at all. Litigation with respect to patents or other intellectual property matters could result in substantial costs and diversion of management and other resources and could have a material adverse effect on the Company's business, financial condition and results of operations. Volatility of Stock Price The Company's Common Stock has experienced significant price volatility historically, and such volatility may continue to occur in the future. Factors such as announcements of large customer orders, order cancellations, new product introductions by the Company or competitors or general conditions in the electronics industry, as well as quarterly variations in the Company's actual or anticipated results of operations, may cause the market price of the Company's Common Stock to fluctuate significantly. Furthermore, the stock market has experienced extreme price and volume fluctuations in recent years, which has had a substantial effect on the market price for securities issued by many technology companies, often for reasons unrelated to the operating performance of the specific companies. These broad market fluctuations may materially adversely affect the price of the Company's Common Stock. There can be no assurance that the market price of the Company's Common Stock will not experience significant fluctuations in the future, including fluctuations that are unrelated to the Company's performance. 22 24 Anti-Takeover Provisions The Company's Stockholder Rights Plan and certain provisions of the Company's Restated Articles of Organization and By-Laws and of Massachusetts Law, including Massachusetts General Laws Chapter 110D, entitled "Regulation of Control Share Acquisitions" and Chapter 110F, the so-called Business Combination Statute, could discourage potential acquisition proposals and could delay or prevent a change in control or sale of the Company. Each and all of the above provisions and statutes could diminish the opportunities for a stockholder to participate in tender offers, including tender offers at a price above the then current market value of Common Stock and may render more difficult or discourage a merger, consolidation or tender offer (even if such transaction is supported by the Company's Board of Directors or is favorable to the stockholders), the assumption of control by a holder of a large block of the Company's shares, and the removal of incumbent management. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements and the Report of Independent Public Accountants thereon are presented in the following pages. The Consolidated Financial Statements filed in Item 8 are as follows: Report of Independent Public Accountants. Consolidated Statements of Operations for the years ended October 25, 1997, October 26, 1996 and October 28, 1995. Consolidated Balance Sheets as of October 25, 1997 and October 26, 1996. Consolidated Statements of Stockholders' Investment for the years ended October 25, 1997, October 26, 1996 and October 28, 1995. Consolidated Statements of Cash Flows for the years ended October 25, 1997, October 26, 1996 and October 28, 1995. Notes to Consolidated Financial Statements. 23 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Hadco Corporation: We have audited the accompanying consolidated balance sheets of Hadco Corporation (a Massachusetts corporation) and subsidiaries as of October 25, 1997 and October 26, 1996, and the related consolidated statements of operations, stockholders' investment and cash flows for each of the three years in the period ended October 25, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hadco Corporation and subsidiaries as of October 25, 1997 and October 26, 1996, and the results of their operations and their cash flows for each of the three years in the period ended October 25, 1997, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein, in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts November 14, 1997 (except for the matter discussed in Note 14, as to which the date is December 9, 1997) 24 26 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED ------------------------------------------- OCTOBER 28, OCTOBER 26, OCTOBER 25, 1995 1996 1997 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) Net Sales................................................. $265,168 $350,685 $648,705 Cost of Sales............................................. 197,728 260,230 507,313 -------- -------- -------- Gross Profit.............................................. 67,440 90,455 141,392 Operating Expenses........................................ 33,534 38,923 64,586 Write-off of Acquired In-Process Research and Development............................................. -- -- 78,000 -------- -------- -------- Income (Loss) From Operations............................. 33,906 51,532 (1,194) Interest and Other Income................................. 1,669 1,287 3,296 Interest Expense.......................................... (537) (338) (10,923) -------- -------- -------- Income (Loss) Before Provision for Income Taxes........... 35,038 52,481 (8,821) Provision for Income Taxes................................ 13,664 20,467 27,672 -------- -------- -------- Net Income (Loss)......................................... $ 21,374 $ 32,014 $(36,493) ======== ======== ======== Net Income (Loss) Per Share............................... $ 1.98 $ 2.89 $ (3.18) ======== ======== ======== Weighted Average Shares Outstanding....................... 10,806 11,084 11,458 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 25 27 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
OCTOBER 26, OCTOBER 25, 1996 1997 ----------- ----------- (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS Current Assets: Cash and cash equivalents........................................ $ 32,786 $ 12,171 Short-term investments........................................... 9,401 1,562 Accounts receivable, net of allowance for doubtful accounts of $1,100 in 1996 and $1,700 in 1997, respectively................. 40,622 92,222 Inventories...................................................... 21,786 46,000 Deferred tax asset............................................... 7,483 10,483 Prepaid expenses and other current assets........................ 1,483 4,245 -------- -------- Total current assets........................................ 113,561 166,683 Property, Plant and Equipment, net.................................... 103,735 231,490 Deferred Tax Asset.................................................... 2,117 -- Acquired Intangible Assets, net....................................... -- 101,131 Other Assets.......................................................... 88 3,213 -------- -------- $219,501 $502,517 ======== ======== LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Short-term debt, current portion of long-term debt and capital lease obligations............................................... $ 1,907 $ 5,064 Accounts payable................................................. 42,265 68,594 Accrued payroll and other employee benefits...................... 17,592 28,279 Accrued taxes.................................................... -- 1,775 Other accrued expenses........................................... 8,236 9,278 -------- -------- Total current liabilities................................... 70,000 112,990 -------- -------- Long-term Debt and Capital Lease Obligations, net of current portion............................................................. 1,515 109,716 -------- -------- Deferred Tax Liability................................................ -- 30,685 -------- -------- Other Long-term Liabilities........................................... 9,145 9,214 -------- -------- Commitments and Contingencies (Note 9) Stockholders' Investment: Common stock, $.05 par value; Authorized -- 25,000 shares Issued and outstanding -- 10,382 shares in 1996 and 13,086 shares in 1997......................................................... 521 655 Paid-in Capital....................................................... 30,939 168,246 Deferred Compensation................................................. (240) (117) Retained Earnings..................................................... 107,621 71,128 -------- -------- Total stockholders' investment.............................. 138,841 239,912 -------- -------- $219,501 $502,517 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 26 28 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
COMMON STOCK ---------------------- NUMBER $.05 PAR PAID-IN DEFERRED RETAINED OF SHARES VALUE CAPITAL COMPENSATION EARNINGS --------- -------- -------- ------------ -------- (IN THOUSANDS) Balance, October 29, 1994............ 9,738 $487 $ 22,763 $ (731) $ 54,921 Terminated stock options........... -- -- (37) 37 -- Exercise of stock options.......... 529 16 1,079 -- -- Tax benefit of exercise of nonqualified stock options...... -- -- 1,597 -- -- Compensation expense associated with granting nonqualified stock options......................... -- -- -- 287 -- Purchase and retirement of common stock........................... (328) (6) (325) -- (688) Net income......................... -- -- -- -- 21,374 ------ ---- -------- ----- -------- Balance, October 28, 1995............ 9,939 497 25,077 (407) 75,607 Terminated stock options........... -- -- (13) 13 -- Exercise of stock options.......... 443 24 1,714 -- -- Tax benefit of exercise of nonqualified stock options...... -- -- 4,161 -- -- Compensation expense associated with granting nonqualified stock options......................... -- -- -- 154 -- Net income......................... -- -- -- -- 32,014 ------ ---- -------- ----- -------- Balance, October 26, 1996............ 10,382 521 30,939 (240) 107,621 Terminated stock options........... -- -- (2) 2 -- Exercise of stock options.......... 263 12 1,291 -- -- Tax benefit of exercise of nonqualified stock options...... -- -- 5,052 -- -- Compensation expense associated with granting nonqualified stock options......................... -- -- -- 121 -- Sale of common shares in stock offering, net of offering costs of $1,033....................... 2,442 122 130,966 -- -- Net loss........................... -- -- -- -- (36,493) ------ ---- -------- ----- -------- Balance, October 25, 1997............ 13,087 $655 $168,246 $ (117) $ 71,128 ====== ==== ======== ===== ========
The accompanying notes are an integral part of these consolidated financial statements. 27 29 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED ----------------------------------------- OCTOBER 28, OCTOBER 26, OCTOBER 25, 1995 1996 1997 ----------- ----------- ----------- (IN THOUSANDS) Cash Flows from Operating Activities: Net income (loss).................................................. $ 21,374 $ 32,014 $ (36,493) Adjustments to reconcile net income (loss) to net cash provided by operating activities -- Write off of acquired in-process research and development........ -- -- 78,000 Depreciation, amortization, deferred compensation and deferred taxes.......................................................... 11,218 17,330 40,972 Gain on sale of fixed assets..................................... (415) (205) (1,862) Changes in assets and liabilities, net of acquisition of Zycon Corporation -- Increase in accounts receivable................................ (10,485) (4,825) (26,762) Increase in inventories........................................ (3,009) (8,482) (12,824) (Increase) decrease in prepaid expenses and other expenses..... (364) 213 308 Decrease in other assets....................................... 25 33 385 Increase in accounts payable and accrued expenses.............. 15,291 17,720 8,873 Increase in long-term liabilities.............................. 2,714 1,831 70 -------- -------- --------- Net cash provided by operating activities................... 36,349 55,629 50,667 -------- -------- --------- Cash Flows from Investing Activities: Purchases of short-term investments................................ (15,464) (8,402) (19,862) Maturities of short-term investments............................... 12,796 14,168 27,701 Purchases of property, plant and equipment......................... (28,865) (53,966) (69,851) Proceeds from sale of property, plant and equipment................ 429 290 2,760 Acquisition of Zycon Corporation, net of cash acquired of $2,824... -- -- (209,661) -------- -------- --------- Net cash used in investing activities....................... (31,104) (47,910) (268,913) -------- -------- --------- Cash Flows from Financing Activities: Principal payments under capital lease obligations................. (2,584) (2,047) (1,498) Principal payments of long-term debt............................... (2,091) (92) (163,268) Proceeds from issuance of long-term debt........................... -- -- 224,954 Proceeds from exercise of stock options............................ 1,095 1,738 1,303 Proceeds from stock offering, net of issuance costs................ -- -- 131,088 Tax benefit from exercise of options............................... 1,597 4,161 5,052 Purchase and retirement of common stock............................ (1,019) -- -- -------- -------- --------- Net cash (used in) provided by financing activities......... (3,002) 3,760 197,631 -------- -------- --------- Net Increase (Decrease) in Cash and Cash Equivalents................. 2,243 11,479 (20,615) Cash and Cash Equivalents, Beginning of Period....................... 19,064 21,307 32,786 -------- -------- --------- Cash and Cash Equivalents, End of Period............................. $ 21,307 $ 32,786 $ 12,171 ======== ======== ========= Supplemental Schedule of Noncash Investing and Financing Activities: Machinery and equipment acquired under capital lease obligations... $ -- $ 1,032 $ -- ======== ======== ========= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for -- Interest........................ $ 576 $ 279 $ 10,270 ======== ======== ========= Income taxes (net of refunds)...................................... $ 13,609 $ 16,794 $ 21,099 ======== ======== ========= Acquisition of Zycon Corporation: Fair value of assets acquired...................................... $ 206,009 Liabilities assumed................................................ (112,393) Cash paid.......................................................... (204,885) Acquisition costs incurred......................................... (7,600) Write-off of acquired in-process research and development.......... 78,000 --------- Goodwill........................................................... $ (40,869) =========
The accompanying notes are an integral part of these consolidated financial statements. 28 30 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Hadco Corporation's (the "Company") principal products are complex multilayer rigid printed circuits and backplane assemblies. The consolidated financial statements reflect the application of certain accounting policies as described in this Note and elsewhere in the accompanying notes to consolidated financial statements. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents and Short-Term Investments The Company considers all highly liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. Short-term investments are carried at cost, which approximates market, and have maturities of less than one year. Cash equivalents consist of approximately $29,696,000 and $9,850,000 for the years ended October 1996 and 1997, respectively. The Company classifies its investments in corporate and government debt securities as held-to-maturity given the Company's intent and ability to hold the securities to maturity. In accordance with the statement, held-to-maturity securities are carried at amortized cost. The Company's investments in held-to-maturity securities are as follows:
1996 1997 --------------- --------------- FAIR FAIR MARKET MARKET COST VALUE COST VALUE MATURITY ------ ------ ------ ------ -------------- (IN THOUSANDS) US Government Securities......... $1,000 $ 999 $ -- $ -- within 1 year State and Local Securities....... 5,270 5,271 -- -- within 1 year Corporate Debt Securities........ 3,131 3,069 -- -- within 1 year Certificate of Deposit........... -- -- 1,562 1,562 within 1 year ------ ------ ------ ------ $9,401 $9,339 $1,562 $1,562 ====== ====== ====== ======
The Company has no financial instruments requiring disclosure under Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 119, Disclosure About Derivative Financial Instruments and Fair Value of the Financial Instruments. Concentration of Credit Risk SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. As of October 25, 1997, the Company has no significant off-balance-sheet 29 31 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) concentrations of credit risk such as foreign currency exchange contracts or other hedging arrangements. Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, short-term investments and trade accounts receivable. The Company maintains the majority of its cash and investment balances with financial institutions. The Company has not experienced any losses on these investments to date. Substantially all of the Company's accounts receivable are concentrated in the high technology and electronics industry. The Company has not experienced significant losses related to receivables from individual customers or groups of customers in the high technology and electronics industry or by geographic region. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be inherent in the Company's accounts receivable. Depreciation and Amortization of Property, Plant and Equipment The Company provides for depreciation and amortization by charges to operations in amounts that allocate the cost of property, plant and equipment on a straight-line basis over the following estimated useful lives:
ESTIMATED ASSET CLASSIFICATION USEFUL LIFE -------------------- ----------- Land betterments....................................... 10-18 Years Buildings and improvements............................. 10-40 Years Machinery and equipment................................ 3-10 Years Furniture and fixtures................................. 5-7 Years Computer software...................................... 3 Years Vehicles............................................... 3-5 Years Capital leases......................................... Lease term
Net Income (Loss) per Share Net income (loss) per share was computed based on the weighted average number of common and common equivalent shares outstanding during each period. Common equivalent shares include outstanding stock options and are included when dilutive. Fully diluted net income (loss) per share has not been separately presented as it would not be materially different from net income (loss) per share as presented. Revenue Recognition The Company recognizes revenue at the time products are shipped. Research and Development Expenses The Company charges research and development expenses to operations as incurred. For the fiscal years ended October 1995, 1996 and 1997, research and development expenses were approximately $2,945,000, $4,307,000, and $6,929,000, respectively, and are included in operating expenses. Stock Based Compensation The Company has adopted SFAS No. 123, Accounting for Stock-Based Compensation, in fiscal 1997. SFAS No. 123 defines a fair-value-based method of accounting for employee stock options and other stock-based compensation. The compensation expense arising from this method of accounting can be reflected in the financial statements or, alternatively, the pro forma net income and earnings per share effect of the fair-value-based accounting can be disclosed in the financial footnotes. The Company has adopted the disclosure-only alternative. (See Note 10). 30 32 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Foreign Currency Translation The functional currency of the Company's Malaysian subsidiary is the United States dollar. Accordingly, all remeasurement gains and losses resulting from transactions denominated in currencies other than United States dollars are included in the consolidated statements of operations in accordance with SFAS No. 52, Foreign Currency Translation. To date, the resulting gains and losses have not been material. Reclassification The Company has reclassified certain prior year information to conform with the current year's presentation. New Accounting Standards In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, Earnings per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share and applies to entities with publicly traded common stock or potential common stock. This statement is effective for fiscal years ending after December 15, 1997, and early adoption is not permitted. When adopted, the statement will require restatement of prior years' earnings per share. The Company will adopt this statement for its first quarter of fiscal 1998. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 requires disclosure of all components of comprehensive income on an annual and interim basis. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. The Company will adopt this statement for its fiscal year ending October 1999. In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. SFAS No. 131 requires certain financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. Unless impracticable, companies would be required to restate prior period information upon adoption. The Company will adopt this statement for its fiscal year ending October 1999. (2) ACQUISITION OF ZYCON On January 10, 1997, the Company acquired substantially all of the outstanding common stock of Zycon Corporation ("Zycon"). The acquisition was financed by a new bank credit facility of up to $250,000,000, of which the Company borrowed approximately $215,000,000, upon consummation of the acquisition (see Note 7). The acquisition was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16, and accordingly, Zycon's operating results since January 10, 1997 are included in the accompanying consolidated financial statements. In accordance with APB Opinion No. 16, the Company allocated the purchase price based on the fair value of assets acquired and liabilities assumed. A significant portion of the purchase price, as described below, was identified in an independent appraisal as intangible assets using proven valuation procedures and techniques, including approximately $78,000,000 of in-process research and development ("in-process R&D"). Acquired intangibles include developed technology, customer relationships, assembled workforce and trade names/trademarks. These intangibles are being amortized over their estimated useful lives of 12 to 30 years. The portion of the purchase price allocated to the in-process R&D projects that did not have a future alternative use totaled $78,000,000 and was charged to expense as of the acquisition date. Due to a difference in the bases of certain assets for financial statement and income tax purposes, deferred income taxes of $26,200,000 have been provided as part of the purchase price allocation in accordance with SFAS No. 109. 31 33 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The aggregate purchase price of $212,485,000, including acquisition costs, was allocated as follows:
(IN THOUSANDS) -------------- Current assets......................................... $ 41,790 Property, plant and equipment.......................... 95,193 Acquired intangibles................................... 65,500 In-process R&D......................................... 78,000 Other assets........................................... 3,526 Goodwill............................................... 40,869 Liabilities assumed.................................... (112,393) --------- $ 212,485 =========
Unaudited pro forma operating results for the Company, assuming the acquisition of Zycon occurred on October 29, 1995 are as follows:
YEAR ENDED YEAR ENDED OCTOBER 26, OCTOBER 25, 1996 1997 ----------- ----------- (IN THOUSANDS EXCEPT PER SHARE DATA) Net sales.......................................... $ 570,345 $ 709,715 Net income......................................... 27,222 40,567 Net income per share............................... 2.46 3.40
For purposes of these pro forma operating results, the in-process R&D was assumed to have been written off prior to October 29, 1995, so that the operating results presented include only recurring costs. (3) INVENTORIES Inventories are stated at the lower of cost, first-in, first-out (FIFO), or market and consist of the following:
1996 1997 ------- ------- (IN THOUSANDS) Raw materials............................................ $ 8,008 $14,167 Work-in-process.......................................... 13,778 31,833 ------- ------- $21,786 $46,000 ======= =======
The work-in-process consists of materials, labor and manufacturing overhead. 32 34 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (4) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
1996 1997 --------- --------- (IN THOUSANDS) Land betterments..................................... $ 1,991 $ 2,174 Buildings and improvements........................... 52,961 74,172 Construction-in-progress............................. 22,543 38,716 Machinery and equipment.............................. 126,878 262,113 Furniture and fixtures............................... 14,082 18,611 Computer software.................................... 2,662 3,152 Vehicles............................................. 159 626 Capital leases....................................... 14,972 45,154 --------- --------- 236,248 444,718 Accumulated depreciation and amortization............ (132,513) (213,228) --------- --------- $ 103,735 $ 231,490 ========= =========
(5) INTANGIBLE ASSETS The Company assesses the realizability of intangible assets in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Under SFAS No. 121, the Company is required to assess the valuation of its long-lived assets, including intangible assets, based on the estimated cash flows to be generated by such assets. Based on its most recent analysis, the Company believes that no material impairment of intangible assets exists as of October 25, 1997. Intangible assets are amortized on a straight-line basis, based on their estimated lives, as follows:
ESTIMATED LIFE OCTOBER 25, 1997 -------------- ---------------- (IN THOUSANDS) Developed technology............................ 12 years $ 30,000 Customer relationships.......................... 25 years 19,000 Assembled workforce............................. 12 years 10,000 Trade names/trademarks.......................... 30 years 6,500 Goodwill........................................ 20 years 40,869 -------- 106,369 Less -- Accumulated amortization................ (5,238) -------- $101,131 ========
33 35 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (6) INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. The provision for income taxes shown in the accompanying consolidated statements of operations is comprised of the following:
YEARS ENDED OCTOBER ------------------------------- 1995 1996 1997 ------- ------- ------- (IN THOUSANDS) Federal Current..................................................... $14,331 $18,341 $24,072 Deferred.................................................... (2,954) (1,206) 1,369 ------- ------- ------- 11,377 17,135 25,441 ------- ------- ------- State Current..................................................... 2,928 3,611 2,273 Deferred.................................................... (641) (279) (42) ------- ------- ------- 2,287 3,332 2,231 ------- ------- ------- $13,664 $20,467 $27,672 ======= ======= =======
The tax rate used in the computation of the provision for federal and state income taxes differs from the statutory federal and state rates due to the following:
1995 1996 1997(1) ---- ---- ---- Provision for statutory rate........................... 34.0% 34.0% 35.0% Increase in tax resulting from -- state income taxes, net of federal tax benefit........................... 4.5 4.4 4.3 Tax-exempt interest income............................. (0.5) (0.4) (0.3) Other, net............................................. 1.0 1.0 1.0 ---- ---- ---- Provision for income taxes........................... 39.0% 39.0% 40.0% ==== ==== ====
- --------------- (1) Calculated based on pre-tax income, before non-deductible charges for in-process research and development, of $69.2 million for 1997. In accordance with generally accepted accounting principles, the Company provides for income taxes using its effective annual income tax rate. Although the Company has incurred a loss before income taxes during the year ended October 25, 1997, the Company has recorded an income tax provision because the write-off of in-process R&D is not deductible for income tax purposes. Without taking into consideration the write-off of in-process R&D, the effective annual income tax rate for fiscal 1997 is 40%, which is approximately equal to the expected combined federal and state statutory rates. The effective rate is increased by amortization of goodwill and acquired intangibles which is not tax deductible, and this item was offset by the tax benefit of the Company's Foreign Sales Corporation and various state investment tax credits. 34 36 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The deferred provision for income taxes results from the following:
1995 1996 1997 ------- ------- ------- (IN THOUSANDS) Difference between book and tax depreciation................................ $ (144) $ (46) $ 1,939 Deferred compensation......................... 73 266 146 Amortization of acquired intangible assets.... -- -- (1,210) Reserves and expenses recognized in different periods for book and tax purposes........... (3,506) (1,658) 480 Other, net.................................... (18) (47) (28) ------- ------- ------- $(3,595) $(1,485) $ 1,327 ======= ======= =======
The tax effects of temporary differences that give rise to significant portions of the current and long-term deferred tax assets and liabilities at October 26, 1996 and October 25, 1997 are as follows:
1996 1997 ------- -------- (IN THOUSANDS) Deferred Tax Assets -- Not currently deductible reserves..................... $ 7,475 $ 11,592 Not currently deductible environmental accruals....... 3,907 4,127 Deferred compensation plans........................... 275 1,140 ------- -------- Total gross deferred tax assets............... 11,657 16,859 Less -- valuation allowance........................... (137) (54) ------- -------- 11,520 16,805 Deferred Tax Liability -- Acquisition related intangibles....................... -- (24,096) Property, plant and equipment, principally due to differences in depreciation........................ (1,920) (12,911) ------- -------- Net deferred tax asset (liability)............ $ 9,600 $(20,202) ======= ========
Due to the uncertainty relating to the actual value of the favorable tax benefits of deferred compensation from stock options, the Company has recorded a valuation allowance of approximately $137,000 and $54,000 as of October 26, 1996 and October 25, 1997, respectively. The decrease of this allowance for the year ended October 25, 1997 is a result of the decrease in the deferred tax asset relating to deferred compensation. (7) LINES OF CREDIT In connection with the Zycon acquisition discussed in Note 2, the Company entered into a $250,000,000 unsecured Revolving Credit Agreement (the "Agreement") with a bank. The Agreement provides for direct borrowings or letters of credit and expires January 8, 2002. Borrowings under the Agreement bear interest, at the Company's option, at either; (i) the Eurodollar rate plus a margin ranging between .5% and 1.125%, based on a certain financial ratio of the Company, or (ii) the Base Rate, as defined. The Company is required to pay a quarterly commitment fee ranging from .2% to .375%, based on a certain financial ratio of the Company, of the unused commitment under the Agreement. If the Company obtains certain debt financing, as defined, the bank may require the Company to repay up to $150,000,000 of amounts outstanding under the Agreement. At October 25, 1997, borrowings of $100,000,000 were outstanding under the Agreement at a weighted average interest rate of 6.26%. The Agreement places several restrictions on the Company, including limitations on mergers, acquisitions and sales of a substantial portion of its assets, as well as certain limitations on liens, guarantees, additional 35 37 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) borrowings, changes in the Company's capitalization, as defined, and investments. The Agreement also requires the Company to maintain certain financial covenants, including minimum levels of consolidated net worth, a maximum ratio of funded debt to EBITDA, maximum capital expenditures and interest coverage, as defined, during the term of the Agreement. At October 25, 1997, the Company was in compliance with all loan covenants. On December 9, 1997, the line of credit agreement was amended and restated to increase the total line of credit available (See Note 14). The Company has a line of credit arrangement with a Malaysian bank denominated in Malaysian ringgits and U.S. dollars for aggregate borrowings of approximately $4.0 million for the purpose of acquiring land, facilities and equipment for the Company's Malaysian subsidiary. The arrangement is renewable annually. At October 25, 1997, there are no amounts outstanding under this arrangement. (8) LONG-TERM DEBT Long-term debt consists of the following:
OCTOBER ------------------- 1996 1997 ------ ------ (IN THOUSANDS) Loan agreements in connection with the expansion of a building. The loans bear interest at rates from 1% to 7% through March 2011 and are collateralized by property and an irrevocable letter of credit. Payments of principal and interest are due quarterly............ $ 916 $ 820 Revolving credit agreement (Note 7)...................... -- 100,000 Obligations under capital leases......................... 2,506 13,960 ------ -------- 3,422 114,780 Less -- Current portion.................................. 1,907 5,064 ------ -------- $1,515 $109,716 ====== ========
Maturities of long-term debt and capital lease obligations are as follows as of October 25, 1997:
Year Ending October -- AMOUNT -------- 1998.................................................... $ 5,064 1999.................................................... 4,008 2000.................................................... 2,506 2001.................................................... 2,221 2002.................................................... 100,710 Thereafter.............................................. 271 -------- $114,780 ========
36 38 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases manufacturing equipment and space under noncancelable operating leases with terms expiring through 2009. Future minimum lease payments under these leases as of October 25, 1997 (in thousands) are as follows:
REAL EQUIPMENT ESTATE TOTAL --------- ------- ------- (IN THOUSANDS) Year Ending October -- 1998....................................... $123 $ 5,500 $ 5,623 1999....................................... 9 5,371 5,380 2000....................................... -- 4,894 4,894 2001....................................... -- 4,558 4,558 2002....................................... -- 4,670 4,670 Thereafter................................. -- 29,665 29,665 ---- ------- ------- Future minimum lease payments........... $132 $54,658 $54,790 ==== ======= =======
Total rental expense of approximately $1,447,000, $1,434,000 and $6,628,000 was incurred for the fiscal years ended October 1995, 1996 and 1997, respectively. These operating leases include office and manufacturing space leased from a partnership in which the Chairman of the Board has an interest. Two of the leases are for terms of five years, and expire in October 2000 with options to extend until October 2006. The remaining lease expires in March 2000 with options to extend until 2006. For the fiscal years ended October 1995, 1996 and 1997, the related rental expense was approximately $479,000, $529,000 and $533,000, respectively. Environmental Matters During March 1995, the Company received a Record of Decision ("ROD") from the New York State Department of Environmental Conservation ("NYSDEC"), regarding soil and groundwater contamination at its Owego, New York facility. Based on a Remedial Investigation and Feasibility Study ("RIFS") for apparent on-site contamination at that facility and a Focused Feasibility Study ("FFS"), each prepared by environmental consultants of the Company, the NYSDEC has approved a remediation program of groundwater withdrawal and treatment and iterative soil flushing. The Company recently executed a Modification of the Order on Consent to implement the approved ROD. The cost, based upon the FFS, to implement this remediation is estimated to be $4.6 million, and is expected to be expended as follows: $260,000 for capital equipment and $4.3 million for operation and maintenance costs which will be incurred and expended over the estimated life of the program of 30 years. NYSDEC has requested that the Company consider taking additional samples from a wetland area near the Company's Owego facility. Analytical reports of earlier sediment samples indicated the presence of certain inorganics. There can be no assurance that the Company and/or other third parties will not be required to conduct additional investigations and remediation at that location, the costs of which are currently indeterminable due to the numerous variables described in the fifth paragraph of this Environmental Matters note. From 1974 to 1980, the Company operated a printed circuit manufacturing facility in Florida as a lessee of property that is now the subject of a pending lawsuit (the "Florida Lawsuit") and investigation by the Florida Department of Environmental Protection ("FDEP"). On June 9, 1992, the Company entered into a Cooperating Parties Agreement in which it and Gould, Inc., another prior lessee of the site, have agreed to fund certain assessment and feasibility study activities at the site, and an environmental consultant has been 37 39 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) retained to perform such activities. The cost of such activities is not expected to be material to the Company. In addition to the Cooperating Parties Agreement, Hadco and others are participating in alternative dispute resolution regarding the site with an independent mediator. In connection with the mediation, in February 1992 the FDEP presented computer-generated estimates of remedial costs, for activities expected to be spread over a number of years, that ranged from approximately $3.3 million to $9.7 million. Mediation sessions were conducted in March 1992 but have been suspended during the ongoing assessment and feasibility activities. Management believes it is likely that it will participate in implementing a continuing remedial program for the site, the costs of which are currently unknown. Also see the seventh paragraph of this Environmental Matters Note relating to the Company's having been named as a third-party defendant in the Florida Lawsuit. The Company has commenced the operation of a groundwater extraction system at its Derry, New Hampshire facility to address certain groundwater contamination and migration control issues. Further investigation is underway to determine the areal extent of the groundwater contaminant plume. Because of the uncertainty regarding both the quantity of contaminants beneath the building at the site and the long-term effectiveness of the groundwater migration control system the Company has installed, it is not possible to make a reliable estimate of the length of time remedial activity will have to be performed. However, it is anticipated that the groundwater extraction system will be operated for at least 30 years. There can be no assurance that the Company will not be required to conduct additional investigations and remediation relating to the Derry facility. The total costs of such groundwater extraction system and of conducting any additional investigations and remediation relating to the Derry facility are not fully determinable due to the numerous variables described in the fifth paragraph of this Environmental Matters note. Included in operating expenses are charges for actual expenditures and accruals, based on estimates, for environmental matters. During fiscal 1995, 1996 and 1997, the Company made, and charged to operating expenses, actual payments of approximately $1,111,000, $680,000 and $296,000, respectively, for environmental matters. In 1995 and 1996, the Company also accrued and charged to operating expenses approximately $2,740,000 and $1,825,000, respectively, as cost estimates for environmental matters. The Company accrues estimated costs associated with known environmental matters, when such costs can be reasonably estimated. The cost estimates relating to future environmental clean-up are subject to numerous variables, the effects of which can be difficult to measure, including the stage of the environmental investigations, the nature of potential remedies, possible joint and several liability, the magnitude of possible contamination, the difficulty of determining future liability, the time over which remediation might occur, and the possible effects of changing laws and regulations. The total reserve for environmental matters currently identified by the Company amounted to $10.0 million at October 26, 1996 and $10.6 million at October 25, 1997. The current portion of these costs amounted to approximately $900,000 as of October 26, 1996 and $1.4 million as of October 25, 1997, and is included in Other accrued expenses. The long-term portion of these costs amounted to approximately $9.1 million and $9.2 million as of October 26, 1996 and October 25, 1997, respectively, and is reported under the caption Other Long-Term Liabilities. Based on its assessment at the current time, management estimates the cost of ultimate disposition of the above known environmental matters to range from approximately $7.0 million to $12.0 million, and is expected to be spread over a number of years. Management believes the ultimate disposition of the above known environmental matters will not have a material adverse effect on the liquidity, capital resources, business or consolidated financial position of the Company. However, one or more of such environmental matters could have a significant negative impact on the Company's consolidated financial results for a particular reporting period. The Company is one of 33 entities which have been named as potentially responsible parties in a lawsuit pending in the federal district court of New Hampshire concerning environmental conditions at the Auburn Road, Londonderry, New Hampshire landfill site. Local, state and federal entities and certain other parties to the litigation seek contribution for past costs, totaling approximately $20 million, allegedly incurred to assess and remedy the Auburn Road site. In December 1996, following publication and comment period, the U.S. 38 40 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Environmental Protection Agency (EPA) amended the ROD to change the remedy at the Auburn Road site from active groundwater remediation to future monitoring. Other parties to the lawsuit also allege that future monitoring will be required. The Company is contesting liability, but is participating in mediation with 27 other parties in an effort to resolve the lawsuit. In connection with the Florida Lawsuit (as described in the second paragraph of this Environmental Matters section), pending in the Circuit Court of Broward County, Florida, Hadco and Gould, Inc., another prior lessee of the site of the printed circuit manufacturing facility in Florida, was each served with a third-party complaint in June 1995, as third-party defendants in such pending Florida Lawsuit by a party who had previously been named as a defendant when the Florida Lawsuit was commenced in 1993 by the FDEP. The Florida Lawsuit seeks damages relating to environmental pollution and FDEP costs and expenses, civil penalties, and declaratory and injunctive relief to require the parties to complete assessment and remediation of soil and groundwater contamination. The other parties include alleged owners of the property and Fleet Credit Corporation, a secured lender to a prior lessee of the property. In March 1993, the EPA notified Hadco Santa Clara (formerly Zycon) of its potential liability for maintenance and remediation costs in connection with a hazardous waste disposal facility operated by Casmalia Resources, a California Limited Partnership, in Santa Barbara County, California. The EPA identified Hadco Santa Clara as one of the 65 generators which had disposed the greatest amounts of materials at the site. Based on the total tonnage contributed by all generators, Hadco Santa Clara's share is estimated at approximately 0.2% of the total weight. The Casmalia site was regulated by the EPA during the period when the material was accepted. There is no allegation that Hadco Santa Clara violated any law in the disposal of material at the site, rather the EPA's actions stemmed from the fact that Casmalia Resources may not have the financial means to implement a closure plan for the site and because of Hadco Santa Clara's status as a generator of hazardous waste. In June 1997, the United States District Court in Los Angeles, California approved and entered a Consent Decree among the EPA and 49 entities (including Hadco Santa Clara) acting through the Casmalia Steering Committee ("CSC"). The Consent Decree sets forth the terms and conditions under which the CSC will carry out work aimed at final closure of the site. Certain closure activities will be performed by the CSC. Later work will be performed by the CSC, if funded by other parties. Under the Consent Decree, the settling parties will work with the EPA to pursue the non-settling parties to ensure they participate in contributing to the closure and long-term operation and maintenance of the facility. The future costs in connection with the lawsuits described in the above paragraphs are currently indeterminable due to such factors as the unknown timing and extent of any future remedial actions which may be required, the extent of any liability of the Company and of other potentially responsible parties, and the financial resources of the other potentially responsible parties. Management currently believes, based on the facts currently known to it, that it is probable that the ultimate dispositions of the above lawsuits will not have a material adverse effect on the Company's business and financial condition; however, there can be no assurance that this will be the case. Purchase Commitments The Company had commitments to purchase approximately $16,497,000 of manufacturing equipment and approximately $1,289,000 of leasehold improvements as of October 25, 1997. The majority of these commitments is expected to be completed by the end of fiscal 1998. 39 41 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (10) STOCKHOLDERS' INVESTMENT Stock Options The following table summarizes stock option activity with respect to the nonqualified stock options:
WEIGHTED NUMBER EXERCISE AVERAGE OF SHARES PRICE RANGE EXERCISE PRICE ------------ ---------------- -------------- (IN THOUSANDS) Outstanding, October 29, 1994.... 1,690 $ 2.00 -- $ 9.00 $ 4.78 Options granted................ 223 8.50 -- 25.69 9.39 Options exercised.............. (320) 2.00 -- 11.06 3.61 Options canceled............... (147) 2.10 -- 8.81 7.91 ----- ---------------- ------ Outstanding, October 28, 1995.... 1,446 2.00 -- 25.69 5.44 Options granted................ 150 27.00 -- 31.50 30.98 Options exercised.............. (443) 2.00 -- 11.06 3.92 Options canceled............... (45) 2.00 -- 31.50 6.75 ----- ---------------- ------ Outstanding, October 26, 1996.... 1,108 2.00 -- 31.50 9.45 Options granted................ 265 45.31 -- 67.00 48.52 Options exercised.............. (261) 2.00 -- 31.50 4.98 Options canceled............... (42) 2.00 -- 51.88 19.68 ----- ---------------- ------ Outstanding, October 25, 1997.... 1,070 $ 2.10 -- $67.00 $19.87 ===== ================ ======
The following table summarizes information about stock options outstanding at October 25, 1997:
WEIGHTED AVERAGE REMAINING WEIGHTED CONTRACT AVERAGE RANGE OF OPTIONS LIFE EXERCISE EXERCISE PRICES OUTSTANDING (YEARS) PRICE --------------- ----------- --------- -------- 2.10 -- 3.15............................. 88,830 1.2 $ 2.60 3.38 -- 4.00............................. 97,595 2.6 3.73 4.94 -- 6.69............................. 83,120 4.2 5.15 8.00 -- 12.00............................. 406,500 6.3 8.79 17.19................................. 1,750 7.6 17.19 27.00 -- 31.50............................. 136,975 7.9 30.93 47.44 -- 67.00............................. 255,250 8.8 48.56 --------- ------ 1,070,020 $19.87 ========= ======
40 42 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information about stock options exercisable at October 25, 1997:
WEIGHTED AVERAGE RANGE OF OPTIONS EXERCISE EXERCISE PRICES EXERCISABLE PRICE ------------------------------------------------------- ----------- -------- 2.10 -- 3.15......................................... 88,830 $ 2.60 3.38 -- 4.00......................................... 82,755 3.68 4.94 -- 6.69......................................... 50,520 5.20 8.00 -- 12.00......................................... 130,675 8.97 17.19............................................. -- -- 27.00 -- 31.50......................................... 17,220 29.85 47.44 -- 67.00......................................... 9,000 46.02 ------- ------ Exercisable October 25, 1997........................... 379,000 $ 7.65 ======= ====== Exercisable October 26, 1996........................... 506,885 $ 4.52 ======= ====== Exercisable October 28, 1995........................... 830,516 $ 4.71 ======= ======
The Company has reserved as of October 25, 1997, a total of 2,005,270 shares of common stock for issuance under the nonqualified stock option plans listed in the above charts. During fiscal 1995, 1996 and 1997, approximately $287,000, $154,000 and $121,000, respectively, were charged against income as compensation expense associated with the granting of these options. The Company has computed the pro forma disclosures required under SFAS No. 123 using the Black-Scholes option pricing model. The assumptions used, weighted average information and the pro forma effect of applying SFAS No. 123 for the years ended October 26, 1996 and October 25, 1997 are as follows:
1996 1997 ------------ ------------ Risk-free interest rates.................................... 6.20% -- 6.73% 6.20% -- 6.66% Expected dividend yield..................................... -- -- Expected lives.............................................. 6.53 years 6.77 years Expected volatility......................................... 43.6% 43.6% Weighted average grant-date fair value of options granted during the period, net of an estimated termination rate of 32.70%.................................................... $24.54 $26.51 Weighted average exercise price of options granted during the period, net of an estimated termination rate of 32.70%.................................................... $45.26 $48.15 Weighted average remaining contractual life of options outstanding............................................... 8.92 years 8.66 years Weighted average exercise price of 506,885 and 379,000 options exercisable at October 26, 1996 and October 25, 1997, respectively........................................ $4.52 $7.65 Pro forma net income (loss)................................. $31,802 $(37,088) Pro forma net income (loss) per share....................... $2.87 $(3.24)
The Company has the following nonqualified stock option plans: December 1985 Plan and December 1986 Plan The options under these plans are exercisable immediately, and have various vesting periods up to 10 years according to each individual option agreement with an expiration date no later than 10 years and 90 days from the date of grant. Upon termination of employment under certain circumstances, the Company may, at its option, repurchase the exercised but unvested shares at the original purchase price. The Board of Directors has determined to make no further grants under these plans. 41 43 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) September 1990 Plan This plan provides for the granting of options at a price equal to the fair market value at the date of grant. The options vest over periods of up to seven years and become exercisable according to each option agreement, and they expire no later than 10 years from the date of grant. The Board of Directors has determined to make no further grants under this plan. December 1991 Director Plan This plan originally provided for the granting of options to purchase up to 150,000 shares of common stock at a price equal to the fair market value at the date of grant. These options are exercisable ratably over a five-year period and expire no later than seven years from the date of grant. This plan has been amended to (i) increase the number of shares available to 300,000, (ii) provide that any current non-employee director who had five years of service in such capacity on February 26, 1997 be automatically granted, on such date and on each anniversary of service thereafter, a vested option to purchase 3,000 shares and (iii) provide that any current non-employee director who did not have five years of service in such capacity on February 26, 1997 and any future non-employee director each be automatically granted, on the date such non-employee director achieves five years of service in such capacity and on each anniversary of service thereafter, a vested option to purchase 3,000 shares. November 1995 Plan This plan provides for the granting of options to purchase up to 1,000,000 shares of common stock at a price equal to fair market value at the date of grant. The options vest according to each option agreement and they expire no later than 10 years from the date of grant. STOCKHOLDER RIGHTS PLAN The Company adopted a Stockholder Rights Plan in August 1995 pursuant to which the Company declared the distribution of one Common Stock Purchase Right ("Right") for each share of outstanding common stock. Under certain conditions, each Right may be exercised for one share of common stock at an exercise price of $130, subject to adjustment. Under circumstances defined in the Stockholder Rights Plan, the Rights entitle holders to purchase stock having a value of twice the exercise price of the Rights. Until they become exercisable, the Rights are not transferable apart from the common stock. The Rights may be redeemed by the Company at any time prior to the occurrence of certain events at $.01 per Right. The Stockholder Rights Plan will expire on September 11, 2005, unless the Rights are earlier redeemed by the Company. (11) RETIREMENT PLAN The Hadco Corporation Retirement Plan (the "Plan"), as amended, covers all employees with at least six months of continuous service, as defined. Annual profit sharing contributions are determined at the discretion of the Board of Directors but cannot exceed the amount allowable for federal income tax purposes. The Company made profit sharing contributions of $2,285,000, $3,335,000 and $4,016,000 to the Plan for the years ended October 1995, 1996 and 1997, respectively. The Plan permits participants to elect to have contributions made to the Plan in the form of reductions in salary under Section 401(k) of the Internal Revenue Code subject to limitations set out in the Plan. Under the Plan, the Company will match employee contributions up to a set percentage. Employee contributions become vested when made, and Company contributions become vested at the rate of 33 1/3 for each year of service with the Company. The Company matched employee contributions in the amount of approximately $600,000, $736,000 and $834,000 during fiscal 1995, 1996 and 1997, respectively. 42 44 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (12) QUARTERLY RESULTS (UNAUDITED) The following summarized unaudited results of operations for the fiscal quarters in the years ended October 1996 and 1997 have been accounted for using generally accepted principles for interim reporting purposes and include adjustments (consisting of normal recurring adjustments) that the Company considers necessary for the fair presentation of results for these interim periods.
1996 1997 ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) First Fiscal Quarter -- Net sales............................................................. $76,481 $111,536 Gross profit.......................................................... 20,463 26,377 Net income (loss)..................................................... 7,191 (69,161) Net income (loss) per share........................................... .65 (6.64) Weighted average shares outstanding................................... 11,104 10,413 Second Fiscal Quarter -- Net sales............................................................. $88,096 $180,662 Gross profit.......................................................... 22,951 38,463 Net income............................................................ 7,895 9,953 Net income per share.................................................. .71 .91 Weighted average shares outstanding................................... 11,135 10,956 Third Fiscal Quarter -- Net sales............................................................. $88,225 $183,274 Gross profit.......................................................... 22,419 39,254 Net income............................................................ 7,994 11,369 Net income per share.................................................. .72 .93 Weighted average shares outstanding................................... 11,100 12,254 Fourth Fiscal Quarter -- Net sales............................................................. $97,883 $173,233 Gross profit.......................................................... 24,623 37,298 Net income............................................................ 8,934 11,346 Net income per share.................................................. .81 .84 Weighted average shares outstanding................................... 11,008 13,528
(13) CUSTOMERS During fiscal year 1995, no customer accounted for more than 7% of consolidated net sales. During fiscal years 1996 and 1997, one customer accounted for 15% of consolidated net sales. The Company's five largest customers accounted for 28%, 34% and 34% of consolidated net sales during fiscal 1995, 1996 and 1997, respectively. (14) SUBSEQUENT EVENT In December 1997, the Company completed an amendment and restatement of its Credit Facility with BankBoston, N.A. as agent bank, and a 15 bank syndication. The original Credit Facility was finalized in January 1997, for $250 million. The amended and restated Credit Facility became effective December 9, 1997 and provides for a line of credit up to $400 million. As of December 9, 1997, the Company had $100 million borrowed under the original facility. The maturity of the facility is January 2002, and was not changed in the amendment and restatement. Changes to the original facility include increased limits on other indebtedness as well as replacing the annual capital expenditures limitation with a coverage ratio test. The Company expects to utilize this facility for general corporate purposes, including working capital, capital expenditures and future acquisitions. 43 45 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable PART III Anything herein to the contrary notwithstanding, in no event whatsoever are the sections entitled "Stock Performance Graph" and "Joint Stock Option and Compensation Committee Report on Executive Compensation" to be incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on March 4, 1998. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information relating to directors and executive officers of the Company is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on March 4, 1998, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended October 25, 1997. ITEM 11. EXECUTIVE COMPENSATION Certain information relating to remuneration of directors and executive officers and other transactions involving management is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on March 4, 1998, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended October 25, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Certain information relating to security ownership of certain beneficial owners and management is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on March 4, 1998, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended October 25, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain information relating to certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on March 4, 1998, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended October 25, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS: The following consolidated financial statements are included in Item 8: Report of Independent Public Accountants. Consolidated Statements of Operations for the years ended October 25, 1997, October 26, 1996 and October 28, 1995. Consolidated Balance Sheets as of October 25, 1997 and October 26, 1996. 44 46 Consolidated Statements of Stockholders' Investment for the years ended October 25, 1997, October 26, 1996 and October 28, 1995. Consolidated Statements of Cash Flows for the years ended October 25, 1997, October 26, 1996 and October 28, 1995. Notes to Consolidated Financial Statements. 2. FINANCIAL STATEMENT SCHEDULES: The following consolidated financial statement schedules are included in Item 14(b): SCHEDULES II -- Valuation and Qualifying Accounts. Schedules other than those listed above have been omitted since they are either not required or the information is otherwise included. 3. LISTING OF EXHIBITS:
EXHIBIT - ------- 3.1 -- Restated Articles of Organization of Registrant (filed as Exhibit 3.1 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 3.2 -- By-laws of Registrant, as amended (filed as Exhibit 3.2 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 4 -- Description of Capital Stock, contained in Article 4 of Registrant's Restated Articles of Organization (filed as Exhibit 3.1 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). *10.1 -- Registrant's December 5, 1986 Non-Qualified Stock Option Plan (filed as Exhibit 10.7 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). *10.3 -- Profit Sharing Plan and Trust of Registrant, as amended through December 9, 1988 and restated effective January 1, 1988 (filed as Exhibit 10.22 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 29, 1988 and incorporated herein by reference). 10.4 -- Indenture of Lease dated September 15, 1980 among Nash Family Investment Properties and Tamposi Family Investment Properties and CIII, as amended (filed as Exhibit 10.64 to Registration Statement No. 2-86810 on Form S-1 and incorporated herein by reference). *10.5 -- Registrant's December 6, 1985 Non-Qualified Stock Option Plan (filed as Exhibit 10.56 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 26, 1985 and incorporated herein by reference). 10.6 -- Form of Stock Option Agreement under Registrant's December 6, 1985 Non-Qualified Stock Option Plan (filed as Exhibit 10.42 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1987 and incorporated herein by reference). 10.7 -- Amendment dated as of January 9, 1986 to Lease between Registrant and Lupe Burgstrom dated April 30, 1984 (filed as Exhibit 10.79 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). 10.8 -- Amendment dated as of January 9, 1986 to Lease between Registrant and Freedom Associates dated May 17, 1985 (filed as Exhibit 10.80 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). 10.9 -- Amendment dated as of March 7, 1986 to Lease between Registrant and Freedom Associates dated December 23, 1980 (filed as Exhibit 10.81 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference).
45 47
EXHIBIT - ------- *10.12 -- Registrant's Non-Qualified Stock Option Plan of December 31, 1987 (filed as Exhibit 10.66 to Annual Report on Form 10-K, File No. 0-12102, for the year Ended October 31, 1987 and incorporated herein by reference). *10.13 -- Form of Stock Option Agreement under Registrant's Non-Qualified Stock Option Plan of December 31, 1987 (filed as Exhibit 10.67 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1987 and incorporated herein by reference). 10.15 -- Lease dated July 15, 1988 between Registrant and C&M Associates I (filed as Exhibit 10.67 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 29, 1988 and incorporated herein by reference). *10.16 -- Registrant's Non-Qualified Stock Option Plan of September 7, 1990 (filed as Exhibit 10.67 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 27, 1990 and incorporated herein by reference). *10.17 -- Form of Stock Option Agreement under Registrant's Non-Qualified Stock Option Plan of September 7, 1990 (filed as Exhibit 10.68 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 27, 1990 and incorporated herein by reference). *10.18 -- Amendment to Profit Sharing Plan and Trust of Registrant dated June 19, 1990 (filed as Exhibit 10.75 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 27, 1990 and incorporated herein by reference). 10.19 -- Loan Agreement by and between Registrant and New York State Urban Development Corporation ("NYSUDC"); Mortgage between Registrant and Tioga, Note between Registrant and NYSUDC; all dated as of April 10, 1991 (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1991 and incorporated herein by reference). *10.20 -- Registrant's 1991 Non-Employee Director Stock Option Plan, as amended (filed as Exhibit 1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 2, 1992 and incorporated herein by reference). *10.21 -- Form of Stock Option Agreement under Registrant's 1991 Non-Employee Director Stock Option Plan (filed as Exhibit 10.82 to Annual Report on Form 10-K , File No. 0-12102, for the year ended October 26, 1991 and incorporated herein by reference). 10.22 -- Lease dated March 1, 1992 between Registrant and Equity (filed as Exhibit 10.65 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1992 and incorporated herein by reference). *10.23 -- Amendment to Retirement Plan of Registrant dated March 10, 1993 (filed as Exhibit 10.48 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 30, 1993 and incorporated herein by reference). *10.24 -- Amendment to Retirement Plan of Registrant dated September 10, 1993 (filed as Exhibit 10.49 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 30, 1993 and incorporated herein by reference). *10.25 -- Employment Agreement between Registrant and Andrew E. Lietz dated as of January 21, 1994 (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended January 29, 1994 and incorporated herein by reference). 10.26 -- Amendment dated January 15, 1995 to Lease between Registrant and Nash Family Investment Properties and Tamposi Family Investment Properties and CIII (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended January 28, 1995 and incorporated herein by reference). 10.27 -- Lease dated January 13, 1995 between Registrant and Nash Family Investment Properties and Ballinger Properties d/b/a Sagamore Industrial Properties (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended January 28, 1995 and incorporated herein by reference). 10.28 -- Rights Agreement dated as of August 22, 1995 between the Registrant and the First National Bank of Boston (filed as Exhibit 4.1 to Current Report on Form 8-K, File No. 0-12102, dated August 22, 1995 and incorporated herein by reference).
46 48
EXHIBIT - ------- *10.29 -- Agreement dated as of August 14, 1995 between the Registrant and Patrick Sweeney (filed as Exhibit 10.49 to Annual Report on Form 10-K, File No. 0-12102, for year ended October 28, 1995 and incorporated herein by reference). 10.33 -- Amendment to lease dated March 1, 1992 between Registrant and Equity Property Associates I (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). 10.34 -- Lease dated November 1, 1995 between Registrant and Equity Property Associates I (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). 10.35 -- Lease dated November 1, 1995 between Registrant and Equity Property Associates I (filed as Exhibit 10.3 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). 10.36 -- Amendment to lease dated March 1, 1992 between Registrant and Equity Property Associates I (filed as Exhibit 10.4 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). 10.37 -- Revolving Credit Agreement dated July 10, 1996 between Registrant and The First National Bank of Boston (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended July 27, 1996 and incorporated herein by reference). 10.38 -- Agreement and Plan of Merger dated as of December 4, 1996 among the Registrant, Hadco Acquisition Corp. and Zycon Corporation (filed as Exhibit (c) (1) to the Schedule 14D-1 filed by the Registrant on December 11, 1996 and incorporated herein by reference). 10.39 -- Stockholders Agreement dated December 4, 1996 among Registrant and the parties named therein filed as Exhibit (c) (2) to the Schedule 14D-1 (filed by the Registrant on December 11, 1996 and incorporated herein by reference). 10.40 -- Revolving Credit Agreement dated as of January 8, 1997 between the Registrant and the First National Bank of Boston ("the Revolving Credit Agreement") (filed as Exhibit 10.40 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 26, 1996 and incorporated herein by reference). *10.41 -- Officer and Business Unit Manager Bonus Plan (filed as Exhibit 10.41 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 26, 1996 and incorporated herein by reference). *10.42 -- Executive Incentive Compensation Deferred Bonus Plan (filed as Exhibit 10.42 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 26, 1996 and incorporated herein by reference). *10.43 -- Amended and Restated 1991 Non-Employee Director Stock Option Plan of Registrant as of December 3, 1996. *10.44 -- Amendments to Retirement Plan of Registrant dated September 15, 1997. 10.45 -- Amended and Restated Revolving Credit Agreement dated as of December 9, 1997 between the Registrant and BankBoston, N.A. 10.46 -- Leases for premises located at 435-445 El Camino Real, Santa Clara, California, by and between Zycon Corporation and University Research Center and addenda thereto dated March 1, 1988; July 8, 1988; February 27, 1989; August 30, 1989; May 19, 1993; and August 9, 1993 (filed as Exhibit 10.1 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.47 -- Provisional Lease dated November 14, 1995 for the premises located at the Muara Tebas Land of Kuching East Malaysia by and between Sudarsono Osman and Zycon Corporation Sendirian Berhad (filed as Exhibit 10.2 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.48 -- Construction Agreement dated August 3, 1995 by and between Zycon Corporation and Hiti Engineering Sdn.Bhd. (filed as Exhibit 10.3 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference).
47 49
EXHIBIT - ------- 10.49 -- Facilities Agreement dated February 9, 1996 by and among Zycon Corporation Sdn.Bhd., Bank Bumiputra Malaysia Berhad and BBMB Kewangan Berhad (filed as Exhibit 10.4 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.50 -- Corporate Guarantee dated February 9, 1996 issued by Zycon Corporation in favor of Bank Bumiputra Malaysia Berhad and BBMB Kewangan Berhad (filed as Exhibit 10.5 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.51 -- Lease for the three acre premises located in Santa Clara, California by and between Zycon Corporation and Sobrato Interests III, dated January 4, 1996 (filed as Exhibit 10.6 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). *10.52 -- Profit Sharing Plan and Trust of Registrant, as amended and restated effective January 1, 1988 and as amended June 20, 1990 (filed as Exhibit 10.7 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.53 -- First Amendment and Modification Agreement by and among the Registrant and The First National Bank of Boston (the "Bank of Boston") dated as of February 27, 1997 amending the Revolving Credit Agreement (filed as Exhibit 10.8 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.54 -- Form of Assignment and Acceptance to Revolving Credit Agreement (filed as Exhibit 10.9 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 11 -- Statement Re: Computation of Per Share Earnings. 21 -- Subsidiaries of the Registrant. 24 -- Consent of Arthur Andersen LLP. 27 -- Financial Data Schedule.
(*) Indicates a management contract or any compensatory plan, contract or arrangement required to be filed as an exhibit pursuant to Item 14(c). (B) REPORTS ON FORM 8-K None (C) EXHIBITS The Company hereby files as part of this 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, N.W., Washington, D.C. 20549, at prescribed rates. (D) FINANCIAL STATEMENT SCHEDULES The Company hereby files as part of this Form 10-K in Item 14(b) attached hereto the consolidated financial statement schedules listed in Item 14(a)(2) above. 48 50 SIGNATURES Pursuant to the requirement 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. HADCO CORPORATION By: /s/ ANDREW E. LIETZ ------------------------------------ Andrew E. Lietz, President Chief Executive Officer and Director Dated: January 9, 1998 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.
SIGNATURE TITLE DATE - ------------------------------ ---------------------------------------- ----------------- /s/ HORACE H. IRVINE II Chairman of the Board and Director January 9, 1998 - ------------------------------ (Horace H. Irvine II) /s/ ANDREW E. LIETZ President, Chief Executive Officer and January 9, 1998 - ------------------------------ Director (Principal Executive Officer) (Andrew E. Lietz) /s/ TIMOTHY P. LOSIK Senior Vice President, Treasurer and January 9, 1998 - ------------------------------ Chief Financial Officer (Principal (Timothy P. Losik) Financial Officer and Principal Accounting Officer) /s/ J. STANLEY HILL Director January 9, 1998 - ------------------------------ (J. Stanley Hill) /s/ OLIVER O. WARD Director January 9, 1998 - ------------------------------ (Oliver O. Ward) /s/ PATRICK SWEENEY Director January 9, 1998 - ------------------------------ (Patrick Sweeney) /s/ LAWRENCE COOLIDGE Director January 9, 1998 - ------------------------------ (Lawrence Coolidge) /s/ JOHN F. SMITH Director January 9, 1998 - ------------------------------ (John F. Smith) /s/ JOHN E. POMEROY Director January 9, 1998 - ------------------------------ (John E. Pomeroy) /s/ JAMES C. TAYLOR Director January 9, 1998 - ------------------------------ (James C. Taylor)
49 51 SCHEDULE II HADCO CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
BALANCE ADDITIONS AT CHARGED TO DEDUCTIONS BALANCE AT BEGINNING COSTS AND FROM END OF OF PERIOD EXPENSES RESERVES(1) PERIOD --------- ---------- ----------- ---------- (IN THOUSANDS) ALLOWANCE FOR DOUBTFUL ACCOUNTS October 28, 1995.............................. $ 725 277 (152) $ 850 October 26, 1996.............................. $ 850 329 (79) $1,100 October 25, 1997.............................. $ 1,100 922 (322) $1,700
- --------------- (1) Amounts deemed uncollectible. S-1 EX-10.43 2 1991 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1 EXHIBIT 10.43 TO 10-K HADCO CORPORATION 1991 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN DECEMBER 12, 1991 AS AMENDED BY THE BOARD OF DIRECTORS ON MARCH 4, 1992 AS AMENDED AND RESTATED BY THE BOARD OF DIRECTORS ON DECEMBER 3, 1996 1. Purpose. This Non-Qualified Stock Option Plan to be known as the 1991 Non-Employee Director Stock Option Plan (hereinafter, the "Plan") is intended to promote the interests of Hadco Corporation (hereinafter, the "Company") by providing an inducement to obtain and retain the services of qualified persons who are neither employees nor officers of the Company to serve as members of the Board of Directors and to demonstrate the Company's appreciation for their service upon the Company's Board of Directors. 2. Rights to be Granted. Under this Plan, options are granted that give an Optionee the right for a specified time period to purchase a specified number of shares of Common Stock, par value $0.05, of the Company. The option price is determined in each instance in accordance with the terms of this Plan. 3. Available Shares. The total number of shares of Common Stock, par value $0.05, of the Company, for which options may be granted shall not exceed three hundred thousand (300,000) shares subject to adjustment in accordance with Section 13 of this Plan. Shares subject to the Plan are authorized but unissued shares or shares that were once issued and subsequently reacquired by the Company. If any options granted under the Plan are surrendered before exercise or lapse without exercise, in whole or in part, the shares reserved therefor revert to the option pool and continue to be available under the Plan. 4. Administration. The Plan shall be administered by the Stock Option Committee of the Company (the "Committee"). The Committee shall, subject to the provisions of the Plan and Section 17 in particular, have the power to construe the Plan, to determine all questions thereunder, and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. 5. Option Agreement. Each option granted under the provisions of this Plan shall be evidenced by an Option Agreement, in such form as may be approved by the Committee, which Agreement shall be duly executed and delivered on behalf of the Company and by the Optionee to whom such option is granted. The Agreement shall contain such terms, provisions, and conditions not inconsistent with the Plan as may be determined by the Committee. 2 6. Eligibility and Limitations. Options may be granted pursuant to this Plan only to non-employee members of the Board of Directors of the Company who are not officers of the Company who also meet the other criteria as provided in Section 8 below. 7. Option Price. The purchase price of the stock covered by an option granted pursuant to this Plan shall be 100% of the fair market value of such shares on the day the option is granted. The option price will be subject to adjustment in accordance with the provisions of Section 13 of this Plan. For purposes of this Plan, the fair market value of a share of Common Stock on any day shall be the mean between the high and low sale price of such share on the last day preceding the date of option grant as quoted on the NASDAQ National Market System, or if there were no such trades on such day the mean between the high and low sale price of such share on the NASDAQ National Market System on the last preceding day on which it was traded. 8. Automatic Grant of Options. (a) Each member of the Company's Board of Directors who is neither an employee nor an officer of the Company ("Non-Employee Director") and is currently a member of the Board of Directors on December 12, 1991 will be automatically granted on December 12, 1991, and each person who is not a member of the Company's Board of Directors on December 12, 1991 and in the future is elected for the first time as a Non-Employee Director will be automatically granted on the date his or her Board membership first commences, without further action in either such case by the Board, an option to purchase fifteen thousand (15,000) shares of the Company's Common Stock (subject to appropriate adjustment for any recapitalization, reclassification, stock split, stock dividend or similar event). Anything in this Plan to the contrary notwithstanding, the effectiveness of this Plan and of the grant of all options hereunder is in all respects subject to, and this Plan and options granted under it shall be of no force and effect unless and until, and no option granted hereunder shall in any way vest or become exercisable in any respect unless and until, the occurrence of approval of the Plan by the affirmative vote of a majority of the Company's shares present in person or by proxy and entitled to vote at a meeting of shareholders at which the Plan is presented for approval. In the event that such approval as aforesaid has not been received on or before June 30, 1992, then in such event this Plan and any options granted hereunder shall be null and void, and upon the occurrence of such approval as aforesaid, the Plan and such options shall become effective as of the date of the Directors' approval of the Plan. (b) Each Non-Employee Director who is currently a member of the Board of Directors on February 26, 1997 and who then has five years of service in such capacity will be automatically granted on February 26, 1997 and on each anniversary of service in such capacity thereafter, without further action by the Board, an option to purchase three thousand (3,000) shares of the Company's Common Stock (subject to appropriate adjustment for any recapitalization, reclassification, stock split, stock dividend or similar event). Each Non- Employee Director who is currently a member of the Company's Board of Directors on February 26, 1997 and who does not then have at least five years of service in such capacity but who subsequently achieves five years of service in such 3 capacity, and each person who in the future is elected for the first time as a Non-Employee Director and subsequently achieves five years of service in such capacity, will each be automatically granted on the date of his or her fifth anniversary of service in such capacity and on each anniversary of service in such capacity thereafter, without further action by the Board, an option to purchase three thousand (3,000) shares of the Company's Common Stock (subject to appropriate adjustment for any recapitalization, reclassification, stock split, stock dividend or similar event). All options granted in this Section 8(b), together with any options granted under Section 8(a) above, shall be the sole options ever to be granted at any time under this Plan to any such current Non-Employee Directors and to any such future Non-Employee Directors. Anything in this Section 8(b) to the contrary notwithstanding, the effectiveness of this Section 8(b) is in all respects subject to, and this Section 8(b) shall be of no force and effect unless and until, the occurrence of approval of this Section 8(b) by the affirmative vote of a majority of the Company's shares present in person or by proxy and entitled to vote at a meeting of shareholders at which this Section 8(b) is presented for approval. In the event that such approval as aforesaid has not been received on or before February 26, 1997, then in such event, this Section 8(b) shall be null and void, and upon the occurrence of such approval as aforesaid, this Section 8(b) shall become effective as of the date of the Directors' approval of this Section 8(b). (c) Except for the specific options referred to above no other option shall be granted under this Plan. 9. Period of Option. Options granted hereunder shall expire on a date which is seven (7) years after the date of grant of the options. 10. Exercise of Option. Subject to the terms and conditions of this Plan and the Option Agreement, an option granted hereunder shall, to the extent then exercisable, be exercisable in whole or in part by giving written notice to the Company by mail or in person addressed to Treasurer, Hadco Corporation, 12A Manor Parkway, Salem, New Hampshire 03079, stating the number of shares with respect to which the option is being exercised, accompanied by payment in full for such shares, which payment may be in whole or in part in shares of the Common Stock of the Company already owned by the person or persons exercising the option, valued at fair market value determined in accordance with the provisions of Section 7; provided, however, that there shall be no such exercise at any one time as to fewer than one hundred (100) shares or all of the remaining shares then purchasable by the person or persons exercising the option, if fewer than one hundred (100) shares. A copy of such notice shall be provided to Berlin, Hamilton & Dahmen, LLP, 73 Tremont Street, Boston, Massachusetts 02108, or to such other counsel as the Company may hereafter designate, and to the First National Bank of Boston, Shareholder Services Division, Post Office Box 1865, Boston, Massachusetts 02105, or to such other Stock Transfer Agent as the Company may hereafter designate. The Transfer Agent shall, on behalf of the Company, prepare a certificate or certificates representing such shares acquired pursuant to exercise of the option, shall register the Optionee as the owner of such shares on the books of the Company and shall cause the 4 fully executed certificate(s) representing such shares to be delivered to the Optionee as soon as practicable after payment of the option price in full. The holder of an option shall not have any rights of a shareholder with respect to the shares covered by the option, except to the extent that one or more certificates for such shares shall be delivered to him upon the due exercise of the option. Notwithstanding the foregoing provisions, an option granted hereunder may, to the extent in compliance with applicable law, be exercised by payment in accordance with a cashless exercise program under which, if so instructed by the holder of the option, shares of Common Stock may be issued directly to the broker or dealer of the holder of the option upon receipt by the Company of the purchase price of the Common Stock covered by such option in cash or check from the broker or dealer, and except to the extent modified by this sentence, the exercise will comply with, and be subject to, all the other provisions of this Section 10. 11. Vesting of Shares and Non-Transferability of Options. (a) Vesting of Options Granted under Section 8(a) of Plan. Options granted under Section 8(a) of this Plan shall vest (i.e., become exercisable) in the Optionee and thus become exercisable, in accordance with the following schedule:
CUMULATIVE NUMBER OF SHARES FOR WHICH OPTION IS EXERCISABLE DATE OF VESTING ----------------------------------------- ------------------------------------------- 1/5 of total Option Shares............... At the date of approval of the Plan by the shareholders of the Company (all as described in Section 8). In the event such approval has been received by the date of grant of the option then at said date of grant of option. 2/5 of total Option Shares............... 1 year anniversary of the date of the grant of option. 3/5 of total Option Shares............... 2 year anniversary of the date of the grant of option. 4/5 of total Option Shares............... 3 year anniversary of the date of the grant of option. 100% of total Option Shares.............. 4 year anniversary of the date of the grant of option.
5 Upon any sale of all or substantially all of the assets of the Company, or upon any merger, consolidation or tender offer in respect of which the stockholders holding all of the Company's outstanding voting securities immediately prior to the consummation thereof hold less than 50% of all of the Company's outstanding voting securities immediately after such consummation (each of the foregoing sale, merger, consolidation or tender offer hereinafter called an "Acquisition"), then the date upon which all then outstanding options granted under Section 8(a) of this Plan become fully vested and exercisable shall be automatically accelerated to occur immediately prior to the consummation of such Acquisition; provided, however, that any such then outstanding options which are not thereupon exercised in full immediately prior to the consummation of such Acquisition shall thereupon terminate. (b) Vesting of Options Granted under Section 8(b) of Plan. Options granted under Section 8(b) of this Plan shall vest (i.e., become exercisable) in the Optionee immediately upon grant. Any then outstanding options which are not thereupon exercised in full immediately prior to the consummation of an Acquisition shall thereupon terminate. (c) Accumulation. The number of shares as to which the option may be exercised shall be cumulative, so that once the option shall become exercisable as to any shares it shall continue to be exercisable as to said shares, until expiration or termination of the option as provided in the Plan. (d) Legend on Certificates. The certificates representing such shares shall carry such appropriate legend, and such written instructions shall be given to the Company's Transfer Agent, as may be deemed necessary or advisable by Counsel to the Company in order to comply with the requirements of the Securities Act of 1933 or any state securities laws. (e) Non-transferability. Any option granted pursuant to this Plan shall not be assignable or transferable other than by will or the laws of descent and distribution, and shall be exercisable during the Optionee's lifetime only by him. 12. Termination of Option Rights. (a) In the event an Optionee ceases to be a member of the Board of Directors of the Company for any reason other than death or disability, any then unexercised options granted to such Optionee shall, to the extent not then exercisable, immediately terminate and become void, and any options which are then exercisable but have not been exercised at the time the Optionee so ceases to be a member of the Board of Directors may be exercised, to the extent they are then exercisable, by the Optionee within a period of ten (10) days following such time the Optionee so ceases to be a member of the Board of Directors, but in no event later than the expiration date of the option. 6 (b) In the event that an Optionee ceases to be a member of the Board of Directors of the Company by reason of his or her disability or death, any option granted to such Optionee shall be immediately and automatically accelerated and become fully vested and all unexercised options shall be exercisable by the Optionee (or by the Optionee's personal representative, heir or legatee, in the event of death) during the period ending one hundred eighty (180) days after the date the Optionee so ceases to be a member of the Board of Directors, but in no event later than the expiration date of the option. 13. Adjustment Upon Changes in Capitalization and Other Matters. In the event that the outstanding shares of the Common Stock of the Company are changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of any reorganization, merger, consolidation, recapitalization or reclassification, or in the event of a stock split, combination of shares or dividends payable in capital stock, automatic appropriate adjustment shall be made in the number and kind of shares as to which outstanding options or portions thereof then unexercised shall be exercisable and in the available shares set forth in Section 3 above. Such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of such options and with a corresponding adjustment in the option price per share. If an option hereunder shall be assumed, or a new option substituted therefor, as a result of sale of the Company, whether by a corporate merger, consolidation or sale of property or stock, then membership on the Board of Directors of such assuming or substituting corporation (hereinafter called the "Successor Corporation") or by a parent corporation or a subsidiary therefor shall be considered for purposes of an option to be membership on the Board of Directors of the Company. 14. Restrictions on Issuance of Shares. Notwithstanding the provisions of Sections 8 and 10 of the Plan, the Company shall have no obligation to deliver any certificate or certificates upon exercise of an option until one of the following conditions shall be satisfied: (i) The shares with respect to which the option has been exercised are at the time of the issue of such shares effectively registered under applicable Federal and State securities acts as now in force or hereafter amended; or (ii) Counsel for the Company shall have given an opinion that such shares are exempt from registration under Federal and State securities acts as now in force or hereafter amended; and until the Company has complied with all applicable laws and regulations, including without limitation all regulations required by any stock exchange upon which the Company's outstanding Common Stock is then listed. The Company shall use its best efforts to bring about compliance with the above conditions within a reasonable time, except that the Company shall be under no obligation to cause a registration statement or a post-effective amendment to any 7 registration statement to be prepared at its expense solely for the purpose of covering the issue of shares in respect of which any option may be exercised. 15. Representation of Optionee. The Company shall require the Optionee to deliver written warranties and representations upon exercise of the option that are necessary to show compliance with Federal and State securities laws including to the effect that a purchase of shares under the option is made for investment and not with a view to their distribution (as that term is used in the Securities Act of 1933). 16. Approval of Stockholders. The effectiveness of this Plan and of the grant of all options hereunder is in all respects subject to approval by the Company's shareholders, all as more fully set forth in Section 8 above. 17. Termination and Amendment of Plan. The Board may at any time terminate the Plan or make such modification or amendment thereof as it deems advisable, provided, however, that the Board may not, without approval by the affirmative vote of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the state in which the Company is incorporated, (i) materially increase the benefits accruing to participants under the Plan; (ii) materially increase the number of shares for which options may be granted under the Plan; or (iii) materially modify the requirements as to eligibility for participation in the Plan. In no event may any provision of this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof) of the Securities Exchange Act of 1934 (including, without limitation, provisions as to eligibility and who may participate in the Plan, the amount and price of shares for which options may be granted or the timing of awards), be amended more than once every six months, other than to comport with changes in the internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. Termination or any modification or amendment of the Plan shall not, without consent of a participant, affect his rights under an option previously granted to him. EX-10.44 3 AMENDMENT TO RETIREMENT PLAN 1 EXHIBIT 10.44 to 10-K AMENDMENTS TO HADCO CORPORATION RETIREMENT PLAN The following amendments to the HADCO CORPORATION RETIREMENT PLAN were adopted by the Board of Directors of HADCO CORPORATION on September 15, 1997, effective as stated: 1. Effective as of October 1, 1997, Section 1.12 of the Plan is amended to read as follows: "1.12 EARLY RETIREMENT DATE shall mean the date the Participant attains age fifty-five (55) and completes seven (7) Years of Service." 2. Effective as of January 1, 1997, Section 1.14 of the Plan is amended by adding the following new paragraph thereto: "Notwithstanding the preceding paragraph, if a group of individuals would otherwise become Employees within the meaning of this Section 1.14 as a result of an asset or stock acquisition, merger or other similar transaction occurring on or after January 1, 1997, such individuals shall not become Employees hereunder until the date the Board of Directors of the Employer affirmatively votes to include such group in the Plan." 3. Effective as of January 1, 1997, Section 1.24 of the Plan is amended to read as follows: "1.24 HIGHLY COMPENSATED EMPLOYEE shall mean, for Plan Years beginning on or after January 1, 1997, an Employee who performs services for the Employer during the determination year and (a) was a five percent owner at any time during the determination year or the look-back year or (b) received 414(q) Compensation from the Employer in excess of $80,000.00 for the look-back year and was in the top-paid group of Employees for such look-back year. For Plan Years ending on or before December 31, 1996, Highly Compensated Employee shall mean an Employee who performs services for the Employer during the determination year and is in one or more of the following groups: (a) Employees who were five percent owners of the Employer at any time during the look-back year or the determination year; (b) Employees who received 414(q) Compensation during the look-back year in excess of $75,000.00; (c) Employees who received 414(q) Compensation during the look-back year in excess of $50,000.00 and who were in the top paid group for the look-back year; 2 - 2 - (d) Employees who were officers of the Employer during the look-back year and who received 414(q) Compensation during the look-back year in excess of 50% of the limit in effect under Section 415(b)(1)(A) of the Code for that year; and (e) Employees who were in the group of the one hundred Employees who received the most 414(q) Compensation from the Employer during the determination year and are also described in any of paragraphs (b), (c) or (d) above when those paragraphs are modified to substitute the determination year for the look-back year. Highly Compensated Employee shall also include any former Employee who separated from service prior to the determination year and who was an active Highly Compensated Employee in the year of separation or in any determination year after attaining age 55, except as provided in the following sentence. A former Employee who separated from service prior to 1987 shall be treated as Highly Compensated Employee only if during the separation year, the year preceding the separation year, the last year ending before the Employee's 55th birthday, or any year after the Employee attained age 55, the Employee was a five percent owner or received 414(q) Compensation in excess of $50,000.00. The following rules apply for purposes of this definition: The "determination year" shall be the Plan Year for which testing is being performed. The "look-back year" shall be the twelve-month period immediately preceding the determination year. Each Employee who is, on any day during a determination year or look-back year ending on or before December 31, 1996, a Family Member of either a five percent owner who is an active or former Employee or a Highly Compensated Employee who is one of the ten most highly compensated Employees, ranked on the basis of 414(q) Compensation paid by the Employer during such year, shall be aggregated with the five percent owner or top ten Highly Compensated Employee. In such case, the Family Members and five percent owner or top ten Highly Compensated Employee shall be treated as a single Employee receiving compensation and plan contributions or benefits equal to the sum of such compensation, contributions or benefits of the Family Member and five percent owner or top ten Highly Compensated Employee. The determination of who is a Highly Compensated Employee, including the determination of Employees who are five percent owners, the number and identity of Employees in the top-paid group, the top one hundred Employees, the number of Employees treated as officers, and the compensation that is considered (including adjustments by the Secretary of the Treasury for cost of living changes), will be made in accordance with Section 414(q) of the Code and the regulations thereunder." 4. Effective as of January 1, 1997, Section 1.28 of the Plan is amended to read as follows: 3 - 3 - "1.28 LEASED EMPLOYEE shall mean any individual (other than an Employee) who, pursuant to an agreement between the Employer and any other person (referred to as the "leasing organization") has performed services for the Employer on a substantially full time basis for a period of at least one year, if such services are performed under the primary direction or control of the Employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer. A Leased Employee shall not be considered an Employee if: (a) such individual is covered by a money purchase pension plan providing (i) a nonintegrated employer contribution rate of at least ten percent of compensation as defined in Code Section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under Code Sections 125, 402(a)(8), 402(h) or 403(b), (ii) immediate participation, and (iii) full and immediate vesting; and (b) Leased Employees do not constitute more than 20 percent of the Non-Highly Compensated Employees of the Employer." 5. Effective October 1, 1997, Section 1.43 of the Plan is amended to read as follows: "1.43 QUALIFIED JOINT AND SURVIVOR ANNUITY generally shall mean an annuity for the life of the Participant with a survivor annuity for the life of his spouse which is equal to two-thirds of the annuity payable during the joint lives of the Participant and his spouse, and which is the actuarial equivalent of a single life annuity for the life of the Participant. For benefits payable from account balances originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan, QUALIFIED JOINT AND SURVIVOR ANNUITY shall mean an annuity for the life of the Participant with a survivor annuity for the life of his spouse which is equal to fifty percent (50%) of the annuity payable during the joint lives of the Participant and his spouse, and which is the actuarial equivalent of a single life annuity for the life of the Participant." 6. Effective October 1, 1997, Section 1.51 of the Plan shall be amended by adding the following sentence thereto: "For purposes of crediting Years of Service under this Plan, an individual who becomes an Employee as a result of an asset or stock acquisition, merger or other similar transaction shall receive credit for service with his prior employer who was a party to such transaction." 7. Effective October 1, 1997, Section 2.01 of the Plan shall be amended by adding the following new paragraph thereto: "For purposes of determining eligibility to participate in this Plan, an individual who becomes an Employee as a result of an asset or stock acquisition, merger or other similar transaction shall receive credit for service with his prior employer who was a party to such transaction." 4 - 4 - 8. Effective for Plan Years beginning on or after January 1, 1997, Section 3.01 of the Plan is amended to provide that the Employer's Profit Sharing Contributions shall be allocated based upon Compensation received during the Fiscal Year rather than during the Plan Year. Accordingly, the last paragraph of Section 3.01 is amended to read as follows: "The Profit Sharing Contribution for each Fiscal Year shall be paid to the Trustee as soon as practicable after the end of the Fiscal Year, but in any event not later than the due date for the Employer's federal income tax return for such Fiscal Year, including extensions. If no Profit Sharing contribution is to be made for a particular Fiscal Year, the Employer shall so notify the Trustee within sixty (60) days after the end of such Fiscal Year. Profit Sharing Contributions shall be allocated to the Profit Sharing Accounts of those Participants who shall have received any 401(k) Compensation during such Fiscal Year and who are employed on the last day of the Fiscal Year. Such contribution shall be allocated according to the ratio that each such Participant's 401(k) Compensation for the Fiscal Year bears to the total 401(k) Compensation of all such Participants for the Fiscal Year. For individuals who have become Participants during the 1997 Fiscal Year as a result of an asset or stock acquisition, merger or other similar transaction, the 401(k) Compensation to be taken into account hereunder for said Fiscal Year shall be 401(k) Compensation received during the period from January 1, 1997 through October 25, 1997 from the Employer or from the individual's prior employer who was a party to the transaction." 9. Effective January 1, 1997, Section 3.06 of the Plan is amended to permit the Plan to accept Rollover Contributions in the form of a participant note for a plan loan assigned directly from another qualified plan or trust. Accordingly, Section 3.06 is amended to read as follows: "An Employee may, with the consent of the Plan Administrator and the Trustee, contribute to the Trust a participant note for a plan loan or cash as a Rollover Contribution from another qualified plan or trust or an individual retirement account or annuity in accordance with Sections 402(a)(5), 403(a)(4) or 408(d)(3) of the Code and the regulations thereunder. A participant note for a plan loan must be assigned to the Trust directly from the other qualified plan or trust. The Plan Administrator or Trustee shall maintain a separate Rollover Account under the Trust for each Employee who has made a Rollover Contribution. All such Rollover Contributions and the investments thereon shall immediately become and at all times remain fully vested in the Employee. Rollover contributions shall not be taken into consideration in determining the limitations set forth in Section 3.09." 10. Effective January 1, 1997, Section 3.09(b) is amended to eliminate the family aggregation rules. Accordingly, the fourth paragraph of said Section which begins with the phrase "For purposes of the ADP Tests under paragraphs (i) and (ii) above. . ." is amended by inserting the phrase "For Plan Years ending on or before December 31, 1996," at the beginning thereof. 5 - 5 - 11. Effective January 1, 1997, Section 3.10(b) is amended to eliminate the family aggregation rules. Accordingly, the fourth paragraph of said Section which begins with the phrase "For purposes of the ACP Tests under paragraphs (i) and (ii) above. . ." is amended by inserting the phrase "For Plan Years ending on or before December 31, 1996," at the beginning thereof. 12. Effective January 1, 1997, Section 3.10(c) is amended by inserting the phrase "For Plan Years ending on or before December 31, 1996" at the beginning of the second sentence of the paragraph (ii) thereof, and by inserting the following as the last sentence of said paragraph (ii): "For Plan Years beginning on or after January 1, 1997, any distribution of excess contributions for any Plan Year shall be made to Highly Compensated Employees on the basis of the amount of contributions by, or on behalf of, each of such Employees." 13. Effective January 1, 1997, Section 3.10(d) is amended by inserting the phrase "For Plan Years ending on or before December 31, 1996" at the beginning of the second sentence of the first paragraph thereof, and by inserting the following as the third sentence of said paragraph: "For Plan Years beginning on or after January 1, 1997, any distribution of excess aggregate contributions for any Plan Year shall be made to Highly Compensated Employees on the basis of the amount of contributions by, or on behalf of, each of such Employees." 14. Effective October 1, 1997, Section 6.01(b) of the Plan is amended by adding the following sentence thereto: "For benefits payable from account balances originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan prior to October 1, 1997, the Plan benefit to be distributed to a Participant shall be paid in the form of a Qualified Joint and Survivor Annuity." 15. Effective October 1, 1997, Section 6.01(c) of the Plan is amended and a new Section 6.01(d) is added to read as follows: "(c) For benefits accrued prior to July 1, 1996 (or, with respect to account balances originally accrued under the Zycon Corporation Profit sharing 401(k) Plan, for benefits accrued prior to October 1, 1997), if a Participant elects to waive a benefit in the form described in paragraph (b) above, in accordance with the election procedures described in Section 6.04 below, he may choose to receive a benefit in any one of the following forms or in a combination of any of the following forms: (i) a single sum cash distribution equal to the total amount contained in his Participant Account; 6 - 6 - (ii) An annuity for the life of the Participant; (iii) A contingent annuitant annuity; (iv) A year certain and life annuity; or (v) A full cash refund annuity. (d) For benefits accrued on or after July 1, 1996 (or, with respect to account balances originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan, for benefits accrued on or after October 1, 1997), a Participant may choose to receive a benefit in either of the following forms or in a combination of the following forms: (i) A single sum cash distribution equal to the total amount contained in his Participant Account; (ii) Payments in monthly, quarterly, semiannual or annual cash installments over a period certain extending not longer than the Participant's life expectancy (or the life expectancy of the Participant and his designated beneficiary) based upon the total value of his Participant's Account." 16. Effective October 1, 1997, Section 6.03(b) is amended by adding the following sentence thereto: "For benefits payable from account balances originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan prior to October 1, 1997, unless otherwise elected as provided in Section 6.04 below, the Plan benefit to be distributed to the spouse of a Participant who is married and who dies before benefits have commenced shall be paid in the form of a qualified pre-retirement survivor annuity." 17. Effective October 1, 997, Section 6.03(c) is amended to read as follows: "If a Participant or his spouse elects to waive a benefit in the form of a qualified pre-retirement survivor annuity in accordance with the election procedures described in Section 6.04 below, or if the Participant's is not married or has not been married for the one-year period ending on the date of the Participant's death, or if the value of the Participant's Account is $3,500.00 or less for benefits accrued on or after July 1, 1996 (or, for benefits accrued under the Zycon Corporation Profit Sharing 401(k) Plan, benefits accrued on or after October 1, 1997), the Plan benefit to be distributed in the event of a Participant's death to or for the benefit of his Beneficiary shall be paid in a single sum cash distribution as soon as administratively feasible following the date the Plan Administrator receives notice of the Participant's death. For Plan Years beginning on or after January 1, 1998, the $3,500.00 dollar limit stated above shall be changed to $5,000.00." 7 - 7 - 18. Effective October 1, 1997, the opening paragraph of Section 6.04(a) of the Plan is amended to read as follows: "For any Participant whose Participant Account includes benefits accrued on or before June 30, 1996 (or, for benefits accrued under the Zycon Corporation Profit Sharing 401(k) Plan, benefits accrued on or before September 30, 1997), within a reasonable time before or after the Participant's annuity starting date consistent with regulations of the Secretary of the Treasury, the Plan Administrator shall notify the Participant in writing of:" 19. Effective October 1, 1997, the first sentence of Section 6.04(b) of the Plan is amended by inserting the phrase "(or, for benefits accrued under the Zycon Corporation Profit Sharing 401(k) Plan, benefits accrued on or before September 30, 1997)" after the Words "June 30, 1996". 20. Effective October 1, 1997, Section 6.04(e) of the Plan is amended to read as follows: "The election to waive a Qualified Joint and Survivor Annuity must be made within the ninety (90) day period ending on the date the Participant's benefits would commence or, if later, no sooner than thirty (30) days from the date the written notice described in this section was given; provided, however, that a distribution cannot be made sooner than thirty (30) days from the date such notice was given unless the Participant (and, if applicable, the Participant's spouse) consents and the distribution commences at least seven (7) days after the date of such notice. Any consent shall satisfy such requirements as may be prescribed under regulations of the Secretary of the Treasury." 21. Effective January 1, 1998, Section 6.06 of the Plan shall be amended by adding the following sentence thereto: "For Plan Years beginning on or after January 1, 1998, the $3,500.00 dollar limit stated above shall be changed to $5,000.00." 22. Effective October 1, 1997, the second paragraph of Section 7.01 of the Plan shall be amended to read as follows: "Any election to receive a lump sum distribution of a Participant's vested interest in his Participant's Account must be made by notice to the Plan Administrator. If any portion of the Participant's Account was accrued on or before June 30, 1996 (or, for benefits originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan, or on before September 30, 1997) and if the Participant is married, the spouse of the Participant must consent to any lump sum distribution in excess of $3,500.00. The spouse's consent must be in writing and must acknowledge the effect of the election. The spouse's signature must be witnessed by a Plan representative or a notary public." 23. Effective January 1, 1998, Section 7.01 of the Plan shall be amended by adding the following sentence to the end of the third paragraph thereof; 8 - 8 - "For Plan Years beginning on or after January 1, 1998, the $3,500.00 dollar limit stated herein shall be changed to $5,000.00." 24. Effective October 1, 1997, Section 9.03(a) of the Plan shall be amended to read as follows: "(a) The Plan Administrator shall create and maintain adequate records to disclose the interest in this Plan of each Participant and Beneficiary. Such records shall be in the form of individual accounts, including Profit Sharing Accounts, 401(k) Accounts, Matching Contributions Accounts, After-Tax Contributions Accounts and Rollover Accounts. The Plan Administrator shall segregate account balances accrued under this Plan on or before June 30, 1996 from account balances accrued after June 30, 1996. The Plan Administrator shall segregate account balances accrued under the Zycon Corporation Profit Sharing 401(k) Plan on or before September 30, 1997 from account balances accrued after September 30, 1997." 25. Effective as of January 1, 1997, Section 10.07(c) of the Plan is amended to read as follows: "(c) The entire interest of a Participant either: (i) will be distributed to him not later than the required beginning date, as defined below, or (ii) will be distributed, commencing not later than such required beginning date, (A) in accordance with regulations prescribed by the Secretary of the Treasury, over the life of such Participant or over the lives of such Participant and a designated beneficiary or (B) in accordance with such regulations, over a period not extending beyond the life expectancy of such Participant or the life expectancy of such Participant and a designed beneficiary. As used herein, for Plan Years ending on or before December 31, 1996, the term "required beginning date" means April 1, of the calendar year in which the Participant attains age 70 1/2. For Plan Years beginning on or after January 1, 1997, the term "required beginning date" means April 1 or the calendar year following the later of (I) the calendar year in which the Participant attains age 70 1/2 or (II) the calendar year in which the Participant retires; provided, however, that clause (II) shall not apply in the case of a Participant who is a five percent owner with respect to the Plan Year in which he attains age 70 1/2. In the case of a Participant to whom clause (II) applies who retires in a calendar year after the calendar year in which he attains age 70 1/2. In the case of a Participant to whom clause (II) applies who retires in a calendar year after the calendar year in which he attains age 70 1/2, the Participant's accrued benefit shall be actuarially increased to take into account the period after age 70 1/2 in which the Participant was not receiving any benefits under the Plan." 9 - 9 - 26. Effective January 1, 1997, Section 12.02 of the Plan shall be amended by adding the following paragraph thereto: Upon any merger or consolidation of the Plan with another plan, or transfer of assets and liabilities of the Plan to such other plan, the Board of Directors of the Employer may authorize the Plan Administrator to allocate immediately prior to the merger, consolidation or transfer any amounts then held in a suspense account. If the suspense account includes Forfeitures from Profit Sharing Accounts, the suspense account shall be allocated among all Participants who have a balance in their Profit Sharing Account according to the ratio that the balance of each such Participant's Profit Sharing Account bears to the total balance of all Participants' Profit Sharing Accounts as of the date of allocation. If the suspense account include Forfeitures from Matching Contributions Accounts, the suspense account may be allocated (a) to reduce the amount of Matching Contributions then due from the Employer fro the current Plan Year or (b) among those Participants who have a balance in their 401(k) and Matching Contributions Accounts according to the ratio that the aggregate of each such Participant's Matching Contributions Account and 401(k) Account bears to the total balance of all Participants' 401(k) and Matching Contributions Accounts. Allocations under this Section 12.02 shall be subject to the provisions of Sections 3.09 and 3.10." ATTEST: ---------------------------- JAMES C. HAMILTON, Clerk EX-10.45 4 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT 1 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT DATED as of December 8, 1997 among HADCO CORPORATION and BANKBOSTON, N.A., Individually and as Agent, and THE OTHER LENDING INSTITUTIONS LISTED ON SCHEDULE 1 HERETO with BANCBOSTON SECURITIES INC., as Arranger 2 TABLE OF CONTENTS 1. DEFINITIONS AND RULES OF INTERPRETATION.......................................1 1.1. Definitions...........................................................1 1.2. Rules of Interpretation...............................................13 2. THE REVOLVING CREDIT FACILITY. ..............................................14 2.1. Commitment to Lend....................................................14 2.2. Commitment Fee........................................................14 2.3. Reduction of Total Commitment.........................................15 2.4. The Notes.............................................................15 2.5. Interest on Loans.....................................................16 2.6. Requests for Loans....................................................16 2.7. Conversion Options....................................................16 2.1.1. Conversion to Different Type of Loan.........................17 2.7.2. Continuation of Type of Loan.................................17 2.7.3. Eurodollar Rate Loans........................................17 2.8. Funds for Loans.......................................................18 2.8.1. Funding Procedures...........................................18 2.8.2. Advances by Agent............................................18 3. REPAYMENT OF THE REVOLVING CREDIT LOANS.......................................19 3.1. Maturity..............................................................19 3.2. Mandatory Repayments of Loans.........................................19 3.3. Optional Repayments of Loans..........................................19 4. LETTERS OF CREDIT.............................................................20 4.1. Letter of Credit Commitments..........................................20 4.1.1. Commitment to Issue Letters of Credit........................20 4.1.2. Letter of Credit Applications................................20 4.1.3. Terms of Letters of Credit...................................20 4.1.4. Reimbursement Obligations of Banks...........................21 4.1.5. Participations of Banks......................................21 4.2. Reimbursement Obligation of the Borrower..............................21 4.3. Letter of Credit Payments.............................................22 4.4. Obligations Absolute..................................................22 4.5. Reliance by Issuer....................................................23 4.6. Letter of Credit Fee..................................................23 5. CERTAIN GENERAL PROVISIONS....................................................24 5.1. Fees..................................................................24 5.2. Funds for Payments....................................................24 5.2.1. Payments to Agent............................................24 5.2.2. No Offset, etc...............................................24 5.3. Computations..........................................................25 5.4. Inability to Determine Eurodollar Rate................................25 5.5. Illegality............................................................25 5.6. Additional Costs, etc.................................................26
3 -ii- 5.7. Capital Adequacy.....................................................27 5.8. Certificate..........................................................27 5.9. Indemnity............................................................27 5.10. Interest After Default...............................................28 5.10.1. Overdue Amounts.............................................28 5.10.2. Amounts Not Overdue.........................................28 6. GUARANTIES....................................................................28 7. REPRESENTATIONS AND WARRANTIES................................................28 7.1. Corporate Authority..................................................28 7.1.1. Incorporation; Good Standing................................28 7.1.2. Authorization...............................................29 7.1.3. Enforceability..............................................29 7.2. Governmental Approvals...............................................29 7.3. Title to Properties; Leases. .......................................29 7.4. Financial Statements, Projections and Solvency.......................30 7.4.1. Financial Statements........................................30 7.4.2. Projections.................................................30 7.4.3. Solvency....................................................30 7.5. No Material Changes, etc.............................................31 7.6. Franchises, Patents, Copyrights, etc.................................31 7.7. Litigation...........................................................31 7.8. No Materially Adverse Contracts, etc.................................31 7.9. Compliance with Other Instruments, Laws, etc.........................32 7.10. Tax Status...........................................................32 7.11. No Event of Default..................................................32 7.12. Holding Company and Investment Company Acts..........................32 7.13. Absence of Financing Statements. ...................................32 7.14. Certain Transactions.................................................32 7.15. Employee Benefit Plans...............................................33 7.15.1. In General..................................................33 7.15.2. Terminability of Welfare Plans..............................33 7.15.3. Guaranteed Pension Plans....................................33 7.15.4. Multiemployer Plans.........................................34 7.16. Use of Proceeds......................................................34 7.17. Environmental Compliance.............................................34 7.18. Subsidiaries, etc. ..................................................36 7.19. Disclosure. ........................................................36 8. AFFIRMATIVE COVENANTS OF THE BORROWER.........................................36 8.1. Punctual Payment.....................................................36 8.2. Maintenance of Office................................................37 8.3. Records and Accounts.................................................37 8.4. Financial Statements, Certificates and Information...................37 8.5. Notices..............................................................38 8.5.1. Defaults....................................................38 8.5.2. Environmental Events........................................39
4 -iii- 8.5.3. Notice of Litigation and Judgments..........................39 8.6. Corporate Existence; Maintenance of Properties.......................39 8.7. Insurance............................................................40 8.8. Taxes................................................................40 8.9. Inspection of Properties and Books, etc..............................40 8.9.1. General.....................................................40 8.9.2. Communications with Accountants.............................41 8.10. Compliance with Laws, Contracts, Licenses, and Permits...............41 8.11. Employee Benefit Plans...............................................41 8.12. Use of Proceeds......................................................41 8.12.1. General.....................................................41 8.12.2. Regulations U and X.........................................42 8.12.3. Ineligible Securities. ....................................42 8.13. Interest Rate Protection Agreements..................................42 8.14. Further Assurances...................................................42 9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER....................................43 9.1. Restrictions on Indebtedness.........................................43 9.2. Restrictions on Liens................................................46 9.3. Restrictions on Investments..........................................47 9.4. Distributions........................................................48 9.5. Mergers and Consolidations, Acquisitions and Disposition of Assets...48 9.5.1. Mergers and Consolidations..................................48 9.5.2. Acquisitions................................................48 9.5.3. Disposition of Assets.......................................50 9.6. Sale and Leaseback...................................................50 9.7. Compliance with Environmental Laws...................................50 9.8. Employee Benefit Plans...............................................50 9.9. Capitalization.......................................................51 9.10. Agreements Regarding Hadco FSC and New Zycon.........................51 10. FINANCIAL COVENANTS OF THE BORROWER...........................................52 10.1. Funded Debt to EBITDA................................................52 10.2. Debt Service.........................................................52 10.3. Consolidated Net Worth...............................................52 10.4. Fixed Charge Coverage Ratio..........................................52 11. CLOSING CONDITIONS............................................................53 11.1. Loan Documents.......................................................53 11.2. Certified Copies of Charter Documents................................53 11.3. Corporate Action.....................................................53 11.4. Incumbency Certificate...............................................53 11.5. UCC Search Results...................................................53 11.6. Certificates of Insurance............................................53 11.7. Solvency Certificate.................................................54 11.8. Opinion of Counsel...................................................54 11.9. Payment of Fees......................................................54
5 -iv- 11.10. Pay-Off Letters, Etc.................................................54 12. CONDITIONS TO ALL BORROWINGS. ...............................................54 12.1. Representations True; No Event of Default............................54 12.2. No Legal Impediment..................................................55 12.3. Governmental Regulation..............................................55 12.4. Proceedings and Documents............................................55 13. EVENTS OF DEFAULT; ACCELERATION; ETC..........................................55 13.1. Events of Default and Acceleration...................................55 13.2. Termination of Commitments...........................................58 13.3. Remedies.............................................................59 14. SETOFF........................................................................59 15. THE AGENT.....................................................................60 15.1. Authorization........................................................60 15.2. Employees and Agents.................................................60 15.3. No Liability.........................................................61 15.4. No Representations...................................................61 15.5. Payments.............................................................61 15.5.1. Payments to Agent...........................................61 15.5.2. Distribution by Agent.......................................61 15.5.3. Delinquent Banks............................................62 15.6. Holders of Notes.....................................................62 15.7. Indemnity............................................................62 15.8. Agent as Bank........................................................63 15.9. Resignation..........................................................63 16. EXPENSES......................................................................63 17. INDEMNIFICATION...............................................................64 18. SURVIVAL OF COVENANTS, ETC....................................................65 19. ASSIGNMENT AND PARTICIPATION..................................................65 19.1. Conditions to Assignment by Banks....................................65 19.2. Certain Representations and Warranties; Limitations; Covenants.......66 19.3. Register.............................................................67 19.4. New Notes............................................................67 19.5. Participations.......................................................68 19.6. Disclosure...........................................................68 19.7. Assignee or Participant Affiliated with the Borrower.................68 19.8. Miscellaneous Assignment Provisions..................................69 19.9. Assignment by Borrower...............................................69 20. NOTICES, ETC..................................................................69 21. GOVERNING LAW.................................................................70 22. HEADINGS......................................................................70 23. COUNTERPARTS..................................................................70 24. ENTIRE AGREEMENT, ETC.........................................................71 25. WAIVER OF JURY TRIAL..........................................................71 26. CONSENTS, AMENDMENTS, WAIVERS, ETC............................................71
6 -v- 27. SEVERABILITY..................................................................72 28. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.................................72 28.1. Sharing of Information with Section 20 Subsidiary....................72 28.2. Confidentiality......................................................72 28.3. Prior Notification...................................................73 28.4. Other................................................................73 29. TRANSITIONAL ARRANGEMENTS.....................................................74 29.1. Prior Credit Agreement Superseded....................................74 29.2. Return and Cancellation of Notes.....................................74 29.3. Fees Under Superseded Agreement......................................74
7 -vi- EXHIBITS EXHIBIT A - Note EXHIBIT B - Loan Request EXHIBIT C - Compliance Certificate EXHIBIT D - Assignment and Acceptance EXHIBIT E - Guaranty SCHEDULES SCHEDULE 1 - Banks; Commitments SCHEDULE 7.3 - Title to Properties; Leases SCHEDULE 7.5 - Contracts SCHEDULE 7.7 - Litigation SCHEDULE 7.10 - Tax Status SCHEDULE 7.17 - Environmental Matters SCHEDULE 7.18 - Subsidiaries SCHEDULE 9.1 - Indebtedness SCHEDULE 9.2 - Liens SCHEDULE 9.3 - Investments 8 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of December 8, 1997 by and among HADCO CORPORATION (the "Borrower"), a Massachusetts corporation having its principal place of business at 12A Manor Parkway, Salem, New Hampshire 03709, and BANKBOSTON, N.A., formerly known as THE FIRST NATIONAL BANK OF BOSTON, a national banking association and the other lending institutions listed on SCHEDULE 1 hereto, and BANKBOSTON, N.A., formerly known as THE FIRST NATIONAL BANK OF BOSTON, as agent for itself and such other lending institutions. The Borrower, the Agent and certain of the Banks are parties to a Revolving Credit Agreement dated as of January 8, 1997, as amended by the First Amendment and Modification Agreement dated as of February 21, 1997 (as so amended, the "Original Credit Agreement"). The Borrower, the Agent and the Banks desire further to amend in various respects and restate the Original Credit Agreement in order among other things, to increase the size of the Total Commitment and add certain additional lending institutions as "Banks" for purposes hereof. Accordingly, the parties hereto hereby agree to amend and restate the Original Revolving Credit Agreement as follows: 1. DEFINITIONS AND RULES OF INTERPRETATION. 1.1. DEFINITIONS. The following terms shall have the meanings set forth in this ss.1 or elsewhere in the provisions of this Credit Agreement referred to below: AFFILIATE. Any Person that would be considered to be an affiliate of the Borrower under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if the Borrower were issuing securities. AGENT. BankBoston, N.A., acting as agent for the Banks. AGENT'S HEAD OFFICE. The Agent's head office located at 100 Federal Street, Boston, Massachusetts 02110, or at such other location as the Agent may designate from time to time. AGENT'S SIDE LETTER. See ss.5.1. AGENT'S SPECIAL COUNSEL. Bingham Dana LLP or such other counsel as may be approved by the Agent. APPLICABLE COMMITMENT FEE PERCENTAGE. For any fiscal quarter or portion thereof, three-eighths of one percent (0.375%) per annum; PROVIDED, HOWEVER, that in the event that the ratio of Funded Debt (calculated as of the last day of such fiscal quarter or portion thereof) to EBITDA (calculated for the four consecutive fiscal quarters ending on the last day of such fiscal quarter or portion thereof) meets the requirements set forth in the chart below, the Applicable Commitment Fee Percentage shall, commencing with the date which is ten (10) days after any date on which the Borrower delivers to the Banks the financial statements referred to in ss.8.4(a) or (b) for such fiscal quarter or portion thereof and ending with the date nine (9) days after the next date on which the Borrower delivers to each of the 9 -2- Banks the financial statements referred to in ss.8.4(a) or (b), be the percentage set forth opposite the applicable ratio of Funded Debt to EBITDA in the table below:
Ratio of Funded Debt to EBITDA Applicable Commitment Fee Percentage -------------------- ------------------------------------ Greater than or equal to 2.5:1.0 0.375% Greater than or equal to 2.0:1.0 0.275% but less than 2.5:1.0 Greater than or equal to 1.5:1.0 0.225% but less than 2.0:1.0 Less than 1.5:1.0 0.200%
APPLICABLE EURODOLLAR RATE MARGIN. For any fiscal quarter or portion thereof within any Interest Period with respect to any Eurodollar Rate Loan, one and three-eighths percent (1.375%) per annum; PROVIDED, HOWEVER, that in the event that the ratio of Funded Debt (calculated as of the last day of such fiscal quarter or portion thereof) to EBITDA (calculated for the four consecutive fiscal quarters ending on the last day of such fiscal quarter or portion thereof) meets the requirements set forth in the chart below, the Applicable Eurodollar Rate Margin shall, commencing with (but not before) the date which is ten (10) days after the date on which the Borrower delivers to the Banks the financial statements referred to in ss.8.4(a) or (b) for such fiscal quarter or portion thereof and ending with the date which is nine (9) days after the next date on which the Borrower delivers to each of the Banks the financial statements referred to in ss.8.4(a) or (b), be the percentage set forth opposite the applicable ratio of Funded Debt to EBITDA in the table below:
Ratio of Funded Debt Applicable Eurodollar to EBITDA Rate Margin -------------------- --------------------- Greater than or equal to 3.0:1.0 1.375% Greater than or equal to 2.5:1.0 1.125% but less than 3.0:1.0 Greater than or equal to 2.0:1.0 0.875% but less than 2.5:1.0 Greater than or equal to 1.5:1.0 0.625% but less than 2.0:1.0 Less than 1.5:1.0 0.500%
ASSIGNMENT AND ACCEPTANCE. See ss.19.1. BALANCE SHEET DATE. October 26, 1996. BANK BUMIPUTRA LOAN AGREEMENT. The Loan Agreement dated as of February 9, 1996 among Hadco Malaysia, formerly known as Zycon Corporation SDN BHD, Bank Bumiputra and certain other lenders, as in effect on January 8, 1997. BANKS. BKB and the other lending institutions listed on SCHEDULE 1 hereto and any other Person who becomes an assignee of any rights and obligations of a Bank pursuant to ss.19. 10 -3- BASE RATE. The higher of (i) the annual rate of interest announced from time to time by BKB at its head office in Boston, Massachusetts, as its "base rate" and (ii) one-half of one percent (1/2%) above the Federal Funds Effective Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall mean for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three funds brokers of recognized standing selected by the Agent. BASE RATE LOANS. Loans bearing interest calculated by reference to the Base Rate. BKB. BankBoston, N.A., a national banking association, in its individual capacity. BORROWER. As defined in the preamble hereto. BUSINESS DAY. Any day on which banking institutions in Boston, Massachusetts, are open for the transaction of banking business and, in the case of Eurodollar Rate Loans, also a day which is a Eurodollar Business Day. CAPITAL ASSETS. Fixed assets, both tangible (such as land, buildings, fixtures, machinery and equipment) and intangible (such as patents, copyrights, trademarks, franchises and good will); PROVIDED that Capital Assets shall not include any item customarily charged directly to expense or depreciated over a useful life of twelve (12) months or less in accordance with generally accepted accounting principles. CAPITAL EXPENDITURES. Amounts paid or indebtedness incurred by any of the Transaction Parties in connection with the purchase or lease by any of the Transaction Parties of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in accordance with generally accepted accounting principles. CAPITALIZED LEASES. Leases under which any of the Transaction Parties is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with generally accepted accounting principles. CERCLA. See ss.7.17. CLOSING DATE. The first date on which the conditions set forth in ss.11 have been satisfied and any Loans are to be made or any Letter of Credit is to be issued hereunder. CODE. The Internal Revenue Code of 1986, as amended and in effect from time to time. COMMITMENT. With respect to each Bank, the amount set forth on SCHEDULE 1 hereto as the amount of such Bank's commitment to make Loans to, and to participate in the issuance, extension and renewal of Letters of Credit for the account of, the Borrower, as the same may be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero. 11 -4- COMMITMENT PERCENTAGE. With respect to each Bank, the percentage set forth on SCHEDULE 1 hereto as such Bank's percentage of the aggregate Commitments of all of the Banks. CONSOLIDATED OR CONSOLIDATED. With reference to any term defined herein, shall mean that term as applied to the accounts of the Transaction Parties, consolidated in accordance with generally accepted accounting principles. CONSOLIDATED FUNDED DEBT. At any time of determination, the sum of (i) the amount of the Loans outstanding (after giving account to any amounts requested) PLUS accrued but unpaid interest thereon; PLUS (ii) the Maximum Drawing Amount and all Unpaid Reimbursement Obligations PLUS accrued but unpaid interest (if any) thereon; PLUS (iii) the outstanding amount of any other Indebtedness for borrowed money, in respect of Capitalized Leases or which is otherwise subject to the payment of interest PLUS accrued but unpaid interest on such Indebtedness, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of Capitalized Leases and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money. CONSOLIDATED NET INCOME (OR DEFICIT). The consolidated net income (or deficit) of the Transaction Parties, after deduction of all expenses, taxes, and other proper charges, determined in accordance with generally accepted accounting principles, after eliminating therefrom all extraordinary nonrecurring items of income, the Zycon Acquisition Related Write-Off and Non-Cash Acquisition Expenses. CONSOLIDATED NET WORTH. The excess of Consolidated Total Assets over Consolidated Total Liabilities. CONSOLIDATED TANGIBLE NET WORTH. The excess of Consolidated Total Assets over Consolidated Total Liabilities, and less the sum of: (a) the total book value of all assets of the Transaction Parties properly classified as intangible assets under generally accepted accounting principles, including such items as good will, the purchase price of acquired assets in excess of the fair market value thereof, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and rights with respect to the foregoing; PLUS (b) all amounts representing any write-up in the book value of any assets of the Transaction Parties resulting from a revaluation thereof subsequent to the Balance Sheet Date, excluding adjustments to translate foreign assets and liabilities for changes in foreign exchange rates made in accordance with Financial Accounting Standards Board Statement No. 52; PLUS (c) to the extent otherwise includable in the computation of Consolidated Tangible Net Worth, any subscriptions receivable. CONSOLIDATED TOTAL ASSETS. All assets of the Transaction Parties determined on a consolidated basis in accordance with generally accepted accounting principles. 12 -5- CONSOLIDATED TOTAL INTEREST EXPENSE. For any period, the aggregate amount of interest required to be paid or accrued by the Transaction Parties during such period on all Indebtedness of the Transaction Parties outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of Capitalized Leases and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money. CONSOLIDATED TOTAL LIABILITIES. All liabilities of the Transaction Parties determined on a consolidated basis in accordance with generally accepted accounting principles and all Indebtedness of the Transaction Parties, whether or not so classified. CONVERSION REQUEST. A notice given by the Borrower to the Agent of the Borrower's election to convert or continue a Loan in accordance with ss.2.7. CREDIT AGREEMENT. This Amended and Restated Revolving Credit Agreement, including the Schedules and Exhibits hereto. DEFAULT. See ss.13.1. DISTRIBUTION. The declaration or payment of any dividend on or in respect of any shares of any class of capital stock of the Borrower, other than dividends payable solely in shares of common stock of the Borrower; the purchase, redemption, or other retirement of any shares of any class of capital stock, or any rights or options convertible into shares of any class of capital stock (and including any purchase, redemption, prepayment or other retirement, in whole or in part, of any subordinated indebtedness permitted by ss.9.1(k)), of the Borrower, directly or indirectly through a Subsidiary of the Borrower, or otherwise; the return of capital by the Borrower to its shareholders as such; or any other distribution on or in respect of any shares of any class of capital stock of the Borrower. DOLLARS or $. Dollars in lawful currency of the United States of America. DOMESTIC LENDING OFFICE. Initially, the office of each Bank designated as such in SCHEDULE 1 hereto; thereafter, such other office of such Bank, if any, located within the United States that will be making or maintaining Base Rate Loans. DRAWDOWN DATE. The date on which any Loan is made or is to be made, and the date on which any Loan is converted or continued in accordance with ss.2.7. EARNINGS BEFORE INTEREST AND TAXES or EBIT. The consolidated earnings (or loss) from the operations of the Transaction Parties for any period, after all expenses and other proper charges but before payment or provision for any income taxes or interest expense, for such period, determined in accordance with generally accepted accounting principles, after eliminating therefrom all extraordinary nonrecurring items of income or loss, earnings from discontinued businesses, any non-cash gains used in determining income, the Zycon Acquisition Related Write-Off, and any Non-Cash Acquisition Expenses. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION or EBITDA. The consolidated earnings (or loss) from the operations of the Transaction Parties for any 13 -6- period, after all expenses and other proper charges but before payment or provision for any income taxes, interest expense, depreciation or amortization for such period, determined in accordance with generally accepted accounting principles, after eliminating therefrom all extraordinary nonrecurring items of income or loss, earnings from discontinued businesses, any non-cash gains used in determining income, the Zycon Acquisition Related Write-Off, and any Non-Cash Acquisition Expenses. ELIGIBLE ASSIGNEE. Any of (i) a commercial bank or finance company organized under the laws of the United States, or any State thereof or the District of Columbia, and having total assets in excess of $1,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof or the District of Columbia, and having a net worth of at least $100,000,000, calculated in accordance with generally accepted accounting principles; (iii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having total assets in excess of $1,000,000,000, PROVIDED that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (iv) the central bank of any country which is a member of the OECD; and (v) if, but only if, any Event of Default has occurred and is continuing, any other bank, insurance company, commercial finance company or other financial institution or other Person approved by the Agent, such approval not to be unreasonably withheld. EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the meaning of ss.3(3) of ERISA maintained or contributed to by the Borrower, other than a Guaranteed Pension Plan or a Multiemployer Plan. ENVIRONMENTAL LAWS. See ss.7.17(a). ERISA. The Employee Retirement Income Security Act of 1974, as amended and in effect from time to time. ERISA AFFILIATE. Any Person which is treated as a single employer with the Borrower under ss.414 of the Code. ERISA REPORTABLE EVENT. A reportable event with respect to a Guaranteed Pension Plan within the meaning of ss.4043 of ERISA and the regulations promulgated thereunder. EUROCURRENCY RESERVE RATE. For any day with respect to a Eurodollar Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against "Eurocurrency Liabilities" (as that term is used in Regulation D), if such liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Rate. EURODOLLAR BUSINESS DAY. Any day on which commercial banks are open for international business (including dealings in Dollar deposits) in London or such other 14 -7- eurodollar interbank market as may be selected by the Agent in its sole discretion acting in good faith. EURODOLLAR LENDING OFFICE. Initially, the office of each Bank designated as such in SCHEDULE 1 hereto; thereafter, such other office of such Bank, if any, that shall be making or maintaining Eurodollar Rate Loans. EURODOLLAR RATE. For any Interest Period with respect to a Eurodollar Rate Loan, the rate of interest equal to (i) the arithmetic average of the rates per annum (rounded upwards to the nearest 1/16 of one percent) of the rate at which BKB's Eurodollar Lending Office is offered Dollar deposits two Eurodollar Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are customarily conducted, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Rate Loan of BKB to which such Interest Period applies, divided by (ii) a number equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable. EURODOLLAR RATE LOANS. Loans bearing interest calculated by reference to the Eurodollar Rate. EVENT OF DEFAULT. See ss.13.1. EXITING BANKS. Each of the Banks (as defined in the Original Credit Agreement) which are not continuing as Banks under and for purposes of this Credit Agreement and the other Loan Documents. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. (i) When used in ss.10, whether directly or indirectly through reference to a capitalized term used therein, means (A) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (B) to the extent consistent with such principles, the accounting practice of the Borrower reflected in its financial statements for the year ended on the Balance Sheet Date, and (ii) when used in general, other than as provided above, means principles that are (A) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time, and (B) consistently applied with past financial statements of the Borrower adopting the same principles, provided that in each case referred to in this definition of "generally accepted accounting principles" a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. GUARANTEED PENSION PLAN. Any employee pension benefit plan within the meaning of ss.3(2) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. 15 -8- GUARANTIES. The separate Guaranties, each in the form of EXHIBIT E, dated or to be dated on, prior to or, in the case of any Subsidiary which becomes a Guarantor pursuant to ss.9.5.2, after the Closing Date, made by each Guarantor in favor of the Banks and the Agent pursuant to which such Guarantor guaranties to the Banks and the Agent, to the extent provided therein, the payment and performance of the Obligations. GUARANTORS. (i) Hadco Santa Clara; and (ii) any other direct or indirect Subsidiary of the Borrower (other than Hadco FSC, New Zycon or Hadco Malaysia). HADCO ACQUISITION. Hadco Acquisition, a Delaware corporation and one-time wholly-owned Subsidiary of the Borrower, which entity has previously been merged into Zycon. HADCO FSC. Hadco Foreign Sales Corporation, a U.S. Virgin Islands corporation. HADCO MALAYSIA. Hadco Corporation (Malaysia) SDN BHD, a Malaysian Corporation, formerly known as Zycon Corporation SDN BHD. HADCO SANTA CLARA. Hadco Santa Clara, Inc., a Delaware corporation, formerly known as Zycon Corporation, the successor of the merger of Zycon and Hadco Acquisition. HAZARDOUS SUBSTANCES. See ss.7.17(b). INDEBTEDNESS. All obligations, contingent and otherwise, that in accordance with generally accepted accounting principles should be classified upon the obligor's balance sheet as liabilities, or to which reference should be made by footnotes thereto, including in any event and whether or not so classified: (i) all debt and similar monetary obligations, whether direct or indirect; (ii) all liabilities secured by any mortgage, pledge, security interest, lien, charge or other encumbrance existing on property owned or acquired subject thereto, whether or not the liability secured thereby shall have been assumed; and (iii) all guarantees, endorsements and other contingent obligations whether direct or indirect in respect of indebtedness of others, including any obligation to supply funds to or in any manner to invest in, directly or indirectly, the debtor, to purchase indebtedness, or to assure the owner of indebtedness against loss, through an agreement to purchase goods, supplies, or services for the purpose of enabling the debtor to make payment of the indebtedness held by such owner or otherwise, and the obligations to reimburse the issuer in respect of any letters of credit. INELIGIBLE SECURITIES. Securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1993 (12 U.S.C. ss.24, Seventh), as amended. INTEREST PAYMENT DATE. (i) As to any Base Rate Loan, the last day of the calendar quarter which includes the Drawdown Date thereof; and (ii) as to any Eurodollar Rate Loan in respect of which the Interest Period is (A) 3 months or less, the last day of such Interest Period and (B) more than 3 months, the date that is 3 months from the first day of such Interest Period and, in addition, the last day of such Interest Period. 16 -9- INTEREST PERIOD. With respect to each Loan, (i) initially, the period commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the Borrower in a Loan Request (A) for any Base Rate Loan, the last day of the calendar quarter; and (B) for any Eurodollar Rate Loan, 1, 2, 3 or 6 months; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Loan and ending on the last day of one of the periods set forth above, as selected by the Borrower in a Conversion Request; PROVIDED that all of the foregoing provisions relating to Interest Periods are subject to the following: (a) if any Interest Period with respect to a Eurodollar Rate Loan would otherwise end on a day that is not a Eurodollar Business Day, that Interest Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day; (b) if any Interest Period with respect to a Base Rate Loan would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day; (c) if the Borrower shall fail to give notice as provided in ss.2.7, the Borrower shall be deemed to have requested a conversion of the affected Eurodollar Rate Loan to a Base Rate Loan and the continuance of all Base Rate Loans as Base Rate Loans on the last day of the then current Interest Period with respect thereto; (d) any Interest Period relating to any Eurodollar Rate Loan that begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month; and (e) any Interest Period relating to any Eurodollar Rate Loan that would otherwise extend beyond the Revolving Credit Loan Maturity Date shall end on the Revolving Credit Loan Maturity Date. INVESTMENTS. All expenditures made and all liabilities incurred (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time: (i) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (ii) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (iii) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (iv) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (ii) may be deducted when paid; and (v) there 17 -10- shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. LETTER OF CREDIT. See ss.4.1.1. LETTER OF CREDIT APPLICATION. See ss.4.1.1. LETTER OF CREDIT PARTICIPATION. See ss.4.1.4. LOAN DOCUMENTS. This Credit Agreement, the Notes, the Letter of Credit Applications, the Letters of Credit, the Guaranties, the Agent's Side Letter, the Post-Closing Letter, any interest rate protection agreements entered into with any of the Banks in connection herewith and any other instruments, documents and agreements executed from time to time in connection herewith. LOAN REQUEST. See ss.2.6. LOANS. Revolving credit loans made or to be made by the Banks to the Borrower pursuant to ss.2. MAJORITY BANKS. As of any date, the Banks holding at least fifty-one percent (51%) of the outstanding principal amount of the Notes on such date; and if no such principal is outstanding, the Banks whose aggregate Commitments constitutes at least fifty-one percent (51%) of the Total Commitment. MARGIN STOCK. "Margin stock" or "margin securities", as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. MAXIMUM DRAWING AMOUNT. The maximum aggregate amount that the beneficiaries may at any time draw under outstanding Letters of Credit, as such aggregate amount may be reduced from time to time pursuant to the terms of the Letters of Credit. MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of ss.3(37) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate. NEW ZYCON. Zycon Corporation, a Delaware corporation, and wholly owned Subsidiary of the Borrower. NON-CASH ACQUISITION EXPENSES. Non-cash expenses arising from the write-off of goodwill, in-process research and development costs, and inventory and fixed asset charges, in each case associated with Permitted Acquisitions made following the Closing Date in an aggregate amount for all such Permitted Acquisitions not to exceed $100,000,000. NOTES. See ss.2.4. OBLIGATIONS. All indebtedness, obligations and liabilities of any of the Transaction Parties to any of the Banks and the Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising 18 -11- by contract, operation of law or otherwise, arising or incurred under this Credit Agreement or any of the other Loan Documents or in respect of any of the Loans made or Reimbursement Obligations incurred or any of the Notes, Letter of Credit Application, Letter of Credit or other instruments at any time evidencing any thereof. ORIGINAL CREDIT AGREEMENT. As defined in the preamble hereto. OUTSTANDING. With respect to the Loans, the aggregate unpaid principal thereof as of any date of determination. PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of ERISA and any successor entity or entities having similar responsibilities. PERMITTED ACQUISITIONS. Acquisitions of stock or assets permitted by ss.9.5.2. PERMITTED LIENS. Liens, security interests and other encumbrances permitted by ss.9.2. PERSON. Any individual, corporation, partnership, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. POST-CLOSING LETTER. The side letter dated as of December 8, 1997 between the Agent and the Borrower regarding certain post-closing items. REAL ESTATE. All real property at any time owned or leased (as lessee or sublessee) by any of the Transaction Parties. REIMBURSEMENT OBLIGATION. The Borrower's obligation to reimburse the Agent and the Banks on account of any drawing under any Letter of Credit as provided in ss.4.2. REVOLVING CREDIT LOAN MATURITY DATE. January 8, 2002. SECTION 20 SUBSIDIARY. A Subsidiary of the bank holding company controlling any Bank, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. SUBSIDIARY. Any corporation, association, trust, or other business entity of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock. TARGET. As defined in ss.9.5.2(b). TOTAL COMMITMENT. The sum of the Commitments of the Banks, as in effect from time to time. TRANSACTION PARTIES. Collectively, the Borrower and its Subsidiaries. TYPE. As to any Loan, its nature as a Base Rate Loan or a Eurodollar Rate Loan. 19 -12- UNIFORM CUSTOMS. With respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 or any successor version thereto adopted by the Agent in the ordinary course of its business as a letter of credit issuer and in effect at the time of issuance of such Letter of Credit. UNPAID REIMBURSEMENT OBLIGATION. Any Reimbursement Obligation for which the Borrower does not reimburse the Agent and the Banks on the date specified in, and in accordance with, ss.4.2. VOTING STOCK. Stock or similar interests, of any class or classes (however designated), the holders of which are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, trust or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency. ZYCON. Zycon Corporation, a Delaware corporation, the company into which Hadco Acquisition has previously been merged, and which is now known as Hadco Santa Clara. ZYCON BALANCE SHEET DATE. November 30, 1996. ZYCON EMPLOYEE DISTRIBUTION. The Distribution made in January, 1997 in an aggregate amount not exceeding $6,000,000, in order to pay employees of Zycon the difference between the exercise price of the stock options owned by such employees and the price per share offered and paid by Hadco Acquisition for shares of the capital stock of Zycon. ZYCON ACQUISITION RELATED WRITE-OFF. Up to $80,000,000 in non-cash expenses associated with goodwill resulting from the purchase of Zycon and with in-process research and development costs of Zycon. 1.2. RULES OF INTERPRETATION. (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. 20 -13- (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, have the meanings assigned to them therein, with the term "instrument" being that defined under Article 9 of the Uniform Commercial Code. (h) Reference to a particular "ss." refers to that section of this Credit Agreement unless otherwise indicated. (i) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Credit Agreement as a whole and not to any particular section or subdivision of this Credit Agreement. 2. THE REVOLVING CREDIT FACILITY. 2.1. COMMITMENT TO LEND. Subject to the terms and conditions set forth in this Credit Agreement, each of the Banks severally agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the Closing Date and the Revolving Credit Loan Maturity Date upon notice by the Borrower to the Agent given in accordance with ss.2.6, such sums as are requested by the Borrower up to a maximum aggregate amount outstanding (after giving effect to all amounts requested) at any one time equal to such Bank's Commitment MINUS such Bank's Commitment Percentage of the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations, PROVIDED that the sum of the outstanding amount of the Loans (after giving effect to all amounts requested) PLUS the Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not at any time exceed the Total Commitment. The Loans shall be made PRO RATA in accordance with each Bank's Commitment Percentage. Each request for a Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in ss.11 and ss.12, in the case of the initial Loans to be made on the Closing Date, and ss.12, in the case of all other Loans, have been satisfied on the date of such request. 2.2. COMMITMENT FEE. The Borrower agrees to pay to the Agent for the accounts of the Banks in accordance with their respective Commitment Percentages a commitment fee calculated at a rate per annum equal to the Applicable Commitment Fee Percentage on the average daily amount during each calendar quarter or portion thereof from Closing Date to the Revolving Credit Loan Maturity Date by which the Total Commitment MINUS the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations exceeds the outstanding amount of Loans during such calendar quarter. The commitment fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Revolving Credit Loan Maturity Date or any earlier date on which the Commitments shall terminate. 2.3. REDUCTION OF TOTAL COMMITMENT. Upon the Borrower's incurrence of any Indebtedness permitted by ss.9.1(k), the Borrower shall, at the request of the Majority Banks, reduce the Total Commitment by an amount equal to the net proceeds of all such Indebtedness incurred following the Closing Date, up to a maximum of $50,000,000 in connection with any such Indebtedness described in ss.9.1(k)(i) and up to a cumulative maximum of $100,000,000 in connection with any such Indebtedness described in 21 -14- ss.9.1(k)(ii). The Borrower shall have the right, without penalty (other than breakage fees relating to Eurodollar Rate Loans for which the Borrower is otherwise responsible under ss.5.9 and as otherwise provided in this ss.2.3), at any time and from time to time upon seven (7) Business Days prior written notice to the Agent to reduce by $10,000,000 or an integral multiple of $5,000,000 in excess thereof or terminate entirely the Total Commitment; PROVIDED, HOWEVER, that the Total Commitment shall not be reduced below $50,000,000 unless it is terminated in full; and PROVIDED FURTHER that if, on or before January 8, 1998, the Borrower incurs Indebtedness permitted by ss.9.1(k) or sells equity securities of the Borrower, or warrants or subscription rights for equity securities of the Borrower, the sale or issuance of any of which does not create or result in a Default or Event of Default, in an aggregate amount for all such Indebtedness and net proceeds of the sale of such equity securities, or warrants or subscription rights for equity securities, in excess of $75,000,000, and the Borrower, at its option, reduces the Total Commitment by more than $75,000,000, the Borrower shall, at the time of such reduction of the Total Commitment, pay to the Agent, for the PRO RATA benefit of the Banks, a fee equal to one fifth of one percent (.20%) on the amount by which such reduction in the Total Commitment exceeds $75,000,000. Upon any such reduction of the Total Commitment as set forth in either of the two immediately preceding sentences, the Commitments of the Banks shall be reduced PRO RATA in accordance with their respective Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. Promptly after receiving any notice of the Borrower delivered pursuant to this ss.2.3, the Agent will notify the Banks of the substance thereof. Upon the effective date of any such reduction or termination, the Borrower shall pay to the Agent for the respective accounts of the Banks the full amount of any commitment fee then accrued on the amount of the reduction. No reduction or termination of the Commitments may be reinstated. 2.4. THE NOTES. The Loans shall be evidenced by separate promissory notes of the Borrower in substantially the form of EXHIBIT A hereto (each a "Note"), dated as of the Closing Date and completed with appropriate insertions. One Note shall be payable to the order of each Bank in a principal amount equal to such Bank's Commitment or, if less, the outstanding amount of all Loans made by such Bank, plus interest accrued thereon, as set forth below. The Borrower irrevocably authorizes each Bank to make or cause to be made, at or about the time of the Drawdown Date of any Loan or at the time of receipt of any payment of principal on such Bank's Note, an appropriate computer entry or other record reflecting the making of such Loan or (as the case may be) the receipt of such payment. The outstanding amount of the Loans set forth in such computer entries or other records shall be PRIMA FACIE evidence of the principal amount thereof owing and unpaid to such Bank, but the failure to record, or any error in so recording, any such amount in such computer entries or other records shall not limit or otherwise affect the obligations of the Borrower hereunder or under any Note to make payments of principal of or interest on any Note when due. 2.5. INTEREST ON LOANS. Except as otherwise provided in ss.5.10, (a) Each Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at a rate per annum equal to the Base Rate. 22 -15- (b) Each Eurodollar Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at a rate per annum equal to the Applicable Eurodollar Rate Margin PLUS the Eurodollar Rate determined for such Interest Period. (c) The Borrower promises to pay interest on each Loan in arrears on each Interest Payment Date with respect thereto. 2.6. REQUESTS FOR LOANS. The Borrower shall give to the Agent written notice in the form of EXHIBIT B hereto (or telephonic notice confirmed in a writing in the form of EXHIBIT B hereto) of each Loan requested hereunder (a "Loan Request") no less than (i) one (1) Business Day prior to the proposed Drawdown Date of any Base Rate Loan and (ii) three (3) Eurodollar Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan. Each such notice shall specify (A) the principal amount of the Loan requested, (B) the proposed Drawdown Date of such Loan, (C) the Interest Period for such Revolving Credit Loan and (D) the Type of such Loan. Promptly upon receipt of any such notice, the Agent shall notify each of the Banks thereof. Each Loan Request shall be irrevocable and binding on the Borrower and shall obligate the Borrower to accept the Loan requested from the Banks on the proposed Drawdown Date. Each Loan Request shall be in a minimum aggregate amount of $5,000,000 or an integral multiple thereof. 2.7. CONVERSION OPTIONS. 2.7.1. CONVERSION TO DIFFERENT TYPE OF LOAN. The Borrower may elect from time to time to convert any outstanding Loan to a Loan of another Type, PROVIDED that (i) with respect to any such conversion of a Loan to a Base Rate Loan, the Borrower shall give the Agent at least one (1) Business Day prior written notice of such election; (ii) with respect to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrower shall give the Agent at least three (3) Eurodollar Business Days prior written notice of such election; (iii) with respect to any such conversion of a Eurodollar Rate Loan into a Loan of another Type, such conversion shall only be made on the last day of the Interest Period with respect thereto; and (iv) no Loan may be converted into a Eurodollar Rate Loan when any Default or Event of Default has occurred and is continuing. On the date on which such conversion is being made, each Bank shall take such action as is necessary to transfer its Commitment Percentage of such Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the case may be. All or any part of outstanding Loans of any Type may be converted into a Loan of another Type as provided herein, PROVIDED that any partial conversion shall be in an aggregate principal amount of $5,000,000 or a whole multiple thereof. Each Conversion Request relating to the conversion of a Loan to a Eurodollar Rate Loan shall be irrevocable by the Borrower. 2.7.2. CONTINUATION OF TYPE OF LOAN. Any Loan of any Type may be continued as a Loan of the same Type upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in ss.2.7.1; PROVIDED that no Eurodollar Rate Loan may 23 -16- be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto ending during the continuance of any Default or Event of Default of which officers of the Agent active upon the Borrower's account have actual knowledge. In the event that the Borrower fails to provide any such notice with respect to the continuation of any Eurodollar Rate Loan as such, then such Eurodollar Rate Loan shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto. The Agent shall notify the Banks promptly when any such automatic conversion contemplated by this ss.2.7 is scheduled to occur. 2.7.3. EURODOLLAR RATE LOANS. Any conversion to or from Eurodollar Rate Loans shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurodollar Rate Loans having the same Interest Period shall not be less than $20,000,000 or a whole multiple of $5,000,000 in excess thereof. At no time shall there be more than five (5) Eurodollar Rate Loans outstanding. 2.8. FUNDS FOR LOANS. 2.8.1. FUNDING PROCEDURES. Not later than 11:00 a.m. (Boston time) on the proposed Drawdown Date of any Loans, each of the Banks will make available to the Agent, at its Head Office, in immediately available funds, the amount of such Bank's Commitment Percentage of the amount of the requested Loans. Upon receipt from each Bank of such amount, and upon receipt of the documents required by ss.ss.11 and 12 and the satisfactIon of the other conditions set forth therein, to the extent applicable, the Agent will make available to the Borrower the aggregate amount of such Loans made available to the Agent by the Banks. The failure or refusal of any Bank to make available to the Agent at the aforesaid time and place on any Drawdown Date the amount of its Commitment Percentage of the requested Loans shall not relieve any other Bank from its several obligation hereunder to make available to the Agent the amount of such other Bank's Commitment Percentage of any requested Loans. 2.8.2. ADVANCES BY AGENT. The Agent may, unless notified to the contrary by any Bank prior to a Drawdown Date, assume that such Bank has made available to the Agent on such Drawdown Date the amount of such Bank's Commitment Percentage of the Loans to be made on such Drawdown Date, and the Agent may (but it shall not be required to), in reliance upon such assumption, make available to the Borrower a corresponding amount. If any Bank makes available to the Agent such amount on a date after such Drawdown Date, such Bank shall pay to the Agent on demand an amount equal to the product of (i) the average computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, TIMES (ii) the amount of such Bank's Commitment Percentage of such Loans, TIMES (iii) a fraction, the numerator of which is the number of days that 24 -17- elapse from and including such Drawdown Date to the date on which the amount of such Bank's Commitment Percentage of such Loans shall become immediately available to the Agent, and the denominator of which is 360. A statement of the Agent submitted to such Bank with respect to any amounts owing under this paragraph shall be PRIMA FACIE evidence of the amount due and owing to the Agent by such Bank. If the amount of such Bank's Commitment Percentage of such Loans is not made available to the Agent by such Bank within three (3) Business Days following such Drawdown Date, the Agent shall be entitled to recover such amount from the Borrower on demand, with interest thereon at the rate per annum applicable to the Loans made on such Drawdown Date. 3. REPAYMENT OF THE REVOLVING CREDIT LOANS. 3.1. MATURITY. The Borrower promises to pay on the Revolving Credit Loan Maturity Date, and there shall become absolutely due and payable on the Revolving Credit Loan Maturity Date, all of the Loans outstanding on such date, together with any and all accrued and unpaid interest thereon. 3.2. MANDATORY REPAYMENTS OF LOANS. If at any time the Borrower shall incur Indebtedness permitted by ss.9.1(k), the Borrower shall, at the request of the Majority Banks, immediately pay to the Agent for the respective accounts of the Banks an amount equal to the net proceeds of all such Indebtedness incurred following the Closing Date, up to a maximum of $50,000,000 in connection with any such Indebtedness described in ss.9.1(k)(i) and up to a cumulative maximum of $100,000,000 in connectioN with any such Indebtedness described in ss.9.1(k)(ii). If at any time the sum of the outstanding amounT of the Loans, the Maximum Drawing Amount and all Unpaid Reimbursement Obligations exceeds the Total Commitment, then the Borrower shall immediately pay the amount of such excess to the Agent for the respective accounts of the Banks. Any amounts repaid in accordance with either of the immediately preceding two sentences shall be applied: first, to any Unpaid Reimbursement Obligations; second, to the Loans; and third, to provide to the Agent cash collateral for Reimbursement Obligations as contemplated by ss.4.2(b) and (c). Each payment of any Unpaid Reimbursement Obligations or prepayment of Loans shall be allocated among the Banks, in proportion, as nearly as practicable, to each Reimbursement Obligation or (as the case may be) the respective unpaid principal amount of each Bank's Note, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion. 3.3. OPTIONAL REPAYMENTS OF LOANS. The Borrower shall have the right, at its election, to repay the outstanding amount of the Loans, as a whole or in part, at any time without penalty or premium, PROVIDED that any full or partial prepayment of the outstanding amount of any Eurodollar Rate Loans pursuant to this ss.3.3 may be made only on the last day of the Interest Period relating thereto. The Borrower shall give the Agent, no later than 10:00 a.m., Boston time, at least one (1) Business Day prior written notice of any proposed prepayment pursuant to this ss.3.3 of Base Rate Loans, and three (3) Eurodollar Business Days notice of any proposed prepayment pursuant to this ss.3.3 of Eurodollar Rate Loans, in each case specifying the proposed date of prepayment of Loans and the principal amount to be prepaid. Each such partial prepayment of the Loans shall be in an integral multiple of $5,000,000 and shall be applied, in the absence of instruction by the Borrower, first to the 25 -18- principal of Base Rate Loans and then to the principal of Eurodollar Rate Loans. Accrued interest on the principal prepaid in connection with each such partial prepayment shall be due and payable on the next Interest Payment Date, but accrued interest on the principal paid in connection with any full prepayment at a time when the Total Commitment is terminated shall be paid on the date of prepayment. Each prepayment shall be allocated among the Banks, in proportion, as nearly as practicable, to the respective unpaid principal amount of each Bank's Note, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion. 4. LETTERS OF CREDIT. 4.1. LETTER OF CREDIT COMMITMENTS. 4.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the terms and conditions hereof and the execution and delivery by the Borrower of a letter of credit application on the Agent's customary form (a "Letter of Credit Application"), the Agent on behalf of the Banks and in reliance upon the agreement of the Banks set forth in ss.4.1.4 and upon the representations and warranties of the Borrower contained herein, agrees, in its individual capacity, to issue, extend and renew for the account of the Borrower one or more standby or documentary letters of credit (individually, a "Letter of Credit"), in such form as may be requested from time to time by the Borrower and agreed to by the Agent; PROVIDED, HOWEVER, that, after giving effect to such request, (a) the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not exceed $15,000,000 at any one time and (b) the sum of (i) the Maximum Drawing Amount on all Letters of Credit, (ii) all Unpaid Reimbursement Obligations, and (iii) the amount of all Loans outstanding (after giving effect to all amounts requested) shall not exceed the Total Commitment. As of the Closing Date, the Letter of Credit initially issued in the amount of $1,000,000 to New York State Urban Development Corporation for the account of the Borrower shall become a Letter of Credit under this Credit Agreement for all purposes, shall be issued for the account of the Borrower and shall cease to be a Letter of Credit under and as defined in the Original Credit Agreement, and the Exiting Lenders shall cease to have any further obligations with respect thereto. 4.1.2. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit Application shall be completed to the satisfaction of the Agent. In the event that any provision of any Letter of Credit Application shall be inconsistent with any provision of this Credit Agreement, then the provisions of this Credit Agreement shall, to the extent of any such inconsistency, govern. 4.1.3. TERMS OF LETTERS OF CREDIT. Each Letter of Credit issued, extended or renewed hereunder shall, among other things, (i) provide for the payment of sight drafts for honor thereunder when presented in accordance with the terms thereof and when accompanied by the documents described therein, (ii) have an expiry date (which may be extended annually by the Agent, at its option upon the request of the Borrower) no more than one year 26 -19- following its date of issue and (iii) have an expiry date no later than the date which is fourteen (14) days (or, if the Letter of Credit is confirmed by a confirmer or otherwise provides for one or more nominated persons, forty-five (45) days) prior to the Revolving Credit Loan Maturity Date. Each Letter of Credit so issued, extended or renewed shall be subject to the Uniform Customs. 4.1.4. REIMBURSEMENT OBLIGATIONS OF BANKS. Each Bank severally agrees that it shall be absolutely liable, without regard to the occurrence of any Default or Event of Default or any other condition precedent whatsoever, to the extent of such Bank's Commitment Percentage, to reimburse the Agent on demand for the amount of each draft paid by the Agent under each Letter of Credit to the extent that such amount is not reimbursed by the Borrower pursuant to ss.4.2 (such agreement for a Bank being called herein the "Letter of Credit Participation" of such Bank). 4.1.5. PARTICIPATIONS OF BANKS. Each such payment made by a Bank shall be treated as the purchase by such Bank of a participating interest in the Borrower's Reimbursement Obligation under ss.4.2 in an amount equal to such payment. Each Bank shall share in accordance with its participating interest in any interest which accrues pursuant to ss.4.2. 4.2. REIMBURSEMENT OBLIGATION OF THE BORROWER. In order to induce the Agent to issue, extend and renew each Letter of Credit and the Banks to participate therein, the Borrower hereby agrees to reimburse or pay to the Agent, for the account of the Agent or (as the case may be) the Banks, with respect to each Letter of Credit issued, extended or renewed by the Agent hereunder, (a) except as otherwise expressly provided in ss.4.2(b) and (c), on each date that any draft presented under such Letter of Credit is honored by the Agent, or the Agent otherwise makes a payment with respect thereto, (i) the amount paid by the Agent under or with respect to such Letter of Credit, and (ii) the amount of any taxes, fees, charges or other reasonable costs and expenses whatsoever incurred by the Agent or any Bank in connection with any payment made by the Agent or any Bank under, or with respect to, such Letter of Credit, (b) upon the reduction (but not termination) of the Total Commitment to an amount less than the Maximum Drawing Amount, an amount equal to such difference, which amount shall be held by the Agent for the benefit of the Banks and the Agent in an interest bearing account selected by the Agent as cash collateral for all Reimbursement Obligations, and (c) upon the termination of the Total Commitment, or the acceleration of the Reimbursement Obligations with respect to all Letters of Credit in accordance with ss.13, an amount equal to the then Maximum Drawing Amount on all Letters of Credit, which amount shall be held by the Agent for the benefit of the Banks and the Agent in an interest bearing account selected by the Agent as cash collateral for all Reimbursement Obligations. 27 -20- Each such payment shall be made to the Agent at the Agent's Head Office in immediately available funds. Interest on any and all amounts remaining unpaid by the Borrower under this ss.4.2 at any time from the date such amounts become due and payable (whether as stated in this ss.4.2, by acceleration or otherwise) until payment in full (whether before or after judgment) shall be payable to the Agent on demand at the rate specified in ss.5.10 for overdue principal on the Loans. So long as no Default or Event of Default has occurred and is continuing, the Agent shall return amounts held as cash collateral pursuant to ss.4.2(b) or as a result of the Borrower's termination of the Total Commitment pursuant to ss.4.2(c) within a reasonable time following the expiration or cancellation of any Letter of Credit, with the amount being so returned equal to the Maximum Drawing Amount of such expired or cancelled Letter of Credit. 4.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or other demand for payment shall be made under any Letter of Credit, the Agent shall notify the Borrower of the date and amount of the draft presented or demand for payment and of the date and time when it expects to pay such draft or honor such demand for payment. If the Borrower fails to reimburse the Agent as provided in ss.4.2 on or before the date that such draft is paid or other payment is made by the Agent, the Agent may at any time thereafter notify the Banks of the amount of any such Unpaid Reimbursement Obligation. No later than 3:00 p.m. (Boston time) on the Business Day next following the receipt of such notice, each Bank shall make available to the Agent, at its Head Office, in immediately available funds, such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation, together with an amount equal to the product of (i) the average, computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, TIMES (ii) the amount equal to such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation, TIMES (iii) a fraction, the numerator of which is the number of days that elapse from and including the date the Agent paid the draft presented for honor or otherwise made payment to the date on which such Bank's Commitment Percentage of such Unpaid Reimbursement obligation shall become immediately available to the Agent, and the denominator of which is 360. The responsibility of the Agent to the Borrower and the Banks shall be only to determine that the documents (including each draft) delivered under each Letter of Credit in connection with such presentment shall be in conformity in all material respects with such Letter of Credit, and upon such determination, the Agent shall honor a demand for payment under such Letter of Credit. 4.4. OBLIGATIONS ABSOLUTE. The Borrower's obligations under this ss.4 shall be absolute and unconditional under any and all circumstances and irrespective, so long as the Agent has honored any appropriate demand for payment with respect to any Letter of Credit, of the occurrence of any Default or Event of Default or any condition precedent whatsoever or any setoff, counterclaim or defense to payment which the Borrower may have or have had against the Agent, any Bank or any beneficiary of a Letter of Credit. The Borrower further agrees with the Agent and the Banks that the Agent and the Banks shall not be responsible for, and the Borrower's Reimbursement Obligations under ss.4.2 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among the Borrower, the beneficiary of any Letter of Credit or any financing institution or other party to which any Letter of Credit may be transferred or any claims or defenses whatsoever of the Borrower 28 -21- against the beneficiary of any Letter of Credit or any such transferee. The Agent and the Banks shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. The Borrower agrees that any action taken or omitted by the Agent or any Bank under or in connection with each Letter of Credit and the related drafts and documents, if done in good faith and with commercial reasonableness, shall be binding upon the Borrower and shall not result in any liability on the part of the Agent or any Bank to the Borrower. 4.5. RELIANCE BY ISSUER. To the extent not inconsistent with ss.4.4, the Agent shall be entitled to rely, and shall be fully protected in relying upon, any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first have received such advice or concurrence of the Majority Banks as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Majority Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Banks and all future holders of the Notes or of a Letter of Credit Participation. 4.6. LETTER OF CREDIT FEE. The Borrower shall, on the date of issuance or any extension or renewal of any Letter of Credit and at such other time or times as such charges are customarily made by the Agent, pay a fee (in each case, a "Letter of Credit Fee") to the Agent (i) in respect of each standby Letter of Credit equal to (A) the Applicable Eurodollar Rate Margin in effect on such date MULTIPLIED BY the face amount of such standby Letter of Credit PLUS (B) the Agent's customary issuance fee PLUS (C) a fronting fee (for the account of the Agent) equal to one-eighth of one percent (0.125)% per annum of the face amount of such standby Letter of Credit, and (ii) in respect of each documentary Letter of Credit equal to (A) the Agent's customary administrative fees PLUS (B) the Applicable Eurodollar Rate Margin in effect on such date MULTIPLIED BY the face amount of such documentary Letter of Credit, PLUS (C) a fronting fee to the Agent equal to one-eighth of one percent (0.125%) per annum of the face amount of such documentary Letter of Credit, such Letter of Credit Fee (but not such issuance, administrative or fronting fees) to be for the accounts of the Banks in accordance with their respective Commitment Percentages. 29 -22- 5. CERTAIN GENERAL PROVISIONS. 5.1. FEES. The Borrower agrees to pay to the Agent the fees described in the letter dated as of the date hereof between the Agent and the Borrower (the "Agent's Side Letter") in accordance with the terms and conditions thereof. 5.2. FUNDS FOR PAYMENTS. 5.2.1. PAYMENTS TO AGENT. All payments of principal, interest, Reimbursement Obligations, commitment fees, Letter of Credit Fees and any other amounts due hereunder or under any of the other Loan Documents shall be made to the Agent, for the respective accounts of the Banks and the Agent, at the Agent's Head Office or at such other location in the Boston, Massachusetts, area that the Agent may from time to time designate, in each case in immediately available funds. 5.2.2. NO OFFSET, ETC. All payments by the Borrower hereunder and under any of the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Agent, for the account of the Banks or (as the case may be) the Agent, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Banks or the Agent to receive the same net amount which the Banks or the Agent would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Agent certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document. 5.3. COMPUTATIONS. All computations of interest on the Loans and of commitment fees, Letter of Credit Fees or other fees shall, unless otherwise expressly provided herein, be based on a 360-day year and paid for the actual number of days elapsed; PROVIDED, HOWEVER, that computations of interest on Base Rate Loans shall be based on a 365 or, as the case may be, 366-day year and paid for the actual number of days elapsed. Except as otherwise provided in the definition of the term "Interest Period" with respect to Eurodollar Rate Loans, whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amount of the Loans as reflected on the records of each Bank and the Agent from time to time shall be considered correct and binding on the Borrower unless within five (5) Business Days after receipt of any notice from the Agent or any of the Banks of such outstanding amount, the Borrower shall notify the Agent or such Bank to the contrary. 5.4. INABILITY TO DETERMINE EURODOLLAR RATE. In the event, prior to the commencement of any Interest Period relating to any Eurodollar Rate Loan, the Agent shall determine or be notified by the Majority Banks that adequate and reasonable methods do not exist for ascertaining the Eurodollar Rate that would otherwise determine the rate of interest to be applicable to any Eurodollar Rate Loan during any Interest Period, the Agent shall forthwith give notice of such determination (which shall be conclusive and binding on 30 -23- the Borrower and the Banks) to the Borrower and the Banks. In such event (i) any Loan Request or Conversion Request with respect to Eurodollar Rate Loans shall be automatically withdrawn and shall be deemed a request for Base Rate Loans, (ii) each Eurodollar Rate Loan will automatically, on the last day of the then current Interest Period relating thereto, become a Base Rate Loan, and (iii) the obligations of the Banks to make Eurodollar Rate Loans shall be suspended until the Agent determines that the circumstances giving rise to such suspension no longer exist, whereupon the Agent shall so notify the Borrower and the Banks. 5.5. ILLEGALITY. Notwithstanding any other provisions herein, if any present or future law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain Eurodollar Rate Loans, such Bank shall forthwith give notice of such circumstances to the Borrower and the other Banks and thereupon (i) the commitment of such Bank to make Eurodollar Rate Loans or convert Loans of another Type to Eurodollar Rate Loans shall forthwith be suspended and (ii) such Bank's Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted automatically to Base Rate Loans on the last day of each Interest Period applicable to such Eurodollar Rate Loans or within such earlier period as may be required by law. The Borrower hereby agrees promptly to pay the Agent for the account of such Bank, upon demand by such Bank, any additional amounts necessary to compensate such Bank for any costs incurred by such Bank in making any conversion in accordance with this ss.5.5, including any interest or fees payable by such Bank to lenders of funds obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder. 5.6. ADDITIONAL COSTS, ETC. If any present or future applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Bank or the Agent by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: (a) subject any Bank or the Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other Loan Documents, any Letters of Credit, such Bank's Commitment or the Loans (other than taxes based upon or measured by the income or profits of such Bank or the Agent), or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Bank of the principal of or the interest on any Loans or any other amounts payable to any Bank or the Agent under this Credit Agreement or any of the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or letters of credit issued by, or commitments of an office of any Bank, or 31 -24- (d) impose on any Bank or the Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, any Letters of Credit, the Loans, such Bank's Commitment, or any class of loans, letters of credit or commitments of which any of the Loans or such Bank's Commitment forms a part, and the result of any of the foregoing is (i) to increase the cost to any Bank of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Bank's Commitment or any Letter of Credit, or (ii) to reduce the amount of principal, interest, Reimbursement Obligation or other amount payable to such Bank or the Agent hereunder on account of such Bank's Commitment, any Letter of Credit or any of the Loans, or (iii) to require such Bank or the Agent to make any payment or to forego any interest or Reimbursement Obligation or other sum payable hereunder, the amount of which payment or foregone interest or Reimbursement Obligation or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank or the Agent from the Borrower hereunder, then, and in each such case, the Borrower will, upon demand made by such Bank or (as the case may be) the Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank or the Agent such additional amounts as will be sufficient to compensate such Bank or the Agent for such additional cost, reduction, payment or foregone interest or Reimbursement Obligation or other sum. 5.7. CAPITAL ADEQUACY. If after the date hereof any Bank or the Agent determines that (i) the adoption of or change in any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) regarding capital requirements for banks or bank holding companies or any change in the interpretation or application thereof by a court or governmental authority with appropriate jurisdiction, or (ii) compliance by such Bank or the Agent or any corporation controlling such Bank or the Agent with any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) of any such entity regarding capital adequacy, has the effect of reducing the return on such Bank's or the Agent's commitment with respect to any Loans to a level below that which such Bank or the Agent could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or the Agent's then existing policies with respect to capital adequacy and assuming full utilization of such entity's capital) by any amount deemed by such Bank or (as the case may be) the Agent to be material, then such Bank or the Agent may notify the Borrower of such fact. To the extent that the amount of such reduction in the return on capital is not reflected in the Base Rate, the Borrower agrees to pay such Bank or (as the case may be) the Agent for the amount of such reduction in the return on capital as and when such reduction is determined upon presentation by such Bank or (as the case may be) the Agent of a certificate in accordance with ss.5.8 hereof. Each Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. 32 -25- 5.8. CERTIFICATE. A certificate setting forth any additional amounts payable pursuant to secs. 5.6 or 5.7 and a brief explanation of such amounts which are due, submitted by any Bank or the Agent to the Borrower, shall be conclusive, absent manifest error, that such amounts are due and owing. The Agent or any Bank which becomes aware that such amounts are due and owing shall provide such Certificate to the Borrower within a reasonable period after becoming so aware. 5.9. INDEMNITY. The Borrower agrees to indemnify each Bank and to hold each Bank harmless from and against any loss, cost or expense (including loss of anticipated profits) that such Bank may sustain or incur as a consequence of (i) default by the Borrower in payment of the principal amount of or any interest on any Eurodollar Rate Loans as and when due and payable, including any such loss or expense arising from interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain its Eurodollar Rate Loans, (ii) default by the Borrower in making a borrowing or conversion after the Borrower has given (or is deemed to have given) a Loan Request or a Conversion Request relating thereto in accordance with ss.2.6 or ss.2.7 or (iii) the making of any payment of a Eurodollar Rate Loan or the making of any conversion of any such Loan to a Base Rate Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain any such Loans. 5.10. INTEREST AFTER DEFAULT. 5.10.1. OVERDUE AMOUNTS. Overdue principal and (to the extent permitted by applicable law) interest on the Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest compounded monthly and payable on demand at a rate per annum equal to two percent (2%) above the Base Rate until such amount shall be paid in full (after as well as before judgment). 5.10.2. AMOUNTS NOT OVERDUE. During the continuance of a Default or an Event of Default the principal of the Loans not overdue shall, until such Default or Event of Default has been cured or remedied or such Default or Event of Default has been waived by the Majority Banks pursuant to ss.26, bear interest at a rate per annum equal to the greater of (i) two percent (2%) above the rate of interest otherwise applicable to such Loans pursuant to ss.2.5 and (ii) the rate of interest applicable to overdue principal pursuant to ss.5.10.1. 6. GUARANTIES. The Obligations shall be guaranteed by each Guarantor pursuant to the terms of the Guaranties. 7. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Banks and the Agent as follows: 7.1. CORPORATE AUTHORITY. 33 -26- 7.1.1. INCORPORATION; GOOD STANDING. Each of the Transaction Parties (i) is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, (ii) has all requisite corporate power to own its property and conduct its business as now conducted, and (iii) is in good standing as a foreign corporation and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a failure to be so qualified would not have a materially adverse effect on the business, assets or financial condition of such Transaction Parties. 7.1.2. AUTHORIZATION. The execution, delivery and performance of this Credit Agreement and the other Loan Documents to which any of the Transaction Parties is or is to become a party and the transactions contemplated hereby and thereby (a) are within the corporate authority of such Person, (b) have been duly authorized by all necessary corporate proceedings, including, without limitation, any consents or approvals of shareholders of the Borrower, (c) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which any of the Transaction Parties is subject (including, without limitation, Regulations G, T, U or X of the Board of Governors of the Federal Reserve System) or any judgment, order, writ, injunction, license or permit applicable to any of the Transaction Parties and (d) do not conflict with any provision of the corporate charter or bylaws of, or any agreement or other instrument binding upon, any of the Transaction Parties. 7.1.3. ENFORCEABILITY. The execution and delivery of this Credit Agreement and the other Loan Documents to which any of the Transaction Parties is or is to become a party will result in valid and legally binding obligations of such Person enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 7.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by any of the Transaction Parties of this Credit Agreement and the other Loan Documents to which any of the Transaction Parties is or is to become a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any governmental agency or authority other than those already obtained or to be obtained in accordance with the requirements of the Loan Documents. 7.3. TITLE TO PROPERTIES; LEASES. Except as indicated on SCHEDULE 7.3 hereto, the Borrower and its Subsidiaries own all of the assets reflected in the consolidated balance sheet of the Borrower and its Subsidiaries or, as the case may be, Zycon and its Subsidiaries, as at the Balance Sheet Date, or, as the case may be, the Zycon Balance Sheet Date, or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no rights of others, including 34 -27- any mortgages, leases, conditional sales agreements, title retention agreements, liens or other encumbrances except Permitted Liens. 7.4. FINANCIAL STATEMENTS, PROJECTIONS AND SOLVENCY. 7.4.1. FINANCIAL STATEMENTS. There has been furnished to each of the Banks (a) a consolidated balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date, and a consolidated statement of income of the Borrower and its Subsidiaries for the fiscal year then ended, certified by Arthur Andersen LLP, (b) a consolidated balance sheet of Zycon and its Subsidiaries as at the Zycon Balance Sheet Date, and a consolidated statement of income of Zycon and its Subsidiaries for the portion of the fiscal year then ended, certified by Arthur Andersen LLP, and (c) a consolidated balance sheet of the Borrower and its Subsidiaries as at July 26, 1997, and a Consolidated statement of income of the Borrower and its Subsidiaries for the fiscal quarter then ended, prepared by the Borrower. Such balance sheets and statements of income have been prepared in accordance with generally accepted accounting principles and fairly present the financial condition of the Borrower or Zycon, as the case may be, as at the close of business on the date thereof and the results of operations for the fiscal year or fiscal quarter then ended. There are no contingent liabilities of the Borrower or any of its Subsidiaries as of the Balance Sheet Date, or of Zycon and its Subsidiaries as of the Zycon Balance Sheet Date, involving material amounts, known to the officers of the Borrower, which were not disclosed in such balance sheets and the notes related thereto. 7.4.2. PROJECTIONS. The projections of the annual operating budgets of the Borrower and its Subsidiaries on a consolidated basis, balance sheets and cash flow statements for the October, 1998 to October, 2002 fiscal years, copies of which have been delivered to each Bank, disclose all assumptions made with respect to general economic, financial and market conditions used in formulating such projections. To the knowledge of the Borrower or any of its Subsidiaries, no facts exist that (individually or in the aggregate) would result in any material change in any of such projections. The projections are based upon reasonable estimates and assumptions, have been prepared on the basis of the assumptions stated therein and reflect the reasonable estimates of the Borrower and its Subsidiaries of the results of operations and other information projected therein. 7.4.3. SOLVENCY. Each of the Transaction Parties, both before and after giving effect to the transactions contemplated hereby, is solvent (within the meaning contemplated by Section 548 of Title 11 of the United States Code and any similar state statute which may be applicable), has and will have assets having a fair value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured and has, and will have, access to adequate capital for the conduct of its business and the ability to pay its debts from time to time incurred in connection therewith as such debts mature. 35 -28- 7.5. NO MATERIAL CHANGES, ETC. Except as set forth on SCHEDULE 7.5 hereto, since the Balance Sheet Date, there has occurred no materially adverse change in the financial condition or business of the Borrower and its Subsidiaries, as shown on or reflected in the consolidated balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date, or, as the case may be, of Zycon and its Subsidiaries as at the Zycon Balance Sheet Date, for the year then ended, or the consolidated statements of income for the fiscal year of the Borrower or, as the case may be, Zycon then ended, other than changes in the ordinary course of business that have not had any materially adverse effect, either individually or in the aggregate, on the business or financial condition of the Borrower and its Subsidiaries, considered as a whole. Since the Balance Sheet Date, neither the Borrower nor any of its Subsidiaries has made any Distribution other than the Zycon Employee Distribution. 7.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Transaction Parties possesses all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted without known conflict with any rights of others. 7.7. LITIGATION. Except as set forth in SCHEDULE 7.7 hereto, there are no actions, suits, proceedings or investigations of any kind pending or threatened against any of the Transaction Parties, before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, materially adversely affect the properties, assets, financial condition or business of the Transaction Parties, considered as a whole, or materially impair the right of the Transaction Parties, considered as a whole, to carry on business substantially as now conducted by them, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the consolidated balance sheet of the Borrower and its Subsidiaries, or which question the validity of this Credit Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. 7.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. None of the Transaction Parties is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of such Transaction Party or on such Transaction Party's ability to perform its obligations under the Loan Documents to which it is a party. Except as set forth on SCHEDULE 7.5 hereto, none of the Transaction Parties is a party to any contract or agreement that has or is expected, in the judgment of the Borrower's officers, to have any materially adverse effect on the business of such Transaction Party. 7.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. None of the Transaction Parties is in violation of any provision of its charter documents, bylaws, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could, except as otherwise set forth on SCHEDULE 7.17, result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of such Transaction Party. 7.10. TAX STATUS. The Transaction Parties (a) except as set forth in SCHEDULE 7.10 hereto, have made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject, (b) have paid all 36 -29- taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (c) have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Borrower know of no basis for any such claim. None of the Transaction Parties has consented or will consent to be treated as a "consenting corporation" as defined in Section 341 of the Code. 7.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred and is continuing. 7.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. None of the Transaction Parties is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940. 7.13. ABSENCE OF FINANCING STATEMENTS. Except with respect to Permitted Liens, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry or other public office, that purports to cover, affect or give notice of any present or possible future lien on, or security interest in, any assets or property of any of the Transaction Parties or any rights relating thereto. 7.14. CERTAIN TRANSACTIONS. Except for arm's length transactions pursuant to which any of the Transaction Parties makes payments in the ordinary course of business upon terms no less favorable than any of the Transaction Parties could obtain from third parties, none of the officers, directors, or employees of any of the Transaction Parties is presently a party to any transaction with any of the Transaction Parties (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 7.15. EMPLOYEE BENEFIT PLANS. 7.15.1. IN GENERAL. Each Employee Benefit Plan and each Guaranteed Pension Plan has been maintained and operated in compliance in all material respects with the provisions of ERISA and, to the extent applicable, the Code, including but not limited to the provisions thereunder respecting prohibited transactions and the bonding of fiduciaries and other persons handling plan funds as required by ss.412 of ERISA. The Borrower has heretofore delivered to the Agent the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement required 37 -30- to be submitted under ss.103(d) of ERISA, with respect to each Guaranteed Pension Plan. 7.15.2. TERMINABILITY OF WELFARE PLANS. No Employee Benefit Plan which is an employee welfare benefit plan within the meaning of ss.3(1) or ss.3(2)(B) of ERISA provides benefit coverage subsequent to termination of employment except as required by Title I, Part 6 of ERISA or applicable state insurance laws. The Borrower may terminate each such Plan at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of the Borrower without liability to any Person other than for claims arising prior to termination. 7.15.3. GUARANTEED PENSION PLANS. Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice or lien provisions of ss.302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan, and neither the Borrower nor any ERISA Affiliate is obligated to or has posted security in connection with an amendment of a Guaranteed Pension Plan pursuant to ss.307 of ERISA or ss.401(a)(29) of the Code. No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by the Borrower or any ERISA Affiliate with respect to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event, or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within twelve months of the date of this representation), and on the actuarial methods and assumptions employed for that valuation, the aggregate benefit liabilities of all such Guaranteed Pension Plans within the meaning of ss.4001 of ERISA did not exceed the aggregate value of the assets of all such Guaranteed Pension Plans, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities. 7.15.4. MULTIEMPLOYER PLANS. Neither the Borrower nor any ERISA Affiliate has incurred any material liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under ss.4201 of ERISA or as a result of a sale of assets described in ss.4204 of ERISA. Neither the Borrower nor any ERISA Affiliate has been notified that any Multiemployer Plan is in reorganization or insolvent under and within the meaning of ss.4241 or ss.4245 of ERISA or is at risk of entering reorganization or becoming insolvent, or that any Multiemployer Plan intends to terminate or has been terminated under ss.4041A of ERISA. 7.16. USE OF PROCEEDS. The proceeds of the Loans shall be used for refinancing of existing indebtedness of the Borrower under the Original Credit Agreement to BKB and the other lenders party thereto, for acquisitions permitted by the terms hereof and for working 38 -31- capital and general corporate purposes. The Borrower will obtain Letters of Credit solely for general corporate purposes. No portion of any Loan is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of purchasing or carrying any Margin Stock, except in compliance with Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 7.17. ENVIRONMENTAL COMPLIANCE. The Borrower has taken all reasonable steps to investigate the past and present condition and usage of the Real Estate and the operations conducted thereon and, except as set forth in SCHEDULE 7.17 attached hereto, has determined that: (a) none of the Transaction Parties or any operator of the Real Estate or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment (hereinafter "Environmental Laws"), which violation would have a material adverse effect on the business, assets or financial condition of the Transaction Parties, considered as a whole; (b) none of the Transaction Parties has received notice from any third party including, without limitation, any federal, state or local governmental authority, (i) that any one of them has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. ss.6903(5), any hazardous substances as defined by 42 U.S.C. ss.9601(14), any pollutant or contaminant as defined by 42 U.S.C. ss.9601(33) and any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("Hazardous Substances") which any one of them has generated, transported or disposed of has been found at any site at which a federal, state or local agency or other third party has conducted or has ordered that the Transaction Parties conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances; (c) except to the extent that any of the following would not have a material adverse effect on the value of the Real Estate or the business, assets or financial condition of the Transaction Parties, considered as a whole: (i) no portion of the Real Estate has been used for the handling, processing, storage or disposal of Hazardous Substances except in accordance with applicable Environmental Laws; and no underground tank or other underground storage receptacle for Hazardous 39 -32- Substances is located on any portion of the Real Estate; (ii) in the course of any activities conducted by and of the Transaction Parties or operators of its or their properties, no Hazardous Substances have been generated or are being used on the Real Estate except in accordance with applicable Environmental Laws; (iii) there have been no releases (i.e. any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping) or threatened releases of Hazardous Substances on, upon, into or from the properties of the Transaction Parties; (iv) to the best of the Borrower's knowledge, there have been no releases on, upon, from or into any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on the Real Estate; and (v) in addition, any Hazardous Substances that have been generated on any of the Real Estate have been transported offsite only by carriers having an identification number issued by the EPA or by carriers not required by law to have such identification numbers, treated or disposed of only by treatment, recycling or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities have been and are, to the best of the Borrower's knowledge, operating in compliance with such permits and applicable Environmental Laws; and (d) Except with respect to matters that would not have a material adverse effect on the value of the Real Estate or the business, assets or financial condition of the Transaction Parties, considered as a whole, none of the Transaction Parties or any of the Real Estate is subject to any applicable environmental law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the effectiveness of any of the transactions contemplated hereby or the other Loan Documents. 7.18. SUBSIDIARIES, ETC. Hadco Santa Clara, New Zycon and Hadco FSC are the only direct Subsidiaries of the Borrower. Hadco Malaysia is the only Subsidiary of Hadco Santa Clara. Neither New Zycon nor Hadco FSC has any Subsidiaries. Except as set forth on SCHEDULE 7.18 hereto, none of the Transaction Parties is engaged in any joint venture or partnership with any other Person. 7.19. DISCLOSURE. The representations and warranties made by the Transaction Parties in this Credit Agreement or in any agreement, instrument, document, certificate, statement or letter furnished to the Banks on behalf of any of the Transaction Parties in connection with the transactions contemplated by the Loan Documents do not, taken as a whole, together with all other information provided by the Borrower in connection with the transactions contemplated by the Loan Documents, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known to the Borrower which materially adversely affects, or which is likely in the future to materially adversely affect, the business, assets or financial condition of the Transaction Parties, taken as a whole. 40 -33- 8. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank has any obligation to make any Loans or the Agent has any obligation to issue, extend or renew any Letters of Credit: 8.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or cause to be paid the principal and interest on the Loans, all Reimbursement Obligations, the Letter of Credit Fees, the commitment fees, the Agent's fee and all other amounts provided for in this Credit Agreement and the other Loan Documents to which any of the Transaction Parties is a party, all in accordance with the terms of this Credit Agreement and such other Loan Documents. 8.2. MAINTENANCE OF OFFICE. The Borrower will maintain its chief executive office in Salem, New Hampshire, or at such other place in the United States of America as the Borrower shall designate upon written notice to the Agent, where notices, presentations and demands to or upon the Borrower in respect of the Loan Documents to which the Borrower is a party may be given or made. 8.3. RECORDS AND ACCOUNTS. The Borrower will (i) keep, and cause each of the other Transaction Parties to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles, (ii) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of the other Transaction Parties, contingencies, and other reserves, and (iii) will at all times have engaged Arthur Andersen LLP or other independent certified public accountants satisfactory to the Agent as its accountants, with no more than thirty (30) days elapsing between the termination of any such accountants as the Borrower's accountants and the engagement of successor accountants satisfactory to the Agent. 8.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrower will deliver to each of the Banks: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries and the consolidating balance sheet of the Borrower and its Subsidiaries, each as at the end of such year, and the related consolidated statement of income and consolidated statement of cash flow and consolidating statement of income and consolidating statement of cash flow for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated and consolidating statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and certified without qualification by Arthur Andersen LLP or by other independent certified public accountants satisfactory to the Agent, together with a written statement from such accountants to the effect that they have read a copy of this Credit Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they 41 -34- shall disclose in such statement any such Default or Event of Default; PROVIDED that such accountants shall not be liable to the Banks for failure to obtain knowledge of any Default or Event of Default; (b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each of the fiscal quarters of the Borrower, copies of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries and the unaudited consolidating balance sheet of the Borrower and its Subsidiaries, each as at the end of such quarter, and the related consolidated statement of income and consolidated statement of cash flow and consolidating statement of income and consolidating statement of cash flow for the portion of the Borrower's fiscal year then elapsed, all in reasonable detail and prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Borrower that the information contained in such financial statements fairly presents the financial position of the Borrower and its Subsidiaries on the date thereof (subject to year-end adjustments); (c) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement certified by the principal financial or accounting officer of the Borrower in substantially the form of EXHIBIT C hereto and setting forth in reasonable detail computations evidencing compliance with the covenants contained in ss.10 and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since the Balance Sheet Date; (d) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature, all reports, proxy statements and notices filed by any of the Transaction Parties with the Securities and Exchange Commission or sent to the stockholders of the Borrower; (e) from time to time upon request of the Agent, projections of the Borrower and its Subsidiaries updating those projections delivered to the Banks and referred to in ss.7.4.2 or, if applicable, updating any later such projections delivered in response to a request pursuant to this ss.8.4(e); and (f) from time to time such other financial data and information (including accountants management letters) regarding the financial and other affairs of the Borrower and its Subsidiaries as the Agent or any Bank may reasonably request. 8.5. NOTICES. 8.5.1. DEFAULTS. The Borrower will promptly notify the Agent and each of the Banks in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Borrower or any of the other Transaction Parties is a party or obligor, whether as principal, guarantor, surety or otherwise, the Borrower shall forthwith give written 42 -35- notice thereof to the Agent and each of the Banks, describing the notice or action and the nature of the claimed default. 8.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly give notice to the Agent and each of the Banks (i) of any violation of any Environmental Law that the Borrower or any of the other Transaction Parties reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency and (ii) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, of any federal, state or local environmental agency or board, that has the potential to materially affect the assets, liabilities, financial condition or operations of the Borrower and any of the other Transaction Parties, considered as a whole. 8.5.3. NOTICE OF LITIGATION AND JUDGMENTS. The Borrower will, and will cause each of the other Transaction Parties to, give notice to the Agent and each of the Banks in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Borrower or any of the other Transaction Parties or to which the Borrower or any of the other Transaction Parties is or becomes a party (including, without limitation, any shareholder derivative suit) that could reasonably be expected to have a material adverse effect upon the consummation of the transactions contemplated hereby or involving an uninsured claim against the Borrower or any of the other Transaction Parties that could reasonably be expected to have a materially adverse effect on the Borrower or any of the other Transaction Parties and stating the nature and status of such litigation or proceedings. The Borrower will, and will cause each of the other Transaction Parties to, give notice to the Agent and each of the Banks, in writing, in form and detail satisfactory to the Agent, within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Borrower or any of the other Transaction Parties in an amount in excess of $5,000,000. 8.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and those of the other Transaction Parties and will not, and will not cause or permit any of the other Transaction Parties to, convert to a limited liability company or limited liability partnership. The Borrower (i) will cause all of its properties and those of the other Transaction Parties used or useful in the conduct of its business or the business of the other Transaction Parties to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (ii) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (iii) will, and will cause each of the other Transaction Parties to, continue to engage primarily in the businesses now conducted by them and in related businesses; PROVIDED that nothing in this ss.8.6 shall prevent the Borrower from discontinuing the operation and maintenance of any of its properties or any of those of the other Transaction 43 -36- Parties if such discontinuance is, in the judgment of the Borrower, desirable in the conduct of its or their business and that do not in the aggregate materially adversely affect the business of the Borrower and the other Transaction Parties, considered as a whole. 8.7. INSURANCE. The Borrower will, and will cause each of the other Transaction Parties to, maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent and in accordance with the terms hereof. 8.8. TAXES. The Borrower will, and will cause each of the other Transaction Parties to, duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; PROVIDED that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower or such other Transaction Party shall have set aside on its books adequate reserves with respect thereto; and PROVIDED FURTHER that the Borrower and each other Transaction Party will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 8.9. INSPECTION OF PROPERTIES AND BOOKS, ETC. 8.9.1. GENERAL. The Borrower shall permit the Banks, through the Agent or any of the Banks' other designated representatives, to visit and inspect any of the properties of the Borrower or any of the other Transaction Parties, to conduct commercial finance examinations of the Borrower and the other Transaction Parties, to examine the books of account of the Borrower and the other Transaction Parties (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Borrower and the other Transaction Parties with, and to be advised as to the same by, its and their officers, all at such reasonable times and intervals as the Agent or any Bank may reasonably request. 8.9.2. COMMUNICATIONS WITH ACCOUNTANTS. The Borrower authorizes the Agent and, if accompanied by the Agent, the Banks to communicate directly with the Borrower's independent certified public accountants and authorizes such accountants to disclose to the Agent and the Banks any and all financial statements and other supporting financial documents and schedules including copies of any management letter with respect to the business, financial condition and other affairs of the Borrower or any of the other Transaction Parties. At the request of the Agent, the Borrower shall deliver a letter addressed to such accountants instructing them to comply with the provisions of this ss.8.9.2. 44 -37- 8.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The Borrower will, and will cause each of the other Transaction Parties to, comply with (i) in all material respects, the applicable laws and regulations wherever its business is conducted, including all Environmental Laws, (ii) the provisions of its charter documents and by-laws, (iii) all agreements and instruments by which it or any of its properties may be bound and (iv) all applicable decrees, orders, and judgments. If any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrower or any of the other Transaction Parties may fulfill any of its obligations hereunder or any of the other Loan Documents to which the Borrower or such other Transaction Party is a party, the Borrower will, or (as the case may be) will cause such other Transaction Party to, immediately take or cause to be taken all reasonable steps within the power of the Borrower or such other Transaction Party to obtain such authorization, consent, approval, permit or license and furnish the Agent and the Banks with evidence thereof. 8.11. EMPLOYEE BENEFIT PLANS. The Borrower will (i) promptly upon request of the Agent, furnish to the Agent a copy of the most recent actuarial statement required to be submitted under ss.103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of eacH Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to the Agent any notice, report or demand sent or received in respect of a Guaranteed Pension Plan under ss.ss.302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245 of ERISA. 8.12. USE OF PROCEEDS. 8.12.1. GENERAL. The Borrower will use the proceeds of the Loans solely for refinancing of existing indebtedness of the Borrower under the Original Credit Agreement to BKB and the other lenders party thereto, for acquisitions permitted by the terms hereof and for working capital and general corporate purposes. The Borrower will obtain Letters of Credit solely for general corporate purposes. 8.12.2. REGULATIONS U AND X. No portion of any Loan is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of purchasing or carrying any Margin Stock in violation of Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 8.12.3. INELIGIBLE SECURITIES. No portion of the proceeds of any Loan is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of (a) knowingly purchasing, or providing credit support for the purchase of, Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (b) knowingly purchasing, or providing credit support for the purchase of, during the underwriting or placement period, any Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (c) making, or providing credit support for the making of, payments of principal or interest on Ineligible Securities underwritten or privately placed by a Section 20 Subsidiary and issued by or for the benefit of the Borrower or the Guarantor or other Affiliate of the Borrower. 45 -38- 8.13. INTEREST RATE PROTECTION AGREEMENTS. The Borrower shall (a) until January 8, 1998, maintain, upon terms and conditions satisfactory in form and substance to the Agent, interest rate protection agreements with a minimum notional amount of $75,000,000, and (b) at any time when the amount of Loans outstanding (after giving effect to all amounts requested) PLUS the Maximum Drawing Amount and all Unpaid Reimbursement Obligations exceeds $150,000,000, enter into and maintain, upon terms and conditions satisfactory in form and substance to the Agent, interest rate protection agreements with a minimum notional amount (the "Additional Notional Amount") equal to at least thirty percent (30%) of the amount of Loans outstanding PLUS the Maximum Drawing Amount and all Unpaid Reimbursement Obligations at such time; PROVIDED, HOWEVER, that, in the event that the Borrower incurs Indebtedness permitted by ss.9.1(k), which Indebtedness bears interest at a fixed, rather than a floating, rate, the Borrower shalL maintain such interest rate protection arrangements with respect to a minimum notional amount equal to the difference of (x)(i) until January 8, 1998, $75,000,000 PLUS (ii) the Additional Notional Amount MINUS (y) the amount of such permitted fixed rate Indebtedness. 8.14. FURTHER ASSURANCES. The Borrower will, and will cause each of the other Transaction Parties to, cooperate with the Banks and the Agent and execute such further instruments and documents as the Banks or the Agent shall reasonably request to carry out to their satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents. 9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank has any obligation to make any Loans or the Agent has any obligations to issue, extend or renew any Letters of Credit: 9.1. RESTRICTIONS ON INDEBTEDNESS. The Borrower will not, and will not permit any of the other Transaction Parties to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to the Banks and the Agent arising under any of the Loan Documents; (b) current liabilities of the Borrower or the other Transaction Parties incurred in the ordinary course of business not incurred through (i) the borrowing of money, or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services; (c) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of ss.8.8; (d) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not 46 -39- levied thereunder or in respect of which the Borrower or such other Transaction Party shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (e) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (f) obligations under Capitalized Leases which, when combined with amounts outstanding under ss.9.1(g), do not exceed $50,000,000 in aggregate amount at any time outstanding; (g) Indebtedness incurred in connection with the acquisition after the date hereof of any real or personal property by the Borrower or such other Transaction Party, PROVIDED that the aggregate principal amount of such Indebtedness of the Borrower and the other Transaction Parties shall, when combined with amounts outstanding under ss.9.1(f) not exceed the aggregate amount of $50,000,000 at any one time; (h) Indebtedness of the Borrower and the other Transaction Parties existing on the date hereof and listed and described on SCHEDULE 9.1 hereto; (i) Indebtedness of (i) a Guarantor, following its execution and delivery of its Guaranty to the Agent, to the Borrower; (ii) Hadco FSC to the Borrower in an aggregate amount not to exceed $2,000,000; (iii) Hadco Malaysia to the Borrower in an aggregate amount not to exceed $55,000,000, no more than $25,000,000 of which may be incurred in any one fiscal year of the Borrower; PROVIDED, HOWEVER, that if during any fiscal year the amount of such Indebtedness permitted for that fiscal year is not so utilized, such unutilized amount may be utilized in the next succeeding fiscal year; and (iv) New Zycon to the Borrower in an aggregate amount not to exceed $50,000; (j) Indebtedness consisting of contingent obligations arising in connection with any Transaction Party's compliance with applicable Environmental Laws in an amount not to exceed in the aggregate $20,000,000; (k) so long as no Default or Event of Default shall have occurred and be continuing or would occur as a result of the incurrence of any thereof, unsecured Indebtedness of the Borrower or any of the Guarantors up to an aggregate amount (the "ADDITIONAL AMOUNT") equal to the amount of $175,000,000, consisting of: (i) up to an amount equal to $150,000,000 (but not to exceed, when combined with amounts of Indebtedness incurred pursuant to clause (ii) of this ss.9.1(k), the Additional Amount) of Indebtedness which is expressly subordinated and made junior to the payment and performance in full of the Obligations; and (ii) up to $150,000,000 (but not to exceed, when combined with amounts of Indebtedness incurred pursuant to clause (i) of this ss.9.1(k), the Additional Amount) of Indebtedness which may rank PARI PASSU with the Obligations; PROVIDED, HOWEVER, that the terms of Indebtedness permitted pursuant to this ss.9.1(k) shalL include the following: 47 -40- (A) the maturity date of any such Indebtedness occurs at least one hundred twenty (120) days following the Revolving Credit Loan Maturity Date; (B) with respect to subordinated Indebtedness described in clause (i) of this ss.9.1(k), no principal, interest, fees or other amounts with respect thereto are due and payable upon the occurrence and during the continuance of a Default or Event of Default; (C) with respect to subordinated Indebtedness described in clause (i) of this ss.9.1(k), no principal or sinking fund payments are due prior to at least one hundred twenty (120) days following the Revolving Credit Loan Maturity Date; (D) the rate of interest and other fees applicable to such Indebtedness are, in the reasonable judgment of the Agent and the Majority Banks, a market rate for companies with the same or a similar financial profile as the Borrower; (E) the covenants, including affirmative, negative and financial covenants, included therein are, in the reasonable judgment of the Agent and the Majority Banks, less restrictive than the covenants set forth in ss.ss.8, 9 and 10 hereof and do Not contain a negative pledge on assets of the Borrower and the other Transaction Parties (but may, with respect to PARI PASSU Indebtedness described in clause (ii) of this ss.9.1(k), contain an "equal and ratable clause" with respect to any collateral obtained by the Agent and the Banks); (F) the terms and conditions of which may not be amended without the prior written consent of the Agent and the Majority Banks; (G) default provisions with respect to which do not cross-default to the Credit Agreement and the other Loan Documents, except that, with respect to PARI PASSU Indebtedness described in clause (ii) of this ss.9.1(k), such default provisions may cross-default to a Default or Event of Default under ss.13.1(a) or (b), to the extent that any such Default or Event of Default is not cured or waived within thirty (30) days after the occurrence thereof; (H) subordinated Indebtedness described in clause (i) of this ss.9.1(k) shall be expressly subordinated and made junior to the payment and performance in full of the Obligations owed by the Borrower or, as the case may be, the Guarantor issuing such subordinated Indebtedness, as evidenced as subordinate by a Subordination and Intercreditor Agreement or other written instrument containing subordination provisions in form and substance satisfactory to (in their sole and absolute discretion) and approved by the Agent and the Majority Banks in writing; and (I) such other terms and conditions as the Agent and the Majority Banks may reasonably require; 48 -41- PROVIDED, FURTHER, that prior to the incurrence of any such Indebtedness, the Borrower shall provide to the Agent and each of the Banks PRO FORMA financial statements and compliance certificates in the form of EXHIBIT C indicating that for the period from the date of the incurrence of such Indebtedness until the Revolving Credit Loan Maturity Date, no Default or Event of Default would result from the incurrence of such Indebtedness; and (l) Indebtedness not otherwise set forth in clauses (a) - (k) of this ss.9.1 in an amount not to exceed $2,000,000 in the aggregate. 9.2. RESTRICTIONS ON LIENS. The Borrower will not, and will not permit any of the other Transaction Parties to, (i) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; (ii) transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (iii) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (iv) suffer to exist for a period of more than sixty (60) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (v) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse; PROVIDED that the Borrower and any of the other Transaction Parties may create or incur or suffer to be created or incurred or to exist: (a) liens in favor of the Borrower on all or part of the assets of any of the other Transaction Parties securing Indebtedness permitted by ss.9.1 and owing by such other Transaction Parties to the Borrower; (b) liens to secure taxes, assessments and other government charges in respect of obligations not overdue or liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue; (c) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (d) liens on properties in respect of judgments or awards, the Indebtedness with respect to which is permitted by ss.9.1(d); (e) liens of carriers, warehousemen, mechanics and materialmen, and other like liens on properties in existence less than 120 days from the date of creation thereof in respect of obligations not overdue; (f) encumbrances on Real Estate consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which the 49 -42- Borrower or any of the other Transaction Parties is a party, and other minor liens or encumbrances none of which in the opinion of the Borrower interferes materially with the use of the property affected in the ordinary conduct of the business of the Borrower and the other Transaction Parties, which defects do not individually or in the aggregate have a materially adverse effect on the business of the Borrower individually or of the Borrower and the other Transaction Parties on a consolidated basis; (g) liens existing on the date hereof and listed on SCHEDULE 9.2 hereto; (h) purchase money security interests in or purchase money mortgages on real or personal property acquired after the date hereof to secure purchase money Indebtedness of the type and amount permitted by ss.9.1(g), incurred in connection with the acquisition of such property, which security interests or mortgages cover only the real or personal property so acquired; and (i) liens on any Margin Stock held by the Borrower or the other Transaction Parties. 9.3. RESTRICTIONS ON INVESTMENTS. The Borrower will not, and will not permit any of the other Transaction Parties to, make or permit to exist or to remain outstanding any Investment except for Investments in: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Borrower; (b) demand deposits, certificates of deposit, bankers acceptances, money market deposits and time deposits of any of the Banks (including branches of any of the Banks) or other United States banks having total assets in excess of $1,000,000,000; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Services, Inc., and not less than "A 1" if rated by Standard and Poor's; (d) mutual funds which invest solely in the types of Investments described in ss.9.3(a), (b) and (c); (e) Investments existing on the date hereof and listed on SCHEDULE 9.3 hereto; (f) Investments consisting of the Guaranties or Investments by the Borrower in (i) any of the Guarantors, (ii) Hadco FSC in an aggregate amount not to exceed $2,000,000; or (iii) New Zycon in an aggregate amount not to exceed $50,000; (g) Investments with respect to Indebtedness permitted by ss.9.1(i)(iii); 50 -43- (h) Investments consisting of promissory notes received as proceeds of asset dispositions permitted by ss.9.5.3 and Investments otherwise permitted by ss.9.5.2; (i) Investments consisting of loans and advances to employees for moving, entertainment, travel and other similar expenses in the ordinary course of business not to exceed $10,000,000 in the aggregate at any time outstanding; (j) marketable direct or guaranteed obligations of United States municipalities that are rated by Standard and Poor's and Moody's Investors Services, Inc. as investment grade and that mature within five (5) years from the date of purchase by the Borrower, in an amount not to exceed $2,000,000 from any one issuing municipality and in an aggregate amount not to exceed the lesser of $5,000,000 and fifty percent (50%) of all Investments made by the Borrower or any of the other Transaction Parties under ss.9.3(a), (b), (c), (d) and (k); and (k) mutual funds investing in marketable direct or guaranteed obligations of United States municipalities that are rated by Standard and Poor's and Moody's Investors Services, Inc. as investment grade and that mature within five (5) years from the date of purchase by the Borrower, in an amount not to exceed $2,000,000 from any mutual fund and in an aggregate amount not to exceed $5,000,000. 9.4. DISTRIBUTIONS. The Borrower will not make any Distributions. 9.5. MERGERS AND CONSOLIDATIONS, ACQUISITIONS AND DISPOSITION OF ASSETS. 9.5.1. MERGERS AND CONSOLIDATIONS. The Borrower will not, and will not permit any of the other Transaction Parties to, become a party to any merger or consolidation, except (a) the merger or consolidation of one or more Subsidiaries of the Borrower with and into the Borrower, (b) the merger or consolidation of two or more Subsidiaries of the Borrower and (c) the merger or consolidation of a Target of a Permitted Acquisition with and into the Borrower or one of its Subsidiaries. 9.5.2. ACQUISITIONS. The Borrower will not, and will not permit any of the other Transaction Parties to agree to or effect any asset acquisition or stock acquisition (other than the acquisition of assets in the ordinary course of business consistent with past practices); PROVIDED, HOWEVER, that: (a) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower may make one or more asset or stock acquisitions in an amount not to exceed $25,000,000 in any individual case or $50,000,000 in the aggregate; PROVIDED, HOWEVER, that any such stock acquisition shall not result in the Borrower, individually or collectively with any one or more of its Affiliates, owning, either legally or beneficially, more than fifty percent (50.00%) of the Voting Stock of any entity which is the subject of such acquisition; and (b) subject to the requirements of this ss.9.5.2(b), the Borrower may effecT asset or stock acquisitions in addition to those otherwise permitted by 51 -44- this ss.9.5.2 to the extent that (i) the business to be acquired (the "Target") is in the same or similar lines of business as the Borrower and the other Transaction Parties, (ii) each of the annual financial statements of the Target for each of the immediately preceding three (3) fiscal years of the Target and each of its Subsidiaries, show a positive net income prior to adjustments, (iii) following the completion of such Permitted Acquisition, the Borrower or one of its wholly owned Subsidiaries shall own one hundred percent (100%) of the stock and assets of the Target and each of its Subsidiaries, (iv) as of the date of such Permitted Acquisition, no Default or Event of Default shall have occurred and be continuing or shall occur after giving effect thereto; (v) after giving effect to such Permitted Acquisition, the ratio of Consolidated Funded Debt as at the most recent fiscal quarter end of the Borrower to EBITDA for the four consecutive fiscal quarters of the Borrower ending with such quarter end (as shown on a PRO FORMA basis based upon (A) the most recently delivered financial statements of the Borrower and its Subsidiaries delivered in accordance with ss.8.4 and (B) audited financial statements for such Target as at the most recent fiscaL quarter end of the Borrower which are accompanied by an unqualified audited opinion letter from Arthur Anderson LLP or another nationally recognized accounting firm satisfactory to the Agent and the Majority Banks or which are otherwise satisfactory to the Agent and the Majority Banks) would not exceed 3.0:1.0; and (vi) contemporaneously with the closing of such Permitted Acquisition, the Borrower shall provide to the Agent and the Banks a compliance certificate in the form of EXHIBIT C, duly certified by the principal financial or accounting officer of the Borrower, indicating the Borrower's compliance with (x) the financial covenants contained in ss.10 immediately prior to and, on a PRO FORMA basis, immediately following such Permitted Acquisition and (y) on a PRO FORMA basis, the requirement set forth in ss.9.5.2(b)(v); and PROVIDED FURTHER that, contemporaneously with the closing of such Permitted Acquisition, any newly acquired Subsidiary shall, pursuant to documentation in form and substance satisfactory to the Agent and the Agent's Special Counsel, become a party to and Guarantor under, and be bound by all of the terms and conditions of, a Guaranty in the form of EXHIBIT E hereto and shall provide to the Agent, in addition to such Guaranty, such evidence of corporate authorization, legal opinions and other documentation as the Agent may request. To the extent that any such Permitted Acquisition alters the accuracy or completeness of any of the Schedules hereto, the Borrower shall deliver to the Agent, contemporaneously with the delivery of the loan documentation referred to above, revised schedules reflecting changes resulting from such Permitted Acquisition; PROVIDED that the Agent shall only be required to accept such revised schedules, and such revised schedules shall only become part of this Credit Agreement, in the event that the Borrower shall have taken any and all action necessary to bring such newly acquired Subsidiary into compliance with each representation and warranty set forth herein, including in ss.7 hereof; and PROVIDED FURTHER that no change resulting from any Permitted Acquisition would have a material adverse effect on the Borrower and the other Transaction Parties, taken as a whole. 52 -45- 9.5.3. DISPOSITION OF ASSETS. The Borrower will not, and will not permit any of the other Transaction Parties to, become a party to or agree to or effect any disposition of assets, other than the disposition of assets in the ordinary course of business, consistent with past practices, and dispositions of Margin Stock for fair market value in cash. 9.6. SALE AND LEASEBACK. Except for arrangements described on SCHEDULE 9.6 and arrangements with respect to which the property being sold or transferred has an aggregate fair market value not to exceed $10,000,000 for all such arrangements, the Borrower will not, and will not permit any of the other Transaction Parties to, enter into any arrangement, directly or indirectly, whereby the Borrower or any of the other Transaction Parties shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Borrower or any of the other Transaction Parties intends to use for substantially the same purpose as the property being sold or transferred. 9.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. Except to the extent that any of the following would not have a material adverse effect on the business, assets or financial condition of the Transaction Parties, considered as a whole, the Borrower will not, and will not permit any of the other Transaction Parties to, (i) use any of the Real Estate or any portion thereof for the handling, processing, storage or disposal of Hazardous Substances, (ii) cause or permit to be located on any of the Real Estate any underground tank or other underground storage receptacle for Hazardous Substances, (iii) generate any Hazardous Substances on any of the Real Estate, (iv) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping) or threatened release of Hazardous Substances on, upon or into the Real Estate or (v) otherwise conduct any activity at any Real Estate or use any Real Estate in any manner that would violate any Environmental Law or bring such Real Estate in violation of any Environmental Law. 9.8. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor any ERISA Affiliate will (a) engage in any "prohibited transaction" within the meaning of ss.406 of ERISA or ss.4975 of the Code which could result in a material liability for the Borrower or any of the other Transaction Parties; or (b) permit any Guaranteed Pension Plan to incur an "accumulated funding deficiency", as such term is defined in ss.302 of ERISA, whether or not such deficiency is or may be waived; or (c) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could result in the imposition of a lien or encumbrance on the assets of the Borrower or any of the other Transaction Parties pursuant to ss.302(f) or ss.4068 of ERISA; or (d) amend any Guaranteed Pension Plan in circumstances requiring the posting of security pursuant to ss.307 of ERISA or ss.401(a)(29) of the Code; or 53 -46- (e) permit or take any action which would result in the aggregate benefit liabilities (with the meaning of ss.4001 of ERISA) of all Guaranteed Pension Plans exceeding the value of thE aggregate assets of such Plans, disregarding for this purpose the benefit liabilities and assets of any such Plan with assets in excess of benefit liabilities. 9.9. CAPITALIZATION. The Borrower will not and will not permit any of the other Transaction Parties to designate, establish or create any new or additional series of capital stock or effect or permit any change in or amendment to its charter documents (other than a change to increase the amount of authorized common stock of such Person) or any other document or instrument pertaining to the terms of the capital stock of such Person. Neither the Borrower nor any of the other Transaction Parties will enter into or permit to exist any contractual or other obligation to redeem, retire or repurchase any of its capital stock. 9.10. AGREEMENTS REGARDING HADCO FSC AND NEW ZYCON. Neither the Borrower nor any of the other Transaction Parties shall permit Hadco FSC (a) to engage in any activities other than those directly related to its purpose as a foreign sales corporation pursuant to ss.ss.921-927 of the Code or (b) at Any time to own, hold or have an interest in property or assets, whether tangible or intangible and including cash and cash equivalents, with a fair market value in excess of $2,000,000. Neither the Borrower nor any of the other Transaction Parties shall permit New Zycon (x) to engage in any activities other than holding the name "Zycon Corporation" for the benefit of the Borrower and its Subsidiaries or (y) at any time to own, hold or have an interest in property or assets, whether tangible or intangible and including cash and cash equivalents, with a fair market value in excess of $50,000. 10. FINANCIAL COVENANTS OF THE BORROWER. The Borrower covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank has any obligation to make any Loans or the Agent has any obligation to issue, extend or renew any Letters of Credit: 10.1. FUNDED DEBT TO EBITDA. The Borrower will not, as at the end of any four consecutive fiscal quarters of the Borrower, permit the ratio of (a) Consolidated Funded Debt as at such quarter end to (b) EBITDA for such four consecutive fiscal quarters then ended to be greater than 3.25:1.00. 10.2. DEBT SERVICE. The Borrower will not, as at the end of any four consecutive fiscal quarters of the Borrower, permit the ratio of (a) EBIT for such fiscal quarters to (b) Consolidated Total Interest Expense for such fiscal quarters, to be less than 3.5:1.0. 10.3. CONSOLIDATED NET WORTH. The Borrower will not permit Consolidated Net Worth at any time to be less than the sum of (a) $60,000,000 PLUS (b) on a cumulative basis, fifty percent (50%) of positive Consolidated Net Income (not to be reduced for losses) for each fiscal quarter beginning with the fiscal quarter ended January 25, 1997, PLUS (c) one hundred percent (100%) of the net proceeds of any sale by the Borrower since January 8, 1997 of (i) equity securities issued by the Borrower or (ii) warrants or subscription rights for equity securities issued by the Borrower MINUS (d) without duplication (and in the event 54 -47- not included in the calculation of positive Consolidated Net Income in clause (b) above), Non-Cash Acquisition Expenses. 10.4. FIXED CHARGE COVERAGE RATIO. The Borrower will not at any time permit the ratio of (a)(i) EBITDA for any four consecutive fiscal quarters of the Borrower MINUS (ii) Capital Expenditures made by the Borrower or any of its Subsidiaries during such period MINUS (iii) cash taxes paid by the Borrower or any of its Subsidiaries during such period to (b)(i) principal payments on Indebtedness for borrowed money made by the Borrower or any of its Subsidiaries during such period PLUS (ii) Consolidated Total Interest Expense of the Borrower and its Subsidiaries for such period to be less than 1.10:1.00. The calculation of such ratio shall include, on a PRO FORMA basis and if and to the extent approved by the Majority Banks (which approval shall require, INTER ALIA, the Agent's and the Banks' receipt of audited financial statements for any Target acquired in accordance with ss.9.5.2(b), together with aN unqualified audited opinion letter from Arthur Andersen LLP or another nationally recognized accounting firm satisfactory to the Agent and the Majority Banks, or which financial statements or opinion letter shall otherwise be satisfactory to the Agent and the Majority Banks), EBITDA for such period of any Target acquired in compliance with ss.9.5.2(b). 11. CLOSING CONDITIONS. The obligations of the Banks to make the initial Loans and of the Agent to issue any initial Letters of Credit shall be subject to the satisfaction of the following conditions precedent on or prior to December 15, 1997: 11.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Banks. Each Bank shall have received a fully executed copy of each such document. The conditions, actions and items set forth in the Post-Closing Letter shall not be deemed waived by virtue of the fact that they are not completed as of the Closing Date. 11.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks shall have received from each of the Borrower and Hadco Santa Clara, a copy, certified by a duly authorized officer of such Person to be true and complete on the Closing Date, of each of (i) its charter or other incorporation documents as in effect on such date of certification, and (ii) its by-laws as in effect on such date. 11.3. CORPORATE ACTION. All corporate action necessary for the valid execution, delivery and performance by the Borrower and each of the other Transaction Parties of this Credit Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Banks shall have been provided to each of the Banks. 11.4. INCUMBENCY CERTIFICATE. Each of the Banks shall have received from each Transaction Party an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of such Transaction Party, and giving the name and bearing a specimen signature of each individual who shall be authorized: (i) to sign, in the name and on behalf of each such Transaction Party, each of the Loan Documents to which such Transaction 55 -48- Party is or is to become a party; (ii) in the case of the Borrower, to make Loan Requests and Conversion Requests and to apply for Letters of Credit; and (iii) to give notices and to take other action on its behalf under the Loan Documents to which it is a party. 11.5. UCC SEARCH RESULTS. The Agent shall have received from each of the Borrower and the other Transaction Parties the results of UCC searches in jurisdictions certified by the Borrower as constituting the locations of all offices and locations, including the chief executive office, of the Borrower and each of the other Transaction Parties and in such other jurisdictions as the Agent may request, indicating no liens other than Permitted Liens and otherwise in form and substance satisfactory to the Agent. 11.6. CERTIFICATES OF INSURANCE. The Agent shall have received (i) a certificate of insurance from an independent insurance broker dated as of the Closing Date, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the insurance obtained in accordance with the provisions of this Credit Agreement and (ii) certified copies of all policies evidencing such insurance (or certificates therefore signed by the insurer or an agent authorized to bind the insurer). 11.7. SOLVENCY CERTIFICATE. Each of the Banks shall have received an officer's certificate of the Borrower dated as of the Closing Date as to the solvency of the Borrower and the other Transaction Parties following the consummation of the transactions contemplated herein and in the other Loan Documents and in form and substance satisfactory to the Banks. 11.8. OPINION OF COUNSEL. Each of the Banks and the Agent shall have received a favorable legal opinion addressed to the Banks and the Agent, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Agent, from Berlin, Hamilton & Dahmen, counsel to the Borrower and its Subsidiaries. 11.9. PAYMENT OF FEES. The Borrower shall have paid to the Banks or the Agent, as appropriate, any Letter of Credit fees and the fees payable pursuant to ss.5.1 and the Agent's Side Letter. 11.10. PAY-OFF LETTERS, ETC. The Agent shall have received separate pay-off letters, each satisfactory in form and substance to the Agent, from each of the Exiting Banks, indicating all loan obligations of the Borrower and its Subsidiaries to such Exiting Bank under the Original Credit Agreement to be discharged on the Closing Date and setting forth an agreement by each such Exiting Bank that, upon receipt of such funds, all loan obligations shall be paid and discharged in full and instructing the Agent to use a portion of the proceeds of the initial Loans to make such repayments. 12. CONDITIONS TO ALL BORROWINGS. The obligations of the Banks to make any Loan, and of the Agent to issue, extend or renew any Letter of Credit, in each case whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent: 12.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the representations and warranties of any of the Borrower and the Guarantors contained in this Credit 56 -49- Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time of the making of such Loan or the issuance, extension or renewal of such Letter of Credit, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. The Agent shall have received a certificate of the Borrower signed by an authorized officer of the Borrower to such effect. 12.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of any Bank would make it illegal for such Bank to make such Loan or to participate in the issuance, extension or renewal of such Letter of Credit or in the reasonable opinion of the Agent would make it illegal for the Agent to issue, extend or renew such Letter of Credit. 12.3. GOVERNMENTAL REGULATION. Each Bank shall have received such statements in substance and form reasonably satisfactory to such Bank as such Bank shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. 12.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the transactions contemplated by this Credit Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in substance and in form to the Banks and to the Agent and the Agent's Special Counsel, and the Banks, the Agent and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. 13. EVENTS OF DEFAULT; ACCELERATION; ETC. 13.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following events ("Events of Default" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "Defaults") shall occur: (a) the Borrower shall fail to pay any principal of the Loans or any Reimbursement Obligation when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (b) the Borrower or any of the other Transaction Parties shall fail to pay any interest on the Loans, the commitment fee, any Letter of Credit Fee, the Agent's fee, or other sums due hereunder or under any of the other Loan Documents, within two (2) Business Days after the day on which the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; 57 -50- (c) the Borrower shall fail to comply with any of its covenants contained in ss.8, 9 or 10; (d) the Borrower or any of the other Transaction Parties shall fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this ss.13.1) for twenty (20) days after written notice of sucH failure has been given to the Borrower by the Agent; (e) any representation or warranty of the Borrower or any of the other Transaction Parties in this Credit Agreement or any of the other Loan Documents or in any other document or instrument delivered pursuant to or in connection with this Credit Agreement shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; (f) the Borrower or any of the other Transaction Parties shall fail to pay at maturity, or within any applicable period of grace, any obligations for borrowed money or credit received or in respect of any Capitalized Leases, which obligations exceed $5,000,000 in the aggregate, or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound (excluding, however, any such term, covenant or agreement relating to the pledge or disposition of Margin Stock), evidencing or securing borrowed money or credit received or in respect of any Capitalized Leases exceeding $5,000,000 in the aggregate, for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof; (g) the Borrower or any of the other Transaction Parties shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of the Borrower or any of the other Transaction Parties or of any substantial part of the assets of the Borrower or any of the other Transaction Parties or shall commence any case or other proceeding relating to the Borrower or any of the other Transaction Parties under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against the Borrower or any of the other Transaction Parties and the Borrower or any of the other Transaction Parties shall indicate its approval thereof, consent thereto or acquiescence therein or such petition or application shall not have been dismissed within forty-five (45) days following the filing thereof; (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Borrower or any of the other Transaction Parties bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Borrower or 58 -51- any of the other Transaction Parties in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty (30) days, any final judgment against the Borrower or any of the other Transaction Parties that, with other outstanding final judgments, undischarged, against the Borrower or any of the other Transaction Parties exceeds in the aggregate $5,000,000; (j) if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded, in each case otherwise than with the express prior written agreement, consent or approval of the Banks, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of the Borrower or any of the other Transaction Parties party thereto or any of their respective stockholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; (k) the Borrower or any ERISA Affiliate incurs any liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate amount exceeding $2,000,000; the Borrower or any ERISA Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan requiring aggregate annual payments exceeding $2,000,000, or any of the following occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a failure to make a required installment or other payment (within the meaning of ss.302(f)(1) of ERISA), provided the Agent determines in its reasonable discretioN that such event (A) could be expected to result in liability of the Borrower to the PBGC or the Plan in an aggregate amount exceeding $2,000,000 and (B) could constitute grounds for the termination of such Plan by the PBGC, for the appointment by the appropriate United States District Court of a trustee to administer such Plan or for the imposition of a lien in favor of the Guaranteed Pension Plan; (ii) the appointment by a United States District court of a trustee to administer such Plan; or (iii) the institution by the PBGC of proceedings to terminate such Plan; (l) the Borrower or any of the other Transaction Parties shall be enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting any material part of its business and such order shall continue in effect for more than thirty (30) days; (m) there shall occur any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty, which in any such case causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of the Borrower or any of the other Transaction Parties if such event or circumstance is not covered by business interruption insurance and would have a material adverse effect on the business or financial condition of the Borrower and the other Transaction Parties, considered as a whole; 59 -52- (n) there shall occur the loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by the Borrower or any of the other Transaction Parties if such loss, suspension, revocation or failure to renew would have a material adverse effect on the business or financial condition of the Borrower and the other Transaction Parties, considered as a whole; (o) the Borrower or any of the other Transaction Parties shall be indicted for a state or federal crime, or any civil or criminal action shall otherwise have been brought or threatened against the Borrower or any the other Transaction Parties, a punishment for which in any such case could include the forfeiture of any assets of the Borrower or such other Transaction Party having a fair market value in excess of $1,000,000; or (p) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of thirty percent (30%) or more of the outstanding shares of common stock of the Borrower; or, during any period of twelve consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower or the Borrower shall, at any time, legally or beneficially own less than one hundred percent (100%) of the shares of the capital stock of Hadco Santa Clara (on a fully diluted basis); then, and in any such event, so long as the same may be continuing, the Agent may, and upon the request of the Majority Banks shall, by notice in writing to the Borrower declare all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents and all Reimbursement Obligations to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; PROVIDED that in the event of any Event of Default specified in ss.ss.13.1(g) or 13.1(h), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank. 13.2. TERMINATION OF COMMITMENTS. If any one or more of the Events of Default specified in ss.13.1(g) or ss.13.1(h) shall occur and be continuing, any unused portion of the credit hereunder shall forthwith terminate and each of the Banks shall be relieved of all further obligations to make Loans to the Borrower and the Agent shall be relieved of all further obligations to issue, extend or renew Letters of Credit. If any other Event of Default shall have occurred and be continuing, the Agent may and, upon the request of the Majority Banks, shall, by notice to the Borrower, terminate the unused portion of the credit hereunder, and upon such notice being given such unused portion of the credit hereunder shall terminate immediately and each of the Banks shall be relieved of all further obligations to make Loans and the Agent shall be relieved of all further obligations to issue, extend or renew Letters of Credit. No termination of the credit hereunder shall relieve the Borrower or any of the other Transaction Parties of any of the Obligations. 13.3. REMEDIES. In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the Banks shall have accelerated the 60 -53- maturity of the Loans pursuant to ss.13.1, each Bank, if owed any amount with respect to the Loans or the Reimbursement Obligations, may, with the consent of the Majority Banks but not otherwise, proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Bank are evidenced, including as permitted by applicable law the obtaining of the EX PARTE appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of such Bank. No remedy herein conferred upon any Bank or the Agent or the holder of any Note or purchaser of any Letter of Credit Participation is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. 14. SETOFF. Regardless of the adequacy of any collateral, during the continuance of any Event of Default, any deposits or other sums credited by or due from any of the Banks to the Borrower and any securities or other property of the Borrower in the possession of such Bank may be applied to or set off by such Bank against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrower to such Bank. Each of the Banks agrees with each other Bank that (i) if an amount to be set off is to be applied to Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by the Notes held by such Bank or constituting Reimbursement Obligations owed to such Bank, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes held by such Bank or constituting Reimbursement Obligations owed to such Bank, and (ii) if such Bank shall receive from the Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Notes held by, or constituting Reimbursement Obligations owed to, such Bank by proceedings against the Borrower at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by, or Reimbursement Obligations owed to, such Bank any amount in excess of its ratable portion of the payments received by all of the Banks with respect to the Notes held by, and Reimbursement Obligations owed to, all of the Banks, such Bank will notify the Agent thereof and make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, PRO TANTO assignment of claims, subrogation or otherwise as shall result in each Bank receiving in respect of the Notes held by it or Reimbursement Obligations owed it, its proportionate payment as contemplated by this Credit Agreement; PROVIDED that if all or any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. 15. THE AGENT. 15.1. AUTHORIZATION. 61 -54- (a) The Agent is authorized to take such action on behalf of each of the Banks and to exercise all such powers as are hereunder and under any of the other Loan Documents and any related documents delegated to the Agent, together with such powers as are reasonably incident thereto; PROVIDED that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by the Agent. (b) The relationship between the Agent and each of the Banks is that of an independent contractor. The use of the term "Agent" is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between the Agent and each of the Banks. Nothing contained in this Credit Agreement nor the other Loan Documents shall be construed to create an agency, trust or other fiduciary relationship between the Agent and any of the Banks. (c) As an independent contractor empowered by the Banks to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Loan Documents, the Agent is nevertheless a "representative" of the Banks, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Banks and the Agent with respect to all collateral security and guaranties contemplated by the Loan Documents. 15.2. EMPLOYEES AND AGENTS. The Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and the other Loan Documents. The Agent may utilize the services of such Persons as the Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrower. 15.3. NO LIABILITY. Neither the Agent nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. 15.4. NO REPRESENTATIONS. The Agent shall not be responsible for the execution or validity or enforceability of this Credit Agreement, the Notes, the Letters of Credit, any of the other Loan Documents or any instrument at any time constituting, or intended to constitute, collateral security for the Notes, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Notes, or for any recitals or statements, warranties or representations made herein or in any of the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on behalf of the Borrower or any of the other Transaction Parties, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Notes or to inspect any of the properties, books or records of the Borrower or any of the Transaction Parties. The Agent shall not be bound to 62 -55- ascertain whether any notice, consent, waiver or request delivered to it by the Borrower or any holder of any of the Notes shall have been duly authorized or is true, accurate and complete. The Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Banks, with respect to the credit worthiness or financial conditions of the Borrower or any of the Transaction Parties. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. 15.5. PAYMENTS. 15.5.1. PAYMENTS TO AGENT. A payment by the Borrower to the Agent hereunder or any of the other Loan Documents for the account of any Bank shall constitute a payment to such Bank. The Agent agrees promptly to distribute to each Bank such Bank's PRO RATA share of payments received by the Agent for the account of the Banks except as otherwise expressly provided herein or in any of the other Loan Documents. 15.5.2. DISTRIBUTION BY AGENT. If, in the opinion of the Agent, the distribution of any amount received by it in such capacity hereunder, under the Notes or under any of the other Loan Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. 15.5.3. DELINQUENT BANKS. Notwithstanding anything to the contrary contained in this Credit Agreement or any of the other Loan Documents, any Bank that fails (i) to make available to the Agent its PRO RATA share of any Loan or to purchase any Letter of Credit Participation or (ii) to comply with the provisions of ss.14 with respect to making dispositions and arrangements with the other Banks, where such Bank's share of any payment received, whether by setoff or otherwise, is in excess of its PRO RATA share of such payments due and payable to all of the Banks, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the Borrower, whether on account of outstanding Loans, Unpaid Reimbursement Obligations, interest, fees or otherwise, to the remaining nondelinquent Banks for application to, and reduction of, their respective PRO RATA shares of all outstanding Loans and Unpaid Reimbursement Obligations. The Delinquent Bank hereby authorizes the Agent to distribute such payments to the nondelinquent Banks in proportion to their respective PRO RATA shares of all outstanding Loans and Unpaid Reimbursement Obligations. A 63 -56- Delinquent Bank shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loans and Unpaid Reimbursement Obligations of the nondelinquent Banks, the Banks' respective PRO RATA shares of all outstanding Loans and Unpaid Reimbursement Obligations have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. 15.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of any Note or the purchaser of any Letter of Credit Participation as the absolute owner or purchaser thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder, assignee or transferee. 15.7. INDEMNITY. The Banks ratably agree hereby to indemnify and hold harmless the Agent from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Agent has not been reimbursed by the Borrower as required by ss.16), and liabilities of every nature and character arising out of or related to this CrediT Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or the Agent's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Agent's willful misconduct or gross negligence. 15.8. AGENT AS BANK. In its individual capacity, BKB shall have the same obligations and the same rights, powers and privileges in respect to its Commitment and the Loans made by it, and as the holder of any of the Notes and as the purchaser of any Letter of Credit Participations, as it would have were it not also the Agent. 15.9. RESIGNATION. The Agent may resign at any time by giving sixty (60) days prior written notice thereof to the Banks and the Borrower. Upon any such resignation, the Majority Banks shall have the right to appoint a successor Agent. Unless a Default or Event of Default shall have occurred and be continuing, such successor Agent shall be reasonably acceptable to the Borrower. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a financial institution having a rating of not less than A or its equivalent by Standard & Poor's Corporation. Upon the appointment of and acceptance by a successor Agent and so long as no Default or Event of Default has occurred and is continuing, the resigning Agent will pay to the successor Agent a PRO RATA portion of the annual Agent's fee described in the Agent's Side Letter, calculated by multiplying the annual amount of such fee by a fraction, the numerator of which is 365 MINUS the number of days which have elapsed since the Borrower's most recent payment of such fee and the denominator of which is 365. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation, the provisions of this Credit Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 64 -57- 16. EXPENSES. The Borrower agrees to pay (a) the reasonable costs of producing and reproducing this Credit Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Agent or any of the Banks (other than taxes based upon the Agent's or any Bank's net income) on or with respect to the transactions contemplated by this Credit Agreement (the Borrower hereby agreeing to indemnify the Agent and each Bank with respect thereto), (c) the reasonable fees, expenses and disbursements of the Agent's Special Counsel or any local counsel to the Agent incurred in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (d) the reasonable fees, expenses and disbursements of the Agent incurred by the Agent in connection with the evaluation of the Borrower and the other Transaction Parties and with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, including, without limitation, commercial finance examination expenses, (e) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs, which attorneys may be employees of any Bank or the Agent, and reasonable consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred by any Bank or the Agent in connection with (i) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or any of the other Transaction Parties or the administration thereof after the occurrence of a Default or Event of Default and (ii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to any Bank's or the Agent's relationship with the Borrower or any of the other Transaction Parties (but excluding disputes solely between or among the Banks), and (f) all reasonable fees, expenses and disbursements of any Bank or the Agent incurred in connection with UCC searches. The covenants of this ss.16 shall survive payment or satisfaction of all other Obligations. 17. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the Agent and the Banks from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Credit Agreement or any of the other Loan Documents or the transactions contemplated hereby including, without limitation, (a) any actual or proposed use by the Borrower or any of the other Transaction Parties of the proceeds of any of the Loans or Letters of Credit, (b) the Borrower or any of the other Transaction Parties entering into or performing this Credit Agreement or any of the other Loan Documents or (c) with respect to the Borrower and the other Transaction Parties and their respective properties and assets, the violation of any Environmental Law, the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to, claims with respect to wrongful death, personal injury or damage to property), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding; PROVIDED, HOWEVER, that such indemnity shall not apply to the portion, if any, of any such 65 -58- losses, claims, damages, liabilities or related expenses of any Person seeking indemnification that is determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the willful misconduct or gross negligence of such Person seeking indemnification. In litigation, or the preparation therefor, the Banks and the Agent shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrower under this ss.17 are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The covenants contained in this ss.17 shall survive payment or satisfaction in full of all other Obligations. 18. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations and warranties made herein, in the Notes, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower or any of the other Transaction Parties pursuant hereto shall be deemed to have been relied upon by the Banks and the Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Banks of any of the Loans and the issuance, extension or renewal of any Letters of Credit, as herein contemplated, and shall continue in full force and effect so long as any Letter of Credit or any amount due under this Credit Agreement or the Notes or any of the other Loan Documents remains outstanding or any Bank has any obligation to make any Loans or the Agent has any obligation to issue, extend or renew any Letter of Credit, and for such further time as may be otherwise expressly specified in this Credit Agreement. All statements contained in any certificate or other paper delivered to any Bank or the Agent at any time by or on behalf of the Borrower or any of the other Transaction Parties pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower or such other Transaction Party hereunder. 19. ASSIGNMENT AND PARTICIPATION. 19.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as provided herein, each Bank may assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Credit Agreement (including all or a portion of its Commitment Percentage and Commitment and the same portion of the Loans at the time owing to it, the Notes held by it and its participating interest in the risk relating to any Letters of Credit); PROVIDED that (i) each of the Agent and, unless a Default or Event of Default shall have occurred and be continuing, the Borrower shall have given its prior written consent to such assignment, which consents will not be unreasonably withheld, (ii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Credit Agreement, (iii) each assignment shall be in an amount that is a whole multiple of $5,000,000, (iv) each Bank which is a Bank on the date hereof shall retain, free of any such assignment, an amount of its Commitment of not less than $10,000,000 and (v) the parties to such assignment shall execute and deliver to the Agent, for recording in the Register (as hereinafter defined), an Assignment and Acceptance, substantially in the form of EXHIBIT D hereto (an "Assignment and Acceptance"), together with any Notes subject to such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, 66 -59- which effective date shall be at least five (5) Business Days after the execution thereof, (i) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in such assignment and upon payment to the Agent of the registration fee referred to in ss.19.3, be released from its obligations under this Credit Agreement. 19.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS. By executing and delivering an Assignment and Acceptance, the parties to the assignment thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the assigning Bank makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or the attachment, perfection or priority of any security interest or mortgage, (b) the assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower and the other Transaction Parties or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance or observance by the Borrower and the other Transaction Parties or any other Person primarily or secondarily liable in respect of any of the Obligations of any of their obligations under this Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (c) such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the most recent financial statements referred to in ss.7.4 and ss.8.4 And such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (d) such assignee will, independently and without reliance upon the assigning Bank, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement; (e) such assignee represents and warrants that it is an Eligible Assignee; (f) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; 67 -60- (g) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Credit Agreement are required to be performed by it as a Bank; (h) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; and (i) such assignee acknowledges that it has made arrangements with the assigning Bank satisfactory to such assignee with respect to its PRO RATA share of Letter of Credit Fees in respect of outstanding Letters of Credit. 19.3. REGISTER. The Agent shall maintain a copy of each Assignment and Acceptance delivered to it and a register or similar list (the "Register") for the recordation of the names and addresses of the Banks and the Commitment Percentage of, and principal amount of the Loans owing to and Letter of Credit Participations purchased by, the Banks from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower and the Banks at any reasonable time and from time to time upon reasonable prior notice. Upon each recordation of an assignment under this ss.19, the assigning or assignee Bank agrees to pay to the Agent a registration fee in the sum of $3,500. 19.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance executed by the parties to such assignment, together with each Note subject to such assignment, the Agent shall (i) record the information contained therein in the Register, and (ii) give prompt notice thereof to the Borrower and the Banks (other than the assigning Bank). Within five (5) Business Days after receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent, in exchange for each surrendered Note, a new Note to the order of such Eligible Assignee in an amount equal to the amount assumed by such Eligible Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank has retained some portion of its obligations hereunder, a new Note to the order of the assigning Bank in an amount equal to the amount retained by it hereunder. Such new Notes shall provide that they are replacements for the surrendered Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such in Assignment and Acceptance and shall otherwise be substantially the form of the assigned Notes. Within five (5) days of issuance of any new Notes pursuant to this ss.19.4, the Borrower shall deliver an opinion of counsel, addressed to the Banks and the Agent, relating to the due authorization, execution and delivery of such new Notes and the legality, validity and binding effect thereof, in form and substance satisfactory to the Banks. The surrendered Notes shall be cancelled and returned to the Borrower within a reasonable time following the issuance of any new Note. 19.5. PARTICIPATIONS. Each Bank may sell Participations to one or more banks or other entities in all or a portion of such Bank's rights and obligations under this Credit Agreement and the other Loan Documents; PROVIDED that (i) each such participation shall be in an amount of not less than $5,000,000, (ii) any such sale or participation shall not affect the rights and duties of the selling Bank hereunder to the Borrower and (iii) the only rights granted to the participant pursuant to such participation arrangements with respect to 68 -61- waivers, amendments or modifications of the Loan Documents shall be the rights to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on any Loans, extend the term or increase the amount of the Commitment of such Bank as it relates to such participant, reduce the amount of any commitment fees or Letter of Credit Fees to which such participant is entitled or extend any regularly scheduled payment date for principal or interest. 19.6. DISCLOSURE. The Borrower agrees that, in addition to disclosures made in accordance with standard and customary banking practices and in accordance with the requirements of ss.28 hereof, any Bank may disclose information obtained by such Bank pursuant to this Credit Agreement to assignees or participants and potential assignees or participants hereunder; PROVIDED that such assignees or participants or potential assignees or participants shall agree (i) to treat in confidence such information unless such information otherwise becomes public knowledge, (ii) not to disclose such information to a third party, except as required by law or legal process and (iii) not to make use of such information for purposes of transactions unrelated to such contemplated assignment or participation. 19.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If any assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2, and the determination of the Majority Banks shall For all purposes of this Agreement and the other Loan Documents be made without regard to such assignee Bank's interest in any of the Loans. If any Bank sells a participating interest in any of the Loans or Reimbursement Obligations to a participant, and such participant is the Borrower or an Affiliate of the Borrower, then such transferor Bank shall promptly notify the Agent of the sale of such participation. A transferor Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2 to the extent that such participation is beneficially owned by the Borrower or Any Affiliate of the Borrower, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to the interest of such transferor Bank in the Loans to the extent of such participation. 19.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank shall retain its rights to be indemnified pursuant to ss.16 and ss.17 with respect to any claims or actions arising prior to the date of such assignment. If any assignee Bank is not incorporated under the laws of the United States of America or any state thereof, it shall, prior to the date on which any interest or fees are payable hereunder or under any of the other Loan Documents for its account, deliver to the Borrower and the Agent certification as to its exemption from deduction or withholding of any United States federal income taxes. Anything contained in this ss.19 to the contrary notwithstanding, any Bank may at any time pledge all or any portion of its interest and rights under this Credit Agreement (including all or any portion of its Notes) to any of the twelve Federal Reserve Banks organized under ss.4 of the Federal Reserve Act, 12 U.S.C. ss.341. No such pledge or the enforcement thereof shall release such pledgor Bank from its obligations hereunder or under any of the other Loan Documents. 69 -62- 19.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or transfer any of its rights or obligations under any of the Loan Documents without the prior written consent of each of the Banks. 20. NOTICES, ETC. Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the Notes or any Letter of Credit Applications shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier or postal service, addressed as follows: (a) if to the Borrower, at 12A Manor Parkway, Salem, New Hampshire 03709, Attention: Timothy P. Losik, or at such other address for notice as the Borrower shall last have furnished in writing to the Person giving the notice; (b) if to the Agent, at 100 Federal Street, Boston, Massachusetts 02110, USA, Attention: Jeffrey G. Millman, Vice President, or Division Executive, or such other address for notice as the Agent shall last have furnished in writing to the Person giving the notice; and (c) if to any Bank, at such Bank's address set forth on SCHEDULE 1 hereto, or such other address for notice as such Bank shall have last furnished in writing to the Person giving the notice. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile and (ii) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. 21. GOVERNING LAW. THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SS.21. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF 70 -63- ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 22. HEADINGS. The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 23. COUNTERPARTS. This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. 24. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Credit Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in ss.26. 25. WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS CREDIT AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWER (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY BANK OR THE AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH BANK OR THE AGENT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT THE AGENT AND THE BANKS HAVE BEEN INDUCED TO ENTER INTO THIS CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN. 26. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or approval required or permitted by this Credit Agreement to be given by all of the Banks may be given, and any term of this Credit Agreement, the other Loan Documents or any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrower or any of the other Transaction Parties of any terms of this Credit Agreement, the other Loan Documents or such other instrument 71 -64- or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrower and the written consent of the Majority Banks. Notwithstanding the foregoing, the rate of interest on the Notes (other than interest accruing pursuant to ss.5.10.2 following the effective date of any waiver by the Majority Banks of the Default or Event oF Default relating thereto), the term of the Notes, the amount of the Commitments of the Banks, and the amount of commitment fee or Letter of Credit Fees hereunder may not be changed, and no scheduled date for the payment of principal, interest or fees may be postponed or extended without the written consent of the Borrower and the written consent of each Bank affected thereby; the definition of Majority Banks and the terms of this Section 26 may not be amended and no collateral or guaranty may be released without the written consent of all of the Banks; and the amount of the Agent's Fee or any Letter of Credit Fees payable for the Agent's account and ss.15 may not be amended without the written consent of the Agent. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Agent or any Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. 27. SEVERABILITY. The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction. 28. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION. 28.1. SHARING OF INFORMATION WITH SECTION 20 SUBSIDIARY. The Borrower acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Borrower in connection with this Credit Agreement or otherwise, by a Section 20 Subsidiary. The Borrower hereby authorizes (a) such Section 20 Subsidiary to share with the Agent and each Bank any information delivered to such Section 20 Subsidiary by the Borrower, and (b) the Agent and each Bank to share with such Section 20 Subsidiary any information delivered to the Agent or such Bank by the Borrower pursuant to this Credit Agreement, or in connection with the decision of such Bank to enter into this Credit Agreement; it being understood, in each case, that any such Section 20 Subsidiary receiving such information shall be bound by the confidentiality provisions of this Credit Agreement. Such authorization shall survive the payment and satisfaction in full of all of the Obligations. 28.2. CONFIDENTIALITY. Each of the Agent and the Banks agree to keep any information delivered or made available to it by or on behalf of the Borrower or any of the other Transaction Parties confidential from anyone other than its employees, officers, attorneys and other advisors or any Section 20 Subsidiary, PROVIDED that nothing herein shall prevent the Agent or such Bank from disclosing such information upon the order or 72 -65- request of any court or administrative agency or authority, upon the request or demand of any regulatory agency or authority, to the extent that such information has been publicly disclosed other than as a result of a disclosure by the Agent or such Bank, otherwise as required by law or to any actual or potential assignee or participant hereof pursuant to ss.19.6. The Borrower agrees that it will, and will cause each of the other Transaction Parties to, keep any information delivered or made available to it by or on behalf of the Agent or any of the Banks (including, without limitation, the amount of any fees payable to the Agent pursuant to ss.5.1 and the Agent's Side Letter) confidential from anyone other that its employees, officers, attorneys and other advisors, PROVIDED that nothing herein shall prevent the Borrower from disclosing such information upon the order or request of any court or administrative agency or authority, upon the request or demand of any regulatory agency or authority, to the extent that such information has been publicly disclosed other than as a result of disclosure by the Borrower or any of the other Transaction Parties, or otherwise as required by law. 28.3. PRIOR NOTIFICATION. Unless specifically prohibited by applicable law or court order, each of the Banks and the Agent shall, prior to disclosure thereof, notify the Borrower of any request for disclosure of any such non-public information by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Bank or the Agent by such governmental agency) or pursuant to legal process. 28.4. OTHER. In no event shall any Bank or the Agent be obligated or required to return any materials furnished to it or any Section 20 Subsidiary by the Borrower. The obligations of each Bank under this ss.28 shall supersede and replace the obligations of such Bank under any confidentiality letter in respect of this financing signed and delivered by such Bank to the Borrower prior to the date hereof and shall be binding upon any assignee of, or purchaser of any participation in, any interest in any of the Loans or Reimbursement Obligations from any Bank. 29. TRANSITIONAL ARRANGEMENTS 29.1. PRIOR CREDIT AGREEMENT SUPERSEDED. This Agreement shall supersede the Original Credit Agreement in its entirety, except as provided in this ss.29. On the Closing Date, the rights and obligations of the parties (other than the Exiting Banks) under the Original Credit Agreement and the "Notes" (as defined in the Original Credit Agreement) issued in favor of the Banks (as defined in the Original Credit Agreement) under the Original Credit Agreement (other than any rights available to the Agent and the Banks (as defined in the Original Credit Agreement) under ss.16 and ss.17 of the Original Credit Agreement), shall be subsumed within and be governed by this Credit Agreement and the other Loan Documents, PROVIDED, HOWEVER, that each of the "Loans" (as defined in the Original Credit Agreement) outstanding under the Original Credit Agreement on the Closing Date shall, for purposes of this Credit Agreement, be Loans, and shall continue to bear interest or be subject to fees at the respective rates in effect immediately prior to the Closing Date, with the Borrower being responsible for, and hereby confirming its obligation to pay, any breakage costs associated with the payment of Eurodollar Rate Loans under the Original Credit Agreement on a date which is not the last day of the applicable Interest Period (as defined in the Original Credit Agreement) with respect thereto; and PROVIDED FURTHER that the rights and obligations of the Exiting Banks under the Original Credit 73 -66- Agreement and the related Loan Documents (as defined in the Original Credit Agreement) shall be terminated in accordance with the terms of, and upon the Exiting Banks' receipt of the payment specified in the separate pay-off letters dated as of the date hereof among each Exiting Bank, the Company and the Agent. 29.2. RETURN AND CANCELLATION OF NOTES. Upon its receipt of its Note or Notes hereunder on the Closing Date, each Bank will promptly return to the Company, marked "Canceled", any notes of the Company held by such Bank pursuant to the Original Credit Agreement. 29.3. FEES UNDER SUPERSEDED AGREEMENT. All commitment, Agent's and other fees and expenses owing or accruing under or in respect of the Original Credit Agreement through the Closing Date shall be calculated as of the Closing Date (prorated in the case of any fractional periods), and shall be paid in accordance with the method, and on the dates, specified in the Original Credit Agreement, as if the Original Credit Agreement were still in effect. [Remainder of page intentionally left blank] 74 IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as a sealed instrument as of the date first set forth above. HADCO CORPORATION By: /s/ Timothy P. Losik ----------------------------------------- Name: Timothy P. Losik Title: Chief Financial Officer BANKBOSTON, N.A., individually and as Agent By: /s/ Jeffrey G. Millman ----------------------------------------- Name: Jeffrey G. Millman Title: Vice President ABN AMRO BANK N.V. By: /s/Brian M. Horgan ----------------------------------------- Name: Brian M. Horgan Title: Vice President THE BANK OF TOKYO - MITSUBISHI TRUST COMPANY By: /s/ Michael J. Cronin ----------------------------------------- Name: Michael J. Cronin Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Stephen E. McDonald ----------------------------------------- Name: Stephen E. McDonald Title: First Vice President 75 KEYBANK NATIONAL ASSOCIATION. By: /s/ Michael J. Landim ----------------------------------------- Name: Michael J. Landim Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Roger J. Fleischmann, Jr. ----------------------------------------- Name: Roger J. Fleischmann, Jr. Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ [unreadable] ----------------------------------------- Name: Title: Authorized Signatory THE FUJI BANK, LIMITED By: /s/ Kazuyuki Nishimura ----------------------------------------- Name: Kazuyuki Nishimura Title: Sr. Vice President & Group Head SUNTRUST BANK, ATLANTA By: /s/ W. David Wisdom ----------------------------------------- Name: W. David Wisdon Title: Group Vice President By: /s/ Laura G. Harrison ----------------------------------------- Name: Laura G. Harrison Title: Assistant Vice President THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ J. Kenneth Biegen ----------------------------------------- Name: J. Kenneth Biegen Title: Senior Vice President 76 CORESTATES BANK, N.A. By: /s/ Matthew T. Panarese ----------------------------------------- Name: Matthew T. Panarese Title: Vice President STATE STREET BANK AND TRUST COMPANY By: /s/ Bruce S. Daniels ----------------------------------------- Name: Bruce S. Daniels Title: Vice President MELLON BANK, N.A. By: /s/ R. Jane Wisdrieck ----------------------------------------- Name: Title: THE SANWA BANK, LIMITED By: /s/ Takayoshi Futae ----------------------------------------- Name: Takayoshi Futae Title: Deputy General Manager THE SUMITOMO BANK, LIMITED By: /s/ Daniel G. Eastman ----------------------------------------- Name: Daniel G. Eastman Title: Vice President & Manager By: /s/ Alfred DeGennis ----------------------------------------- Name: Alfred DeGennis Title: Vice President EX-11 5 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 HADCO CORPORATION AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS FOR THE YEARS ENDED OCTOBER 28, 1995, OCTOBER 26, 1996, AND OCTOBER 25, 1997
1995 1996 1997 ---- ---- ---- Primary: Net income $21,374,000 $32,016,720 $(36,493,000) ----------- ----------- ------------ Average shares outstanding 9,805,624 10,244,814 11,458,141 Add: Average common stock equivalents outstanding 1,553,175 1,140,458 -- Less: Shares assumed repurchased under the treasury stock method (552,364) (301,330) -- ----------- ----------- ------------ Total 10,806,435 11,083,942 11,458,141 ----------- ----------- ------------ Per share amount $ 1.98 $ 2.89 $ (3.18) ----------- ----------- ------------
EX-21 6 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OF NAME INCORPORATION ---- --------------- Hadco Corporation (Malaysia) SDN.BHD. Malaysia Hadco Foreign Sales Corporation U.S. Virgin Islands Hadco Santa Clara, Inc. Delaware Zycon Corporation Delaware
EX-24 7 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 24 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into Hadco Corporation's previously filed Registration Statements on Form S-8, File No. 33-2915, File No. 33-12555, File No. 33-24975, File No. 33-24976, File No. 33-40616, File No. 33-48288, File No. 333-11485 and File No. 333-22377. /s/ ARTHUR ANDERSEN LLP Boston, Massachusetts January 15, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR OCT-25-1997 OCT-27-1996 OCT-25-1997 1 12,171 1,562 93,922 1,700 46,000 166,683 444,718 213,228 502,517 112,990 0 0 0 655 239,257 502,517 648,705 648,705 507,313 571,899 78,000 0 (7,627) (8,821) 27,672 (36,493) 0 0 0 (36,493) (3.18) 0
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