-----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, JJx1N2ewDFeoECqvO4h6F5GRTxFyTLdmLOBmQVaEZ4vot+FVtY223hZq6i8gg5ZM VxA3nzBeAr20j28PnSZwkQ== 0000950135-97-001881.txt : 19970417 0000950135-97-001881.hdr.sgml : 19970417 ACCESSION NUMBER: 0000950135-97-001881 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970416 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: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-21977 FILM NUMBER: 97581956 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 S-3/A 1 HADCO, CORPORATION FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1997 REGISTRATION NO. 333-21977 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ HADCO CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2393279 (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
12A MANOR PARKWAY SALEM, NEW HAMPSHIRE 03079 (603) 898-8000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ANDREW E. LIETZ CHIEF EXECUTIVE OFFICER HADCO CORPORATION 12A MANOR PARKWAY SALEM, NEW HAMPSHIRE 03079 (603) 898-8000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO STEPHEN A. HURWITZ, ESQ. PETER B. TARR, ESQ. TESTA, HURWITZ & THIBEAULT, LLP HALE AND DORR, LLP HIGH STREET TOWER 60 STATE STREET 125 HIGH STREET BOSTON, MA 02109 BOSTON, MA 02110 (617) 526-6000 (617) 248-7000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable following the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED APRIL 16, 1997 [HADCO LOGO] 2,000,000 SHARES COMMON STOCK $100,000,000 % CONVERTIBLE SUBORDINATED NOTES DUE 2004 Hadco Corporation ("Hadco" or the "Company") hereby offers 2,000,000 shares of Common Stock (the "Common Stock Offering"), and $100,000,000 aggregate principal amount of % Convertible Subordinated Notes due 2004 (the "Note Offering"). The % Convertible Subordinated Notes due 2004 (the "Notes") are convertible into shares of Common Stock at any time through maturity, unless previously redeemed or repurchased, at a conversion price of $ per share, subject to adjustment in certain events. Prior to the Note Offering, there has been no public trading market for the Notes. The Notes are expected to be traded on the over-the-counter market. The Company's Common Stock is traded on the Nasdaq National Market under the symbol "HDCO." On April 11, 1997, the last reported sale price for the Common Stock on the Nasdaq National Market was $38.125 per share. Each share of Common Stock is accompanied by a Stock Purchase Right entitling the holder to buy Common Stock at specified prices if certain events involving the Common Stock should occur. See "Description of Capital Stock -- Stockholder Rights Plan." Interest on the Notes is payable on and , commencing , 1997. Prior to , 2000, the Notes are not redeemable at the option of the Company. At any time on or after that date, the Notes are redeemable at the option of the Company, in whole, or in part from time to time, at the declining redemption prices set forth herein, together with accrued and unpaid interest. See "Description of Notes -- Optional Redemption by the Company." In the event of a Designated Event (as defined), each holder may require the Company to repurchase all or a portion of such holder's Notes at 100% of the principal amount thereof, plus accrued and unpaid interest. The Notes are unsecured and are subordinated to all existing and future Senior Indebtedness (as defined) of the Company and effectively subordinated with respect to the assets and earnings of the Company's subsidiaries to all indebtedness and other liabilities of such subsidiaries. As of January 25, 1997, the Company had approximately $218 million of outstanding indebtedness that would have constituted Senior Indebtedness and the Company's subsidiaries had outstanding indebtedness and other liabilities of approximately $57 million to which the Notes would have been effectively subordinated. See "Description of Notes." The Common Stock Offering and the Note Offering are referred to collectively as the "Offerings." The closing of the Common Stock Offering and the closing of the Note Offering are each conditioned on the closing of the other offering. Adams, Harkness & Hill, Inc. will be a Representative of the Common Stock Underwriters in the Common Stock Offering only. See "Underwriting." ------------------------ THE COMMON STOCK AND NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 8. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ===================================================================================================================== UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS COMPANY(1) - --------------------------------------------------------------------------------------------------------------------- Per Share...................................... $ $ $ - --------------------------------------------------------------------------------------------------------------------- Per Note....................................... % % % - --------------------------------------------------------------------------------------------------------------------- Total Shares................................... $ $ $ - --------------------------------------------------------------------------------------------------------------------- Total Notes.................................... $ $ $ - --------------------------------------------------------------------------------------------------------------------- Total(2)....................................... $ $ $ =====================================================================================================================
(1) Before deducting expenses payable by the Company, estimated at $1,200,000. (2) The Company and the Selling Stockholders have granted the Underwriters a 30-day option to purchase up to an additional 300,000 shares of Common Stock, and the Company has granted the Underwriters a 30-day option to purchase up to an additional $15,000,000 principal amount of Notes, solely to cover over-allotments, if any. See "Underwriting." If such options are exercised in full, the total Price to Public, Underwriting Discounts and Commissions, and Proceeds to Company will be $ , $ and $ , respectively, and the total proceeds to the Selling Stockholders will be $ . ------------------------ The Common Stock is offered by the Common Stock Underwriters as stated herein, and the Notes are offered by the Note Underwriters as stated herein, subject in each case to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of such securities will be made through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens & Company"), San Francisco, California on or about , 1997. ROBERTSON, STEPHENS & COMPANY MERRILL LYNCH & CO. ADAMS, HARKNESS & HILL, INC. The date of this Prospectus is , 1997. 3 HADCO Where Technology and Time To Market Connect(TM) Tech Centers Volume Manufacturing - - Hadco provides development, - Hadco can transition production design and quick-turn prototype from prototype to full-scale services to customers. commercial production. - - Tech Center developments - Hadco volume capabilities include: include: - Multilayer printed circuits - Multilayer printed circuits of of 38+ layers 18+ layers - Embedded discrete components - BGA and TAB - Multichip modules (MCM) - MCM and SCC - Single chip carriers (SCC) - Volume manufacturing facilities are located in California, - Planar Magnetics New Hampshire, New York and Malaysia. - Advanced surface finishes - Substrates for high-frequency markets - - Tech Centers are located in California, Massachusetts and New Hampshire. Includes pictures of various printed circuits. CERTAIN PERSONS PARTICIPATING IN THESE OFFERINGS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND THE NOTES, INCLUDING SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING." 4 NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERINGS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Incorporation of Certain Information by Reference............................... 3 Summary......................................................................... 4 Risk Factors.................................................................... 8 Use of Proceeds................................................................. 16 Dividend Policy................................................................. 16 Price Range of Common Stock..................................................... 17 Capitalization.................................................................. 18 Selected Consolidated Financial Data............................................ 19 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................... 21 Business........................................................................ 28 Management...................................................................... 42 Principal Shareholders.......................................................... 44 Description of Capital Stock.................................................... 47 Description of Notes............................................................ 49 Federal Income Tax Considerations............................................... 61 Underwriting.................................................................... 63 Legal Matters................................................................... 65 Experts......................................................................... 65 Additional Information.......................................................... 66 Available Information........................................................... 66 Index to Consolidated Financial Statements...................................... F-1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents filed with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Exchange Act") are hereby incorporated by reference into this Prospectus: (1) Annual Report on Form 10-K for the fiscal year ended October 26, 1996; (2) Current Report on Form 8-K dated December 5, 1996; (3) Current Report on Form 8-K dated January 24, 1997, as amended by Form 8-K/A dated February 14, 1997, and (4) Quarterly Report on Form 10-Q for the period ended January 25, 1997. All documents subsequently filed by Hadco pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the Offerings shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing such documents. Any statement contained herein or in a document incorporated by reference or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that such statement is modified or superseded by any other subsequently filed document which is incorporated or is deemed to be incorporated by reference herein. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. This Prospectus incorporates documents by reference which are not presented herein or delivered herewith. Hadco hereby undertakes to provide without charge to each person, including any beneficial owner, to whom this Prospectus has been delivered, on the written or oral request of such person, a copy of any or all of the documents referred to above which have been or may be incorporated into this Prospectus and deemed to be part hereof, other than exhibits to such documents, unless such exhibits are specifically incorporated by reference in such documents. These documents are available upon request from Timothy P. Losik, Vice President, Chief Financial Officer and Treasurer, Hadco Corporation, 12A Manor Parkway, Salem, New Hampshire 03079, (603) 898-8000. 3 5 SUMMARY This Prospectus 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 under "Risk Factors" and elsewhere in this Prospectus. The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information, including "Risk Factors," and Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Prospectus or incorporated by reference herein. Unless otherwise indicated, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment options. As used herein, the terms "Company" and "Hadco," unless otherwise indicated or the context otherwise requires, refer to Hadco Corporation and its subsidiaries, including Zycon Corporation ("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. THE COMPANY Hadco is the largest 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 include many of the leading and fastest growing companies in the electronics industry, such as Cabletron Systems, Cisco Systems, Intel, Solectron, Sun Microsystems and U.S. Robotics. Hadco's advanced manufacturing and assembly facilities are designed to meet the accelerated time-to-market and time-to-volume requirements of its customers whose markets and products are characterized by high growth rates, rapid technological advances and short product life-cycles. To this end, Hadco (including Zycon) has invested approximately $235 million in state-of-the-art production facilities and new technologies during the past five fiscal years. Hadco provides customers with a range of products and services that includes development, design, quick-turn prototype, pre-production, volume production, and backplane assembly. Hadco is one of a small number of printed circuit manufacturers with the technology and advanced production facilities necessary to offer all of these services. The Company believes its combination of a broad product offering and advanced technology facilitates long-term relationships with existing customers, attracts new customers, helps customers meet their time-to-market and time-to-volume needs, and satisfies a larger share of customers' electronic interconnect requirements. Hadco's customers are a diverse group of electronics original equipment manufacturers ("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. Hadco (including Zycon) supplied its products and services to a diverse base of approximately 500 customers in fiscal 1996, including 77 customers with purchases in excess of $1 million. The Company's ten largest customers accounted for approximately 43% of net sales in fiscal 1996 on a pro forma basis including Zycon. Industry sources estimate that the number of U.S. interconnect manufacturers has decreased from over 2,100 in 1978 to approximately 700 in 1995 during a period when the market size increased to $8.3 billion for rigid printed circuits and backplane assemblies. In large part, this decrease in manufacturers resulted from the increasingly advanced technology and services required by sophisticated electronics OEMs to meet their needs for complex products and shorter time-to-market cycles in their industries. As OEMs have narrowed their supply base, the increased investment necessary for state-of-the-art production facilities and advanced technologies has accelerated consolidation in the printed circuit industry and the exit of smaller companies. 4 6 To capitalize on this consolidation trend and to gain increased economies of scale, 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 consist of 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 many fast growing industry sectors, added new proprietary technologies, and increased its sales force. The Company's strategy takes advantage of other major industry trends such as the increased customer demand for a single source of integrated services, accelerating time-to-market and time-to-volume product requirements, and the increased demand for complex electronic products and new interconnect technologies. The principal components of Hadco's strategy are size, financial strength, investment in state-of-the-art facilities and technologies, and a broad and integrated offering (from development and design through volume production and backplane assembly). The Company believes this strategy is responsible for its emergence as the largest manufacturer of advanced electronic interconnect products in North America. 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. Hadco(TM), Zycon(TM), ResistAIR(TM), Buried Capacitance(TM) and MicroPath(TM) are trademarks of the Company. This Prospectus also includes the trademarks of other companies. THE COMMON STOCK OFFERING Common Stock Offered by the Company................................. 2,000,000 shares Common Stock to be Outstanding after the Common Stock Offering...... 12,444,188 shares(1) Nasdaq National Market Symbol....................................... HDCO
- ------------ (1) Based on shares outstanding on January 25, 1997. Excludes options outstanding as of January 25, 1997 to acquire 1,219,829 shares of Common Stock at a weighted average exercise price of $15.06 per share and an additional 843,000 shares of Common Stock reserved for issuance under the Company's stock option plans. See Note 10 of Notes to the Company's Consolidated Financial Statements. Also excludes shares of Common Stock issuable upon conversion of the Notes. 5 7 THE NOTE OFFERING Securities Offered......... $100 million principal amount of % Convertible Subordinated Notes due 2004 (the "Notes") ($115 million principal amount of Notes if the over-allotment option is exercised in full). Interest Payment Dates..... and , commencing , 1997. Maturity................... , 2004. Conversion................. Convertible into Common Stock, $.05 par value, of the Company at any time through maturity, unless previously redeemed or repurchased, at a conversion price of $ per share, subject to adjustment in certain events. See "Description of Notes -- Conversion." Optional Redemption........ The Notes are not redeemable at the option of the Company prior to , 2000. At any time on or after that date, the Notes are redeemable at the option of the Company, in whole or in part from time to time, at the declining redemption prices set forth herein, plus accrued and unpaid interest to the redemption date. See "Description of Notes -- Optional Redemption by the Company." Repurchase at Option of Holders upon a Designated Event...................... In the event of a Designated Event (as defined), each holder may require the Company to repurchase all or a portion of such holder's Notes at 100% of the principal amount thereof plus accrued and unpaid interest. See "Description of Notes -- Repurchase at Option of Holders Upon a Designated Event." Subordination.............. Subordinate to all existing and future Senior Indebtedness (as defined) of the Company and will be effectively subordinated with respect to the assets and earnings of the Company's subsidiaries to all indebtedness and other liabilities of such subsidiaries. As of January 25, 1997, the Company had approximately $218 million of outstanding indebtedness that would have constituted Senior Indebtedness, and subsidiaries of the Company had outstanding indebtedness and other liabilities of approximately $57 million (excluding intracompany liabilities and liabilities of a type not required to be reflected as liabilities on the balance sheets of such subsidiaries in accordance with generally accepted accounting principles) to which the Notes would have been effectively subordinated. The Indenture will not limit the amount of additional indebtedness, including Senior Indebtedness, which the Company or any of its subsidiaries can create, incur, assume or guarantee. See "Description of Notes -- Subordination." Trading.................... The Notes are expected to trade on the over-the-counter market. USE OF PROCEEDS The Company intends to use between 80% and 100% of the net proceeds from the sale of the 2,000,000 shares of Common Stock and the $100 million principal amount of the Notes to repay a portion of the outstanding indebtedness incurred in connection with the acquisition of Zycon, and the remainder, if any, for general corporate purposes, which may include additional acquisitions. See "Use of Proceeds." 6 8 SUMMARY CONSOLIDATED FINANCIAL DATA (In thousands, except ratio and per share data)
THREE MONTHS FISCAL YEAR ENDED, ENDED, ------------------------------------------------------------------- ----------- OCTOBER 29, OCTOBER 28, OCTOBER 26, OCTOBER 26, JANUARY 27, 1994 1995 1996 OCTOBER 26, 1996 1996 ----------- ----------- ----------- 1996 -------------- ----------- ------------ PRO FORMA PRO FORMA(2) AS ADJUSTED(3) CONSOLIDATED STATEMENT OF OPERATIONS: Net sales..................................... $ 221,570 $ 265,168 $ 350,685 $570,345 $570,345 $76,481 Gross profit.................................. 43,973 64,495 86,148 119,494 119,494 19,482 Write-off of acquired in-process research and -- -- -- -- -- development.................................. -- Income (loss) from operations................. 16,482 33,906 51,532 62,331 62,331 11,534 Net income (loss)............................. $ 9,943 $ 21,374 $ 32,014 $ 27,222 $ 30,513 $ 7,191 Net income (loss) per share(4)................ $ .93 $ 1.98 $ 2.89 $ 2.46 $ 2.33 $ .65 Weighted average shares outstanding(4)........ 10,720 10,806 11,084 11,084 13,084 11,104 OTHER DATA: Ratio of earnings to fixed charges(5)......... 19.4x 66.2x 156.3x 3.9x 6.1x 125.1x EBITDA(6)..................................... 31,093 49,100 70,375 98,783 98,783 15,582 Capital expenditures.......................... 19,510 28,865 54,998 107,154 107,154 13,713 Interest expense.............................. 891 537 338 16,197 10,474 95 JANUARY 25, JANUARY 25, 1997(1) JANUARY 25, 1997 ----------- 1997 -------------- ------------ PRO FORMA(2) AS ADJUSTED(3) < CONSOLIDATED STATEMENT OF OPERATIONS: Net sales..................................... $ 111,536 $172,547 $172,547 Gross profit.................................. 24,855 32,941 32,941 Write-off of acquired in-process research and 78,000 -- development.................................. -- Income (loss) from operations................. (62,443) 17,977 17,977 Net income (loss)............................. $ (69,161) $ 7,900 $ 8,715 Net income (loss) per share(4)................ $ (6.64) $ .72 $ .67 Weighted average shares outstanding(4)........ 10,413 10,944 12,944 OTHER DATA: Ratio of earnings to fixed charges(5)......... -- 4.0x 5.7x EBITDA(6)..................................... 22,093 25,863 25,863 Capital expenditures.......................... 11,011 17,939 17,939 Interest expense.............................. 933 4,669 3,239
JANUARY 25, 1997 -------------------------------------- ACTUAL AS ADJUSTED(3) ----------- ------------------------- CONSOLIDATED BALANCE SHEET DATA: Working capital............................................................... $ 22,072 $ 22,072 Total assets.................................................................. 448,554 452,154 Long-term debt and capital lease obligations, net of current portion.......... 228,168 159,931 Stockholders' investment...................................................... 71,057 142,895
- ------------ (1) Net loss for the three months ended January 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 $15,557,000, net income was $8,839,000, net income per share was $.81 (based on weighted average shares outstanding of approximately 10,944,000), and the ratio of earnings to fixed charges was 17.6x. (2) Gives effect to the acquisition of Zycon assuming such transaction had occurred on October 29, 1995. See the Company's unaudited Pro Forma Condensed Consolidated Financial Statements beginning on page F-23 and "Management's Discussion and Analysis of Financial Condition and Results of Operations." In connection with the acquisition, Hadco eliminated nine executive positions at Zycon, which resulted in pre-tax annual savings of $2,637,000. Taking these savings into account for the year ended October 26, 1996, pro forma net income and pro forma net income, as adjusted, would have been $28,700,000 and $32,029,000, respectively, and pro forma net income per share and pro forma net income per share, as adjusted, would have been $2.59 and $2.45, respectively. Taking these savings into account for the quarter ended January 25, 1997, pro forma net income and pro forma net income, as adjusted, would have been $8,275,000, and $9,091,000, respectively, and pro forma net income per share and pro forma net income per share, as adjusted, would have been $.76 and $.70, respectively. (3) Adjusted to reflect (i) the sale by the Company of 2,000,000 shares of Common Stock (at an assumed public offering price of $38.125 per share) in the Common Stock Offering and the sale of $100 million of principal amount of Notes in the Note Offering (at an assumed interest rate of 5.75%, and an assumed conversion price of $47.08), in each case less estimated underwriting discounts and commissions and offering expenses payable by the Company, and (ii) the application of the net proceeds from the Common Stock Offering and the Note Offering. See "Use of Proceeds." (4) 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. Pro forma, as adjusted fully diluted net income per share is $2.24 and $.64 for the year ended October 26, 1996 and the three months ended January 25, 1997, respectively. (5) Computed by dividing the sum of net income (loss), before deducting provisions for income taxes and fixed charges, by total fixed charges. Fixed charges consist of interest on debt and amortization of debt issuance costs and a portion of capital lease costs that is intended to represent interest expense. (6) EBITDA represents net income before interest, income taxes, depreciation and amortization, and write-off of acquired in-process research and development. EBITDA should not be considered an alternative measure of the Company's net income, operating performance, cash flow or liquidity. It is included herein to provide additional information related to the Company's ability to service debt. The EBITDA measures presented herein may not be comparable to other similarly titled measures of other companies. 7 9 RISK FACTORS This Prospectus 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 Prospectus. In addition to the other information included or incorporated by reference in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing shares of Common Stock or the Notes offered hereby. 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business -- Industry Overview and Trends" and "-- 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 and the Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 8 10 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "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. 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 during the next year or 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "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 9 11 material adverse effect on the Company's business, financial condition and results of operations. See "Business -- The Hadco Strategy." 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 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 "Business -- Industry Overview and Trends." 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 10 12 or flood, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Industry Overview and Trends," "-- The Hadco Strategy" and "-- Products and Services." MALAYSIA FACILITY Zycon recently completed construction of a volume manufacturing facility for printed circuits in Malaysia. Hadco's management has no experience in operating foreign manufacturing facilities, and there can be no assurance that the Company will be able to operate the new facility on a profitable basis. The Company expects that the Malaysia facility will 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. Losses incurred in its Malaysia operations will not be deductible for United States income tax purposes. 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. 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 1994, 1995 and 1996, the Company's ten largest customers accounted for approximately 48%, 46% and 48% of net sales, respectively, and 43% in fiscal 1996 on a pro forma basis including Zycon. In fiscal 1996, Sun Microsystems accounted for approximately 10% of the net sales of the Company (including Zycon). 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. See " -- Variability of Orders." 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 "Business -- Markets and Customers." 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 impact 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 "Business -- Manufacturing and Facilities." 11 13 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. See "-- Acquisitions." 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. 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 "Business -- Environmental Matters," "-- 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. Zycon 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 12 14 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 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 "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 "Management." 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. SUBORDINATION OF NOTES AND ABSENCE OF FINANCIAL COVENANTS The Notes will be unsecured and subordinated in right of payment in full to all existing and future Senior Indebtedness (as defined) of the Company and will be effectively subordinated with respect to the assets and earnings of the Company's subsidiaries to all indebtedness and other liabilities of such subsidiaries. As of January 25, 1997, the Company had approximately $218 million of outstanding indebtedness that would have constituted Senior Indebtedness, and subsidiaries of the Company had outstanding indebtedness and other liabilities aggregating approximately $57 million (excluding intracompany liabilities and liabilities of a type not required to be reflected as liabilities on the balance sheet of such subsidiaries in accordance with generally accepted accounting principles) to which the Notes would have been effectively subordinated. The Company's debt service on a pro forma basis (including Zycon) was $25.6 million and $6.7 million, respectively, for fiscal 1996 and for the first quarter of fiscal 1997. The Indenture will not limit the amount of additional indebtedness, including 13 15 Senior Indebtedness, which the Company or any of its subsidiaries can create, incur, assume or guarantee. During the continuance beyond any applicable grace period of any default of the payment of principal, premium, if any, interest or any other payment due on any Senior Indebtedness and upon notice by holders of Designated Senior Indebtedness (as defined) to the Trustee of a covenant default on Designated Senior Indebtedness, no payment of principal, or premium, if any, or interest on the Notes (including, but not limited to the redemption price or repurchase price with respect to the Notes) may be made by the Company. In addition, upon any distribution of assets of the Company pursuant to any dissolution, winding up, liquidation or reorganization, or acceleration of the maturity of the Notes as a result of an Event of Default (as defined), the payment of the principal of, or premium, if any, and interest on the Notes is subordinated to the extent provided in the Indenture to the prior payment in full of all Senior Indebtedness. By reason of the subordination, in the event of the Company's liquidation or dissolution, holders of Senior Indebtedness may receive more, ratably, and holders of the Notes may receive less, ratably, than the other creditors of the Company. The Notes are obligations exclusively of the Company. As a significant portion of the Company's consolidated operations is conducted through subsidiaries, the cash flow and the consequent ability to service debt, including the Notes, of the Company is partially dependent upon the earnings of such subsidiaries and the distribution of those earnings, or upon loans or other payments of funds by those subsidiaries, to the Company. Such subsidiaries are separate and distinct legal entities, and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes or to make any funds available therefor, whether by dividends, distributions, loans or other payments. In addition, the payment of dividends or distributions and the making of loans and advances to the Company by any such subsidiaries may be subject to statutory or contractual restrictions, and may be contingent upon the earnings of those subsidiaries and subject to various business considerations. Any right of the Company to receive assets of subsidiaries upon their liquidation or reorganization (and the consequent right of the holders of the Notes to participate in these assets) would be effectively subordinated to the claims of that subsidiary's creditors (including trade creditors), except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would be subordinate to any security interests in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. See "Description of Notes -- Subordination." The Indenture does not contain any financial performance covenants. Consequently, the Company is not required under the Indenture to meet any financial tests such as those that measure the Company's working capital, interest coverage, fixed charge coverage or net worth in order to maintain compliance with the terms of the Indenture. No sinking fund is provided for the Notes. LIMITATIONS ON REPURCHASE OF NOTES UPON A DESIGNATED EVENT In the event of a Designated Event, each holder may require the Company to repurchase all or a portion of such holder's Notes at 100% of the principal amount thereof plus accrued and unpaid interest to the repurchase date. If a Designated Event were to occur, there can be no assurance that the Company would have sufficient funds to pay the repurchase price for all Notes tendered by the holders thereof. The Company's repurchase of Notes, absent a waiver, would constitute a default under the terms of the Company's senior revolving credit loan facility with The First National Bank of Boston. In addition, the Company's repurchase of Notes as a result of the occurrence of a Designated Event may be prohibited or limited by the subordination provisions applicable to the Notes, or be prohibited or limited by, or create an event of default under, the terms of other agreements relating to borrowings which constitute Senior Indebtedness as may be entered into, amended, supplemented or replaced from time to time. Failure of the Company to repurchase Notes at the option of the holder upon a Designated Event would result in an Event of Default under the Indenture. The Notes may not be repurchased at the option of holders following a Designated Event if there has occurred and is continuing an Event of Default (other than a default in the payment of the repurchase price with respect to such Notes on the repurchase date). See "Description of Notes -- Repurchase at Option of Holders Upon a Designated Event." 14 16 ABSENCE OF PUBLIC MARKET FOR THE NOTES; VOLATILITY OF THE NOTES Prior to the Note Offering, there has been no trading market for the Notes. The Company expects that the Notes will trade on the over-the-counter market. However, there can be no assurance that an active trading market for the Notes will develop or, if such market develops, as to the liquidity or sustainability of such market. Robertson, Stephens & Company LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated have advised the Company that they currently intend to make a market in the Notes, but they are not obligated to do so and may discontinue such market making at any time. There can be no assurance that an active market for the Notes will develop and continue upon completion of the Note Offering or that the market price of the Notes will not decline. Various factors such as changes in prevailing interest rates or changes in perceptions of the Company's creditworthiness could cause the market price of the Notes to fluctuate significantly. The trading price of the Notes could also be significantly affected by the market price of the Common Stock, which could be subject to wide fluctuations in response to a variety of factors, including quarterly variations in operating results, announcements of technological innovations or new products by the Company, its customers or its competitors, developments in patents or other intellectual property rights, general conditions in the electronics industry and general economic and market conditions. Factors creating volatility in the trading prices of the Common Stock could have a significant impact on the trading price of the Notes. 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. 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. The rights of holders of Notes to require the Company to repurchase Notes under certain circumstances could also have the same effect. Each and all of the above provisions, statutes and rights 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. See "Description of Capital Stock" and "Description of Notes -- Repurchase at Option of Holders Upon a Designated Event." 15 17 USE OF PROCEEDS The net proceeds to the Company from the sale of 2,000,000 shares of Common Stock (at an assumed public offering price of $38.125 per share) and $100 million principal amount of the Notes, in each case less estimated underwriting discounts and commissions and offering expenses payable by the Company, are estimated to be approximately $71.8 million and $96.4 million, respectively, for an aggregate of approximately $168.2 million ($75.4 million and $111.0 million, respectively, for an aggregate of approximately $186.4 million, if the Underwriters' over-allotment options are exercised in full). The closing of the Common Stock Offering and the closing of the Note Offering are each conditioned on the closing of the other offering. The Company expects to use between 80% and 100% of the net proceeds to repay a portion of the outstanding balance on its senior revolving credit loan facility with The First National Bank of Boston (the "Credit Facility"). The Company obtained the Credit Facility (i) primarily to finance the purchase of the shares of Common Stock of Zycon pursuant to the tender offer completed by the Company on January 10, 1997, (ii) to refinance Zycon's existing bank credit agreements, and (iii) for working capital and other general corporate purposes. Pursuant to the terms of the Credit Facility, the Company may be required to use $50 million from the net proceeds of the Note Offering to repay a portion of the outstanding balance thereunder. As of January 25, 1997, the amount outstanding under the Credit Facility was $215 million. Interest on loans outstanding under the Credit Facility is, at the Company's election, payable at either (i) 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 (ii) 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. As of January 25, 1997, the weighted average interest rate on loans outstanding under the Credit Facility was 6.68%. The Credit Facility matures in January 2002. The remaining net proceeds will be used for general corporate purposes, including working capital, product development and capital expenditures. A portion of the net remaining proceeds, if any, may also be used for the acquisition of companies, assets, products or technologies. As of the date of this Prospectus, the Company has no commitments or agreements with respect to any significant acquisitions, and no portion of the net proceeds has been allocated for any specific acquisition. DIVIDEND POLICY The Company has never declared or paid a cash dividend on its Common Stock, and it is currently anticipated that the Company will continue to retain its earnings for use in its business and not pay cash dividends. The Company's Credit Facility currently contains a covenant prohibiting the Company from paying a cash dividend. 16 18 PRICE RANGE OF COMMON STOCK 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 1995 First Quarter................................................... $ 9 5/8 $ 8 Second Quarter.................................................. 18 1/8 8 7/8 Third Quarter................................................... 32 1/8 15 3/8 Fourth Quarter.................................................. 33 1/4 22 1/2 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 (through April 11, 1997)......................... 57 1/8 33 1/16
As of April 11, 1997, there were approximately 331 holders of record of the Common Stock. On April 11, 1997, the last sale price reported on the Nasdaq National Market for the Company's Common Stock was $38.125 per share. 17 19 CAPITALIZATION The following table sets forth the actual capitalization of the Company as of January 25, 1997, and as adjusted to reflect (i) the sale by the Company of 2,000,000 shares of Common Stock (at an assumed public offering price of $38.125 per share) in the Common Stock Offering and the sale of $100 million aggregate principal amount of Notes in the Note Offering, in each case less estimated underwriting discounts and commissions and offering expenses payable by the Company, and (ii) the application of the net proceeds from the Common Stock Offering and the Note Offering:
JANUARY 25, 1997 ------------------------ ACTUAL AS ADJUSTED -------- ----------- (In thousands) Short-term debt and current portion of long-term debt and capital lease obligations.................................................. $ 8,116 $ 8,116 ======== ======== Long-term debt: Long term debt and capital lease obligations, net of current portion......................................................... 228,168 59,931 % Convertible Subordinated Notes due 2004........................ -- 100,000 Stockholders' investment: Common Stock, $0.05 par value, 25,000,000 shares authorized; 10,444,188 shares issued; 12,444,188 shares issued, as adjusted(1)..................................................... 523 623 Paid-in capital.................................................... 32,283 104,021 Deferred compensation.............................................. (209) (209) Retained earnings.................................................. 38,460 38,460 -------- -------- Total stockholders' investment................................ 71,057 142,895 -------- -------- Total capitalization....................................... $299,225 $302,826 ======== ========
- ------------ (1) Excludes options outstanding as of January 25, 1997 to acquire 1,219,829 shares of Common Stock at a weighted average exercise price of $15.06 per share and an additional 843,000 shares of Common Stock reserved for issuance under the Company's stock option plans. See Note 10 of Notes to the Company's Consolidated Financial Statements. Also excludes shares of Common Stock issuable upon conversion of the Notes. 18 20 SELECTED CONSOLIDATED 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 31, 1992, October 30, 1993, October 29, 1994, October 28, 1995 and October 26, 1996 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 for the three months ended January 27, 1996 and January 25, 1997 have been derived from the Company's unaudited Consolidated Financial Statements, which reflect in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. The results for the three months ended January 25, 1997 are not necessarily indicative of results for any future period. The pro forma statements of operations data for the year ended October 26, 1996 and the three months ended January 25, 1997 have been derived from the Pro Forma Condensed Consolidated Financial Statements included elsewhere in this Prospectus. The pro forma statements of operations data are not necessarily indicative of the actual results that would have been achieved had the Zycon acquisition occurred at the beginning of the respective periods nor do they purport to indicate the results of future operations of the Company. The selected consolidated financial data should be read in conjunction with the Company's and Zycon's Consolidated Financial Statements and the Notes thereto appearing elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
THREE MONTHS FISCAL YEAR ENDED, ENDED, -------------------------------------------------------------------------------- ------------------ OCT. 31, OCT. 30, OCT. 29, OCT. 28, OCT. 26, OCT. 26, OCT. 26, JAN. 27, JAN. 25, 1992 1993 1994 1995 1996 1996 1996 1996 1997(1) -------- -------- -------- -------- -------- -------------- -------------- -------- -------- PRO FORMA PRO FORMA(2) AS ADJUSTED(3) (In thousands, except ratio and per share data) CONSOLIDATED STATEMENT OF OPERATIONS: Net sales................. $183,408 $189,494 $221,570 $265,168 $350,685 $570,345 $570,345 $76,481 $111,536 Gross profit.............. 34,160 35,393 43,973 64,495 86,148 119,494 119,494 19,482 24,855 Write-off of acquired in- process research and development.............. -- -- -- -- -- -- -- -- 78,000 Income (loss) from operations............... 13,404 13,710 16,482 33,906 51,532 62,331 62,331 11,534 (62,443) Net income (loss)......... $ 8,075 $ 8,227 $ 9,943 $ 21,374 $ 32,014 $ 27,222 $ 30,513 $ 7,191 $(69,161) Net income (loss) per share(4)................. $ .75 $ .76 $ .93 $ 1.98 $ 2.89 $ 2.46 $ 2.33 $ .65 $ (6.64) Weighted average shares outstanding(4)........... 10,808 10,819 10,720 10,806 11,084 11,084 13,084 11,104 10,413 OTHER DATA: Ratio of earnings to fixed charges(5).............. 6.9x 10.2x 19.4x 66.2x 156.3x 3.9x 6.1x 125.1 x -- EBITDA(6)................. 26,974 27,440 31,093 49,100 70,375 98,783 98,783 15,582 22,093 Capital expenditures...... 10,854 10,978 19,510 28,865 54,998 107,154 107,154 13,713 11,011 Interest expense.......... 2,045 1,402 891 537 338 16,197 10,474 95 933 JAN. 25, JAN. 25, 1997 1997 -------------- -------------- PRO FORMA PRO FORMA(2) AS ADJUSTED(3) CONSOLIDATED STATEMENT OF OPERATIONS: Net sales................. $172,547 $172,547 Gross profit.............. 32,941 32,941 Write-off of acquired in- process research and development.............. -- -- Income (loss) from operations............... 17,977 17,977 Net income (loss)......... $ 7,900 $ 8,715 Net income (loss) per share(4)................. $ .72 $ .67 Weighted average shares outstanding(4)........... 10,944 12,944 OTHER DATA: Ratio of earnings to fixed charges(5).............. 4.0x 5.7x EBITDA(6)................. 25,863 25,863 Capital expenditures...... 17,939 17,939 Interest expense.......... 4,669 3,239
JANUARY 25, 1997 OCT. 31, OCT. 30, OCT. 29, OCT. 28, OCT. 26, ------------------------- 1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(3) -------- -------- -------- -------- -------- -------- -------------- CONSOLIDATED BALANCE SHEET DATA: Working capital................................ $ 25,215 $ 30,593 $ 31,829 $ 41,043 $ 43,561 $ 22,072 $ 22,072 Total assets................................... 104,035 110,782 126,326 162,991 219,501 448,554 452,154 Long-term debt and capital lease obligations, net of current portion....................... 11,046 9,382 4,526 2,387 1,515 228,168 159,931 Stockholders' investment....................... 59,363 68,431 77,440 100,774 138,841 71,057 142,895
19 21 - ------------ (1) Net loss for the three months ended January 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 $15,557,000, net income was $8,839,000, net income per share was $.81 (based on weighted average shares outstanding of approximately 10,944,000), and the ratio of earnings to fixed charges was 17.6x. (2) Gives effect to the acquisition of Zycon assuming such transaction had occurred on October 29, 1995. See the Company's unaudited Pro Forma Condensed Consolidated Financial Statements beginning on page F-23 and "Management's Discussion and Analysis of Financial Condition and Results of Operations." In connection with the acquisition, Hadco eliminated nine executive positions at Zycon, which resulted in pre-tax annual savings of $2,637,000. Taking these savings into account for the year ended October 26, 1996, pro forma net income and pro forma net income, as adjusted, would have been $28,700,000 and $32,029,000, respectively and pro forma net income per share and pro forma net income per share, as adjusted, would have been $2.59 and $2.45, respectively. Taking these savings into account for the quarter ended January 25, 1997, pro forma net income and pro forma net income, as adjusted, would have been $8,275,000 and $9,091,000, respectively, and pro forma net income per share and pro forma net income per share, as adjusted, would have been $.76 and $.70, respectively. (3) Adjusted to reflect (i) the sale by the Company of 2,000,000 shares of Common Stock (at an assumed public offering price of $38.125 per share) in the Common Stock Offering and the sale of $100 million of principal amount of Notes in the Note Offering (at an assumed interest rate of 5.75%, and an assumed conversion price of $47.08), in each case less estimated underwriting discounts and commissions and offering expenses payable by the Company, and (ii) the application of the net proceeds from the Common Stock Offering and the Note Offering. See "Use of Proceeds." (4) 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. Pro forma, as adjusted fully diluted net income per share is $2.24 and $.64 for the year ended October 26, 1996 and the three months ended January 25, 1997, respectively. (5) Computed by dividing the sum of net income (loss), before deducting provisions for income taxes and fixed charges, by total fixed charges. Fixed charges consist of interest on debt and amortization of debt issuance costs and a portion of capital lease costs that is intended to represent interest expense. (6) EBITDA represents net income before interest, income taxes, depreciation and amortization, and write-off of acquired in-process research and development. EBITDA should not be considered an alternative measure of the Company's net income, operating performance, cash flow or liquidity. It is included herein to provide additional information related to the Company's ability to service debt. The EBITDA measures presented herein may not be comparable to other similarly titled measures of other companies. 20 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion 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 under "Risk Factors" and elsewhere in this Prospectus. As used herein, the terms "Company" and "Hadco," unless otherwise indicated or the context otherwise requires, refer to Hadco Corporation and its subsidiaries, including 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. OVERVIEW Hadco is the largest 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 printed circuits and backplane assemblies. Hadco's customers are a diverse group of 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. The Company was incorporated in 1966 and began operations in Cambridge, Massachusetts as a manufacturer of single and double-sided printed circuits. A 16,000 square foot printed circuit facility was constructed in 1969 in Derry, New Hampshire, and the Company added multilayer printed circuits to its product offering in 1975. In 1979, the Company acquired a 33,000 square foot printed circuit facility in Owego, New York. In 1981, the Company added to its double-sided and multilayer printed circuit product offerings with the construction of Tech Center One in Salem, New Hampshire, a quick-turn prototype operation to serve the prototype printed circuit needs of OEMs. In 1982, the Company began backplane assembly operations in Salem, New Hampshire. In 1983, the Company expanded further by adding a second Tech Center in the Silicon Valley area. In 1984, the Company completed an initial public offering of its Common Stock. By fiscal 1991, net sales of the Company were $153 million and grew to $351 million in fiscal 1996, $570 million on a pro forma basis including Zycon. During this period, the printed circuit industry experienced an increasing demand for complex products that required a significant investment in facilities. The Company (including Zycon) has invested approximately $235 million in state-of-the-art production facilities and new technologies during the past five fiscal years. 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. With this acquisition, Hadco became the largest manufacturer of advanced electronic interconnect products in North America. 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 three months ended January 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 acquisition was financed from a $250 million senior revolving credit facility, plus existing cash and short-term investments. 21 23 The gross profit margin for Hadco for the fiscal year ended October 26, 1996 was 24.6%. The gross profit margin for Zycon for the fiscal year ended December 31, 1996 was 15.2%. 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 and Zycon's Consolidated Financial Statements and Notes thereto, that appear elsewhere in this Prospectus.
FISCAL YEAR ENDED, THREE MONTHS ENDED, ---------------------------------------------------------- ------------------------------------------------ OCT. 29, OCT. 28, OCT. 26, OCT. 26, OCT. 26, JAN. 27, JAN. 25, JAN. 25, JAN. 25, 1994 1995 1996 1996 1996 1996 1997(1) 1997 1997 -------- -------- -------- ------------ -------------- -------- -------- ------------ -------------- PRO FORMA(2) PRO FORMA PRO FORMA(2) PRO FORMA AS ADJUSTED(3) AS ADJUSTED(3) CONSOLIDATED STATEMENT OF OPERATIONS: Net sales.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales...... 80.2 75.7 75.4 79.0 79.0 74.5 77.7 80.9 80.9 ----- ----- ----- ----- ----- ----- ----- ----- ----- Gross profit....... 19.8 24.3 24.6 21.0 21.0 25.5 22.3 19.1 19.1 Selling, general and administrative expenses......... 12.4 11.5 9.9 9.0 9.0 10.4 8.4 7.8 7.8 Write-off of acquired in- process research and development...... -- -- -- -- -- -- 69.9 -- -- Amortization of acquired intangible assets........... -- -- -- 1.1 1.1 -- -- .9 .9 ----- ----- ----- ----- ----- ----- ----- ----- ----- Income (loss) from operations....... 7.4 12.8 14.7 10.9 10.9 15.1 (56.0) 10.4 10.4 Interest income (expense), net... -- .4 .3 (2.6) (1.6) .3 -- (2.4) (1.6) ----- ----- ----- ----- ----- ----- ----- ----- ----- Income (loss) before provision for income taxes............ 7.4 13.2 15.0 8.3 9.3 15.4 (56.0) 8.0 8.8 Provision for income taxes..... 2.9 5.2 5.8 3.5 4.0 6.0 6.0 3.4 3.8 ----- ----- ----- ----- ----- ----- ----- ----- ----- Net income (loss)........... 4.5% 8.1% 9.1% 4.8% 5.3% 9.4% (62.0)% 4.6% 5.0% ===== ===== ===== ===== ===== ===== ===== ===== ===== OTHER DATA: EBITDA(4).......... 14.0% 18.5% 20.1% 17.3% 17.3% 20.4% 19.8% 15.0% 15.0% Capital expenditures..... 8.8 10.9 15.7 18.8 18.8 17.9 9.9 10.4 10.4 Interest expense... .4 .2 .1 2.8 1.8 .1 .8 2.7 1.9
- --------------- (1) Net loss for the three months ended January 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 13.9%, income before provision for income taxes was 13.9%, and net income was 7.9%, all before deducting the non-recurring write-off. (2) Gives effect to the acquisition of Zycon assuming such transaction had occurred on October 29, 1995. See the Company's unaudited Pro Forma Condensed Consolidated Financial Statements beginning on page F-23 and "Management's Discussion and Analysis of Financial Condition and Results of Operations." (3) Adjusted to reflect (i) the sale by the Company of 2,000,000 shares of Common Stock (at an assumed public offering price of $38.125 per share) in the Common Stock Offering, and the sale of $100,000,000 of principal amount of Notes in the Note Offering (at an assumed interest rate of 5.75% and an assumed conversion price of $47.08) in each case less estimated underwriting discounts and commissions and offering expenses payable by the Company and (ii) the application of the net proceeds from the Common Stock Offering and the Note Offering. 22 24 (4) EBITDA represents net income before interest, income taxes, depreciation and amortization, and write-off of acquired in-process research and development. EBITDA should not be considered an alternative measure of the Company's net income, operating performance, cash flow or liquidity. It is included herein to provide additional information related to the Company's ability to service debt. The EBITDA measures presented herein may not be comparable to other similarly titled measures of other companies. THREE MONTHS ENDED JANUARY 25, 1997 AND JANUARY 27, 1996 Net sales for the three months ended January 25, 1997 increased 45.8% over net sales for the three months ended January 27, 1996. The increase resulted from several factors including the acquisition of Zycon, which added $11.6 million in printed circuit net sales after January 10, 1997, and an increase in both backplane assembly and printed circuit net sales excluding Zycon. 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. The increase in printed circuit net sales was partially offset by a decrease in average pricing of 3.2%. Net sales from backplane assemblies increased to 16.3% of total net sales, from 10.5% in the first three months of fiscal 1996. The gross profit margin decreased to 22.3% in the three months ended January 25, 1997 from 25.5% in the comparable period in fiscal 1996. The decrease resulted from increased investment in new capacity at certain facilities, lower overall gross margins from the Zycon operations (including ongoing start-up expenses associated with the volume production facility in Malaysia) and the change in product mix related to the increase in backplane assembly operations. Selling, general and administrative (SG&A) expenses, as a percent of net sales, decreased to 8.3% in the three months ended January 25, 1997 from 10.4% in the comparable period in fiscal 1996, due to increased net sales and the fixed nature of the Company's SG&A expenses. Income from operations for the three months ended January 25, 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. For the three months ended January 25, 1997, income from operations was reduced by goodwill and purchased intangibles amortization of $270,000, which represented the amortization for the 15 day period following the Zycon acquisition. Excluding the non-recurring write-off of $78 million for acquired in-process research and development, operating margins decreased slightly to 13.9% for the three months ended January 25, 1997 from 15.1% in the comparable period in fiscal 1996, primarily as a result of the same factors affecting gross profit margins, and of goodwill amortization from the Zycon acquisition. Interest income increased in the three months ended January 25, 1997 as compared to the three months ended January 27, 1996, due to higher daily average cash balances available for investing. Interest expense increased in the three months ended January 25, 1997 as compared to the three months ended January 27, 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 the three months ended January 25, 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 anticipates an effective annual income tax rate for fiscal 1997 of 43%, which is more than the expected combined federal and state statutory rates. This difference is caused primarily by anticipated losses incurred by the Company's Malaysian 23 25 volume production facility which are not tax deductible. These items are partially offset by tax advantaged investment income, the tax benefit of the Company's foreign sales corporation and various state investment tax credits. The effective tax rate for fiscal 1997 is based on current tax laws. The Company includes in SG&A 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 SG&A 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 "Business -- Environmental Matters," "-- 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. 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. 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. The gross profit margin increased to 24.6% in 1996 from 24.3% 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. SG&A expenses, as a percent of net sales, decreased to 9.9% during 1996 from 11.5% during 1995, due to increased revenue. SG&A expenses increased to $34.6 million in 1996 from $30.6 million in 1995, primarily as a result of increased variable costs directly attributable to increased net sales. Included in SG&A expenses are charges for actual expenditures and accruals, based on estimates, for environmental matters. During 1996 and 1995, the Company made, and charged to SG&A 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 SG&A expenses of 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. FISCAL YEARS ENDED OCTOBER 28, 1995 AND OCTOBER 29, 1994 Net sales during 1995 increased 19.7% over the same period in 1994. The change was due to an 8.2% increase in the volume of production and shipments and a shift in product mix to higher layer, higher density products, as compared to fiscal 1994. Average pricing per unit increased 3.1% compared to the prior year. 24 26 The gross profit margin increased to 24.3% in 1995 from 19.8% in 1994. The increase was a direct result of higher volume of shipments, an increase in the technology level of product mix, improved pricing and improvements in operating efficiencies. Continued productivity improvements led to increased unit volume and lower unit costs. SG&A expenses, as a percent of net sales, decreased to 11.5% during 1995 from 12.4% during 1994, due to increased revenue. SG&A expenses increased to $30.6 million in 1995 from $27.5 million in 1994, as a result of increased variable costs directly attributable to increased net sales and charges for environmental related matters. Included in SG&A expenses are charges for actual expenditures and accruals, based on estimates, for environmental matters. During 1995 and 1994, the Company made, and charged to SG&A expenses, actual payments of approximately $1,111,000 and $1,040,000, respectively, for environmental matters. In 1995 and 1994, the Company also accrued and charged to SG&A expenses of approximately $2,740,000 and $2,100,000, respectively, as cost estimates relating to known environmental matters. In 1995, interest income increased as a result of higher rates of return earned on investments, and higher cash balances available for investment. Interest expense decreased in 1995 from 1994 due to decreased average debt balances during the year. The annual effective tax rate was 39.0% and 39.5% in 1995 and 1994, respectively, 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. QUARTERLY RESULTS The following table presents certain unaudited consolidated financial information for each of the Company's nine fiscal quarters for the period ended January 25, 1997, as well as certain of such information expressed as a percentage of net sales for the same period. Information for the three months ended January 25, 1997 includes the results of operations for Zycon from January 10, 1997, the date of the Zycon acquisition. In the opinion of management, this information has been prepared on the same basis as the audited Consolidated Financial Statements of the Company appearing elsewhere in this Prospectus and includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the quarterly results when read in conjunction with the Company's Consolidated Financial Statements. The Company's operating results have been subject to fluctuations, and thus results for any quarter are not necessarily indicative of results for any future period.
THREE MONTHS ENDED ------------------------------------------------------------------------------------------------ JAN. APRIL JULY OCT. JAN. APRIL JULY OCT. 28, 29, 29, 28, 27, 27, 27, 26, JAN. 25, 1995 1995 1995 1995 1996 1996 1996 1996 1997(1) ------- ------- ------- ------- ------- ------- ------- ------- -------- (In thousands, except percentages and per share data) CONSOLIDATED STATEMENT OF OPERATIONS: Net sales.......... $56,825 $67,637 $67,752 $72,954 $76,481 $88,096 $88,225 $97,883 $111,536 Gross profit....... 11,292 16,261 17,540 19,402 19,482 21,893 21,451 23,322 24,855 Income (loss) from operations....... 4,770 8,342 9,821 10,973 11,534 12,703 12,910 14,385 (62,443) Net income (loss)........... 3,003 5,193 6,152 7,026 7,191 7,895 7,994 8,934 (69,161) Net income (loss) per share........ $.29 $.49 $.56 $.63 $.65 $.71 $.72 $.81 $(6.64) AS A PERCENTAGE OF NET SALES: Gross profit....... 19.9% 24.0% 25.9% 26.6% 25.5% 24.9% 24.3% 23.8% 22.3% Income (loss) from operations....... 8.4 12.3 14.5 15.0 15.1 14.4 14.6 14.7 (56.0) Net income (loss)........... 5.3 7.7 9.1 9.6 9.4 9.0 9.1 9.1 (62.0)
25 27 - ------------ (1) Net loss for the three months ended January 25, 1997 includes a non-recurring write-off relating to the acquisition of Zycon for in-process research and development. Income from operations was $15,557,000, net income was $8,839,000, net income per share was $.81 (based on weighted average shares outstanding of approximately 10,944,000), and, as a percentage of net sales, income from operations was 13.9% and net income was 7.9%, all before deducting the non-recurring write-off. The Company's results of operations have fluctuated and may continue to fluctuate from period to period, including on a quarterly basis. Variations in quick-turn prototype and volume production orders, in the average number of layers per printed circuit, and in the mix of products sold by the Company have significantly affected both net sales and gross profit. Gross profit declined to 22.3% in the three months ended January 25, 1997 from 26.6% in the three months ended October 28, 1995 primarily as a result of (i) costs related to increases in manufacturing capacity, (ii) an increase in backplane assembly net sales as a percentage of net sales, and (iii) factors related to the Zycon acquisition. Operating results generally may also be affected by other factors, including the receipt and shipment of large orders, plant utilization, product mix, manufacturing process yields, the timing of expenditures in anticipation of future sales, raw material availability, product and price competition, the length of sales cycles and economic conditions in the electronics industry. Many of these factors are outside the control of the Company. The Company does not obtain long term purchase orders or commitments from its customers, and 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. Sales for future quarters may not be predictable. 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. 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, the Company's business, financial condition and results of operations are likely to be materially adversely affected. Due to all of the foregoing factors, it is likely that in some future quarter or quarters the Company's operating results may be below the expectations of securities analysts and investors. In such event, the price of the Company's Common Stock could likely be materially adversely affected. See "Risk Factors -- Fluctuations in Quarterly Operating Results." LIQUIDITY AND CAPITAL RESOURCES In fiscal 1996, the Company's financing requirements were satisfied principally from cash flows from operations. Cash provided by operating activities was approximately $55.6 million in fiscal 1996. These funds were sufficient to meet increased working capital needs, capital expenditures of approximately $54.0 million, and debt and lease payments of approximately $2.1 million in fiscal 1996. Cash provided by operating activities was approximately $8.3 million in the three months ended January 25, 1997. At January 25, 1997, the Company had working capital of approximately $22.1 million and a current ratio of 1.20, compared to working capital of approximately $41.7 million and a current ratio of 1.79 at January 27, 1996. Cash, cash equivalents and short-term investments at January 25, 1997 were approximately $12.1 million, a decrease of $22.6 million from approximately $34.7 million at January 27, 1996. 26 28 The Company currently anticipates that its capital expenditures for fiscal 1997 will be in excess of $70 million, of which approximately $17.2 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 1997. 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 The First National Bank of Boston (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. Interest on loans outstanding under the 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. At January 25, 1997, $215 million was outstanding under the Credit Facility. The Credit Facility will terminate in five years. The Company currently expects that between 80% and 100% of the net proceeds of the Common Stock Offering and the Note Offering will be used to repay a portion of the outstanding balance on the Credit Facility. The Company believes its existing working capital and borrowing capacity, coupled with the funds generated from the Company's operations, and the net proceeds from the Offerings, will be sufficient to fund its anticipated working capital, capital expenditure and debt payment requirements through fiscal 1997. Because the Company's capital requirements cannot be predicted with certainty, however, there is no assurance that the Company will not require additional financing during this period. There is no assurance that any additional financing will be available on terms satisfactory to the Company or not disadvantageous to the Company's securityholders, including those purchasing securities in the Offerings. 27 29 BUSINESS The following Business section 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 under "Risk Factors" and elsewhere in this Prospectus. GENERAL Hadco is the largest 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 include many of the leading and fastest growing companies in the electronics industry, such as Cabletron Systems, Cisco Systems, Intel, Solectron, Sun Microsystems and U.S. Robotics. Hadco's advanced manufacturing and assembly facilities are designed to meet the accelerated time-to-market and time-to-volume requirements of its customers whose markets and products are characterized by high growth rates, rapid technological advances and short product life-cycles. To this end, Hadco (including Zycon) has invested approximately $235 million in state-of-the-art production facilities and new technologies during the past five fiscal years. Hadco provides customers with a range of products and services that includes development, design, quick-turn prototype, pre-production, volume production and backplane assembly. Hadco is one of a small number of printed circuit manufacturers with the technology and advanced production facilities necessary to offer all of these services. The Company believes its combination of a broad product offering and advanced technology facilitates long-term relationships with existing customers, attracts new customers, helps customers meet their time-to-market and time-to-volume needs, and satisfies a larger share of customers' electronic interconnect requirements. Hadco's customers are a diverse group of 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. Hadco (including Zycon) supplied its products and services to a diverse base of approximately 500 customers in fiscal 1996, including 77 customers with purchases in excess of $1 million. The Company's ten largest customers accounted for approximately 43% of net sales in fiscal 1996 on a pro forma basis including Zycon. 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 many fast growing industry sectors, added new proprietary technologies, and increased its sales force. INDUSTRY OVERVIEW AND TRENDS 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 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 28 30 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 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 85% of the domestic printed circuit market was served by independent manufacturers in 1996 (compared to 66% in 1991). Captive manufacturing facilities serve the remaining 15% 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 1996 the world-wide market for rigid printed circuits was approximately $28.2 billion, and the domestic market for rigid printed circuits was approximately $7.1 billion. In addition, industry sources estimate that the market for more complex multilayer printed circuits (six layers and above) comprised approximately 45% of the total market in 1996, and has increased an average of 16% per year over the past two years. Despite its large size, the market for printed circuits remains highly fragmented. The Company believes that 9 North American rigid printed circuit manufacturers had annual sales in excess of $100 million in 1996, which together would represent approximately 32% of the rigid printed circuit market. According to industry sources, the domestic market for backplane assemblies was approximately $1.1 billion in 1995. 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. The Company considers the following trends important in understanding the electronic interconnect industry: Industry Consolidation. The Company believes the industry will continue to consolidate as a result of the substantial capital investment for advanced production facilities, engineering and manufacturing expertise and technology required to make increasingly sophisticated electronic interconnect products. The increased investment requirement for state-of-the-art production facilities has accelerated consolidation in the electronic interconnect industry and the exit of smaller companies. In addition, OEMs and contract manufacturers increasingly recognize that only a few suppliers of interconnect products can consistently provide timely delivery of required volumes of highly sophisticated electronic interconnect products. As a result, Hadco believes that companies with lesser 29 31 financial and technical resources are likely to exit the industry and larger interconnect companies with sufficient resources will continue to gain market share. Increasing Demand for Single Sourcing. To avoid delays and costs during the product life-cycle, OEMs are increasingly turning to suppliers capable of producing electronic interconnect products from development, design, quick-turn prototype and pre-production through volume production and backplane assembly. The accelerated time-to-market and time-to-volume needs of OEMs have resulted in increased collaboration with qualified suppliers capable of providing a broad and integrated offering. To meet their rapidly changing electronic interconnect requirements, many OEMs have moved to limit their vendor base to a smaller number of technically qualified suppliers capable of providing both quick-turn prototype and pre-production quantities as well as cost-competitive volume production quantities. New and Emerging Markets. The markets for electronic products are growing as a result of new product introductions, technological change, demands for a wider variety of electronic product features, and increasingly powerful and less expensive electronic components. New markets have emerged in computing, data communications/telecommunications and multimedia. Moreover, existing industries have significantly expanded applications in areas such as computer networking and peripherals, digital and mobile communications, video-on-demand, the Internet/World Wide Web, instrumentation and industrial controls. The Company believes these new and emerging electronic product markets and applications have also contributed to the reduction in the amplitude of the electronic interconnect industry cycles. Greater Demand for Complex Electronic Products. Advanced communication equipment, as well as next-generation computer chips and microprocessors, require interconnect systems that operate at greater speeds and higher frequencies with minimal signal loss and distortion. Further, electronics OEMs are designing more compact and portable high performance products. The complexity of these new products requires higher performance, smaller size, greater circuit and component density, and increased reliability. These requirements necessitate greater sophistication in printed circuit manufacturing and process technologies, including advanced materials, more layers, narrower line widths and spacing, smaller vias to connect internal circuitry, and more precise positioning of traces and pads to accommodate a greater density of surface mount components. These products require increasingly advanced packaging technologies, such as Multichip Module (MCM), Tape Automated Bonding (TAB), Direct Chip Attach (DCA) and Ball Grid Array (BGA), and high frequency materials. The trend toward increasingly sophisticated products also requires greater engineering support and investment in manufacturing and process technology for suppliers to produce high-quality electronic interconnect products on-time, in volume, and at acceptable cost. Shorter Product Life-Cycles for Electronic Products. Rapid changes in technology have significantly shortened the life-cycle of complex electronic products and placed increased pressure on OEMs to develop new products as quickly as possible. The time-to-market considerations of OEMs have increased emphasis on the engineering and quick-turn production of small unit volumes of electronic interconnects in the prototype development stage. In addition, the success of first-to-market products has heightened the emphasis on volume manufacturing expertise and technologically advanced manufacturing infrastructure. THE HADCO STRATEGY The Company's strategy is to increase sales and profitability by providing a wide range of electronic interconnect solutions and services to a broad and diversified customer base. Hadco assists customers in meeting their time-to-market and time-to-volume requirements by providing a broad and integrated offering (from development, design, quick-turn prototype and pre-production through volume production and backplane assembly). The Company believes this integrated offering gives it an important competitive advantage. 30 32 The Company's strategy is to capitalize on major industry trends as follows: Serve Diversified Customer Base in High Growth Segments. The Company concentrates its marketing efforts on OEMs and contract manufacturers in segments of the electronics market characterized by high growth, rapid technological advances, short product development cycles and accelerated time-to-market and time-to-volume requirements, such as the computing (mainly workstations, servers, mainframes, storage and notebooks), data communications/telecommunications and industrial automation industries, including process controls, automotive, medical and instrumentation. Hadco (including Zycon) supplied its products and services to a diverse base of approximately 500 customers in fiscal 1996, including 77 customers with purchases in excess of $1 million. The Company's ten largest customers accounted for approximately 43% of net sales in fiscal 1996 on a pro forma basis including Zycon. Provide a Broad and Integrated Offering. Hadco develops and maintains long-term customer relationships by providing a full range of integrated services, from development, design, quick-turn prototype and pre-production through volume production and backplane assembly. The Company believes its broad range of integrated services adds significant value to its customers by shortening their new product development cycles, helping them to meet their time-to-market and time-to-volume requirements, lowering manufacturing costs, and providing concentrated expertise. By offering development and design services, the Company also gains early access to volume production sales opportunities, and its relationships with volume production customers create additional quick-turn and development and design sales opportunities. Expand Backplane Assembly Operations. To extend its integrated offering, the Company expanded backplane assembly operations. The Company believes this investment will facilitate a broader range of manufacturing services, reduce customer costs and improve product quality. With this backplane assembly expansion, the Company intends to position itself to capture an increasing share of the interconnect requirements of its customers. Maintain High Levels of Investment. Hadco believes its financial strength allows it to maintain leadership positions in advanced materials, process technologies and packaging through both its development activities and acquisitions. The Company (including Zycon) has invested approximately $235 million in state-of-the-art production facilities and new technologies during the past five fiscal years. These investments have increased capacity and operating efficiencies, improved management control and provided more consistent product quality. As a result, the Company believes it has become one of the few interconnect manufacturers capable of satisfying volume production, time-to-market, time-to-volume, and technology requirements of customers in the electronic interconnect industry. Develop Advanced Manufacturing and Process Technologies. The Company is committed to being a leader in the manufacture of advanced materials and the development of sophisticated process technologies in the electronic interconnect industry. The Company has invested in leading process technologies that enable it to cost-effectively produce high quality and technologically advanced products, thereby attracting fast growing technology customers. The Company believes its manufacturing and process capabilities provide a competitive advantage in the manufacture of complex interconnect products. Increase Geographic Reach. Hadco believes it is the only independent North American printed circuit manufacturer with a full service offering of quick-turn and volume printed circuit manufacturing and backplane assembly on both the East and West Coasts. In addition, its volume production facility in Malaysia, which recently commenced operations, is intended to provide the Company with access to U.S. customers expanding into Asian markets. The Company also intends to broaden its European and other international sales. Pursue Strategic Acquisitions. The January 1997 acquisition of Zycon provided Hadco with state-of-the-art volume printed circuit manufacturing and backplane assembly facilities on the West Coast, a new volume production facility in Malaysia, a quick-turn prototype and design facility on the East 31 33 Coast, a broader customer base, new proprietary technologies, and additional sales personnel. The Company will consider other strategic acquisitions of companies and technologies that enhance its competitive position. 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. Hadco offers complementary processes and capabilities that span 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 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) and Direct Chip Attach (DCA). 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 32 34 Hadco's larger facilities. During 1996, the Tech Centers transitioned chip attachment technologies such as Ball Grid Array (BGA), Tape Automated Bonding (TAB) and Direct Chip Attach (DCA), 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 6%, 7% and 17% of total Company net sales during fiscal 1994, 1995 and 1996, 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 (including Zycon) in fiscal 1996 totaled $24.0 million, and the Company believes that buried resistance materials (ResistAIR(TM)) may generate additional future 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 "-- Manufacturing and Facilities." 33 35 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. Except for the information under the column "Fiscal Year Ended October 26, 1996 (Pro Forma)," the information reflected in the table does not include Zycon.
FISCAL YEAR ENDED, ------------------------------------------------------------------------- OCTOBER 29, OCTOBER 28, OCTOBER 26, OCTOBER 26, MARKETS 1994 1995 1996 1996 - ------- -------------- ---------------- -------------- -------------- Pro Forma (Dollars in millions) Computing................. $ 79.8 36% $ 84.9 32% $119.2 34% $148.3 26% Contract Assembly......... 46.5 21 69.0 26 112.2 32 193.9 34 Data Communications/ Telecommunications...... 82.0 37 90.2 34 94.7 27 193.9 34 Industrial Automation..... 11.1 5 15.9 6 17.5 5 28.5 5 Other..................... 2.2 1 5.2 2 7.1 2 5.8 1 ------ --- ------ --- ------ --- ------ --- Total Net Sales........... $221.6 100% $265.2 100% $350.7 100% $570.4 100% ====== === ====== === ====== === ====== ===
The Company (including Zycon) supplied its products and services to a diverse base of approximately 500 customers in fiscal 1996, 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 1996: Bay Networks SCI Systems Cabletron Systems Solectron Cisco Systems Storage Technology Compaq Computer Sun Microsystems Jabil Circuits U.S. Robotics
During fiscal 1994, 1995 and 1996, no customer accounted for more than 7%, 7% and 15%, respectively, of Hadco's net sales and the Company's ten largest customers together accounted for approximately 48%, 46% and 48%, respectively, during the same periods, and 43% in fiscal 1996 on a pro forma basis including Zycon. In fiscal 1996, one customer, Sun Microsystems, accounted for approximately 10% of the net sales of the Company (including Zycon). 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. For example, in 1996 the top ten customers of Hadco (not including Zycon) had purchasing relationships with the Company ranging from four to 15 years. SALES AND MARKETING The Company markets its products through its own sales and marketing organization and independent manufacturers' representatives. As of January 25, 1997, the Company employed 112 sales and marketing employees, of which 55 are direct sales representatives at eight locations. The Company is also represented by 17 independent manufacturers' representatives at 28 locations in North America, Europe, Mexico, Asia, Australia and the Middle East. Regional direct sales offices are located in the 34 36 states of Arizona, California, Colorado, Georgia, Minnesota, New Hampshire, North Carolina, 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. 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) 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 "-- Products and Services." 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. Each facility can focus on particular product types and respond quickly to customers' specific requirements. 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, 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 expected to begin operations in the first half of calendar 1997. During fiscal 1996, the Company also expanded its backplane assembly facility from 40,000 to 60,000 square feet, and added two additional SMT lines, in-circuit testing capability, and numerous pieces of assembly equipment. 35 37 In total, the Company leases or owns approximately 1.2 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 282,000* Derry, NH 199,000 Kuching, Malaysia 180,000 Hudson, NH 52,000 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.............................................. Salem, NH 35,000 Santa Clara, CA 29,000**
- ------------ * 27,200 feet of which is under renovation ** Under construction 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. 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 two separate buildings, which are covered by leases that expire in October 2000, with options to extend until October 2006. The leases for the Santa Clara, California buildings include the 29,000 square feet of administrative space. The Company also owns approximately six acres of land in Salem, New Hampshire, approximately five acres of land in Derry, New Hampshire, and approximately ten acres of land in Owego, New York. In fiscal 1996, the Company's capital expenditures relating to its environmental control facilities and equipment totaled approximately $1 million. The Company estimates that it will make capital expenditures with respect to its environmental control facilities and equipment of approximately $1.8 million and $700,000 in fiscal 1997 and 1998, respectively. 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 36 38 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 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 four United States and one foreign patent with respect to its buried capacitance technology. 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 37 39 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 January 25, 1997 was $129.1 million (including Zycon), compared with $96.9 million (excluding Zycon) as of January 27, 1996. The Company anticipates delivering approximately 90% of its released backlog during its second quarter of fiscal 1997. 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 January 25, 1997, the Company had 5,410 employees, compared to 2,487 employees as of January 27, 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 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. 38 40 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 "-- 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. 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, 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 new compliance date is July 31, 1997, and the Company anticipates filing the updated Mass Audit Study with the SJ/SC POTW by May 31, 1997. Management believes the Company will be in compliance as of July 31, 1997 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 following completion of the new Mass Audit Study. However, there can be no assurances that the Company will be able to so 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 $220,000 and $320,000. In addition, the Company anticipates an annual cost of approximately $110,000 to dispose of spent electroless nickel plating baths off-site. 39 41 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 "Management's Discussion and Analysis of Results of Operations and Financial Condition" and Note 9 of Notes to the Company's Consolidated Financial Statements. The Company plans additional capital expenditures during fiscal 1997 to further reduce air emissions and reduce waste generation. See discussion under "-- Manufacturing and Facilities" concerning the Company's capital expenditures relating to environmental control facilities and equipment, and under "-- Legal Proceedings" relating to lawsuits regarding environmental matters. 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 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, 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. "See Business -- Environmental Matters." In March 1993, the EPA notified 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 Zycon 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, Zycon'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 Zycon 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 Zycon's status as a generator of hazardous waste. In September 1996, a Consent Decree among the EPA and 48 entities (including Zycon) acting through the Casmalia Steering Committee (CSC) was lodged with the United States District Court in 40 42 Los Angeles, California, which must approve the agreement. Although this approval is pending, work has started under the Consent Decree. 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 agreement provides a mechanism for ensuring that an appropriate federal, state or local agency will assume regulatory responsibility for long-term maintenance. 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. 41 43 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
NAME AGE POSITION - ------------------------------------ --- ------------------------------------------------------ Horace H. Irvine II(3).............. 59 Chairman of the Board of Directors Andrew E. Lietz(3).................. 58 President, Chief Executive Officer and Director Timothy P. Losik.................... 38 Vice President, Chief Financial Officer and Treasurer James R. Griffin.................... 46 Vice President Richard P. Saporito................. 43 Vice President James C. Hamilton................... 59 Clerk Lawrence Coolidge(2)(3)............. 60 Director J. Stanley Hill(1)(2)(4)............ 82 Director John F. Smith(1)(4)................. 61 Director Oliver O. Ward(1)(2)................ 61 Director Patrick Sweeney..................... 61 Director John E. Pomeroy..................... 55 Director James C. Taylor..................... 58 Director
- ------------ (1) Member of Audit Committee. (2) Member of Compensation Committee. (3) Member of Nominating Committee. (4) Member of Stock Option Committee. 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. 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. Prior to joining the Company, Mr. Lietz spent 20 years employed by IBM where he held various sales, marketing and management positions. Mr. Losik joined the Company in 1986 and has been the Chief Financial Officer, Vice President and Treasurer of the Company since March 1994. 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. Losik is a certified public accountant. From 1979 to 1986, Mr. Losik held various positions, including partner, in public accounting firms. Mr. Griffin joined the Company in 1979 and has been a Vice President of the Company since August 1991. He was the Director of Marketing Programs of the Company from 1989 to 1991. Mr. Saporito joined the Company in 1987 and has been a Vice President of the Company since December 1991. He was the Director of Human Resources of the Company from 1989 to 1991. 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. Mr. Coolidge has been a director of the Company since 1995. He is Chairman of the Long-Term Planning and Strategy Committee of the Board of Directors. He has been the president and a private trustee of Loring, Wolcott & Coolidge Office, a fiduciary services provider, since 1962. On August 1, 42 44 1994, Mr. Coolidge became an associate of Loring, Wolcott & Coolidge Fiduciary Advisors, a registered investment advisor. Mr. Hill has been a director of the Company since 1981. He is Chairman of the Audit and Stock Option Committees of the Board of Directors. During the past 27 years, he has been president of Digiplan Inc., a private consultant to the computer users' industry. Mr. Smith has been a director of the Company since 1995. He has been the president of MYCOS International, Inc., a property development corporation, since April 1993, and president of PerSeptive Biosystems, Inc., a biotechnology company, since July 1996. In April 1993, Mr. Smith retired as Senior Vice President and Chief Operating Officer of Digital Equipment Corporation, a computer company, in which capacities he had served since 1991. He began his career at Digital Equipment Corporation in 1958 and served in various other senior management positions from 1976 to 1991. Mr. Smith is also a director of Ansys Corporation, Instron Corporation, PerSeptive Biosystems, Inc. and Sequoia Systems, Inc. Mr. Ward has been a director of the Company since 1987. He is Chairman of the Compensation, Executive and Finance Committees of the Board of Directors. He was a founder and has served as chairman of the board, chief executive officer and president of Germanium Power Devices Corp., a manufacturer and marketer of germanium semiconductors, since 1973. Mr. Sweeney has been a director of the Company since 1991. He was President and Chief Executive Officer of the Company from 1991 until October 1995, and Chief Operating Officer from July 1990 to July 1991. He is currently a consultant to the Company. Mr. Pomeroy has been a director of the Company since September 1996. He has been president and chief executive officer of Dover Technologies, a group of manufacturing companies and a subsidiary of Dover Corporation, since 1987. Mr. Pomeroy is also a director of Adept Technologies, Inc. Mr. Taylor has been a director of the Company since December 1996. He has been an advisory director at Downer and Company, an investment banking firm, since 1995. He was a managing director of Burns Fry Limited, an investment banking firm, from 1988 to 1994. Directors are elected annually and hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified, or until their earlier removal or resignation. Executive officers are elected to serve at the pleasure of the Board of Directors. There are no family relationships among any of the directors and executive officers of the Company. 43 45 PRINCIPAL SHAREHOLDERS The following table sets forth certain information with respect to beneficial ownership of the Company's outstanding Common Stock as of January 24, 1997, and as adjusted to reflect the sale of the Common Stock offered hereby, by (i) each person who is known by the Company to beneficially own more than 5% of the Company's Common Stock, (ii) each director and executive officer of the Company, (iii) the Chief Executive Officer, and (iv) all the directors and executive officers of the Company as a group. Except as otherwise provided below, the address of each person listed below is c/o Hadco Corporation, 12A Manor Parkway, Salem, New Hampshire 03079.
PERCENT OF SHARES BENEFICIALLY OWNED NUMBER OF SHARES ------------------------- BENEFICIALLY PRIOR TO AFTER NAMES OR GROUP OWNED(1) OFFERING OFFERING(14) - -------------- ---------------- -------- ------------ Horace H. Irvine II........................... 923,512(2) 8.8% 7.4% J&W Seligman & Co. Incorporated............... 702,100+ 6.7 5.6 100 Park Avenue New York, NY 10017 FMR Corp...................................... 675,800(3) 6.5 5.4 82 Devonshire Street Boston, MA 02109 Nicholas Applegate Capital Management......... 528,200+ 5.1 4.2 600 West Broadway, 29th Floor San Diego, CA 03079 Andrew E. Lietz............................... 165,146(4) 1.6 1.3 Patrick Sweeney............................... 27,000 * * Timothy P. Losik.............................. 26,775(5) * * James R. Griffin.............................. 39,746(6) * * Richard P. Saporito........................... 23,650(7) * * J. Stanley Hill............................... 41,000(8) * * Oliver O. Ward................................ 3,000(9) * * Lawrence Coolidge............................. 240,158(10) 2.3 1.9 John F. Smith................................. 9,000(11) * * John E. Pomeroy............................... 3,000(12) * * James C. Taylor............................... 3,000(12) * * James C. Hamilton............................. 241,408(10) 2.3 1.9 All directors and executive officers as a group (13 persons).......................... 1,517,237(13) 14.2% 12.2% ========= ==== ====
- ------------ * Represents less than 1% of the outstanding shares of the Company's Common Stock. + Information obtained from a Schedule 13G filed February 4, 1997. (1) Except as indicated in footnotes to this table, the persons named in this table have sole voting and investment power with respect to all shares of Common Stock owned. (2) Includes 124,855 shares held in a voting trust for the benefit of Andrea P. Irvine. Horace H. Irvine II, who is the sole trustee of such trust and retains sole voting power with respect to the shares held in such trust, disclaims beneficial ownership of such shares. Does not include 229,158 shares held in irrevocable trusts for the benefit of members of Horace H. Irvine II's family. Horace H. Irvine II, who is not a trustee of such trusts, disclaims beneficial ownership of such 229,158 shares. James C. Hamilton, Clerk and a partner in Berlin, Hamilton & Dahmen, LLP, which is general counsel to the Company, Lawrence Coolidge, a Director of the Company, and 44 46 Gilbert M. Roddy, Jr. are co-trustees of these irrevocable trusts. Horace H. Irvine II retains no voting or dispositive power with respect to these shares. All voting rights under these trusts reside in Messrs. Hamilton, Coolidge and Roddy, who have the right to dispose of such shares. Messrs. Coolidge and Hamilton own 11,000 and 12,250 shares, respectively, as individuals, in addition to the shares they hold as co-trustees. Mr. Coolidge's 11,000 shares include 6,000 shares issuable upon the exercise of stock options that will become exercisable within 60 days after January 24, 1997. (3) According to information provided to the Company by FMR Corp., as of January 24, 1997, FMR Corp. beneficially owned 675,800 shares of the Common Stock of the Company. Includes 608,200 shares beneficially owned by Fidelity Management & Research Company, as a result of its serving as an investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940 and as an investment adviser to certain other funds which are generally offered to limited groups of investors. Also includes 67,600 shares beneficially owned by Fidelity Management Trust Company as a result of its serving as trustee or managing agent for various private investment accounts, primarily employee benefit plans, and as an investment adviser to certain other funds which are generally offered to limited groups of investors. FMR Corp. has sole voting power with respect to 11,600 shares and sole dispositive power with respect to 675,800 shares. (4) Includes 134,746 shares issuable upon the exercise of stock options granted to Mr. Lietz that are currently exercisable or will become exercisable within 60 days after January 24, 1997 and 30,000 shares held by a trust of which Mr. Lietz is the sole trustee and sole beneficiary. (5) Includes 21,675 shares issuable upon the exercise of stock options granted to Mr. Losik that are currently exercisable or will become exercisable within 60 days after January 24, 1997 and 4,000 shares held jointly with Mr. Losik's spouse. (6) Includes 35,700 shares issuable upon the exercise of stock options granted to Mr. Griffin that are currently exercisable or will become exercisable within 60 days after January 24, 1997. (7) Includes 23,450 shares issuable upon the exercise of stock options granted to Mr. Saporito that are currently exercisable or will become exercisable within 60 days after January 24, 1997. (8) Includes 10,000 shares issuable upon the exercise of stock options granted to Mr. Hill that are currently exercisable or will become exercisable within 60 days after January 24, 1997. Does not include 20,000 shares owned by Mr. Hill's wife, as to which Mr. Hill disclaims beneficial ownership. (9) Consists of 3,000 shares issuable upon the exercise of stock options granted to Mr. Ward that are currently exercisable or will become exercisable within 60 days after January 24, 1997. (10) See footnote (2) above. (11) Consists of 9,000 shares issuable upon the exercise of stock options granted to Mr. Smith that are currently exercisable or will become exercisable within 60 days after January 24, 1997. (12) Consists of 3,000 shares issuable upon the exercise of stock options granted to each of Messrs. Pomeroy and Taylor that are currently exercisable or will become exercisable within 60 days after January 24, 1997. (13) Includes 229,158 shares held by Mr. Coolidge, Mr. Hamilton, and Gilbert M. Roddy, Jr., as co-trustees and 124,855 shares held by Horace H. Irvine II as trustee. Includes 6,000 shares issuable upon the exercise of stock options granted to Mr. Coolidge that are currently exercisable or will become exercisable within 60 days after January 24, 1997. See footnote (2) above. Includes 134,746 shares issuable upon the exercise of stock options granted to Andrew E. Lietz, that are currently exercisable or will become exercisable within 60 days after January 24, 1997. See footnote (4) above. Includes 21,675 shares issuable upon the exercise of stock options granted to 45 47 Mr. Losik that are currently exercisable or will become exercisable within 60 days after January 24, 1997. See footnote (5) above. Includes 35,700 shares issuable upon the exercise of stock options granted to Mr. Griffin that are currently exercisable or will become exercisable within 60 days after January 24, 1997. See footnote (6) above. Includes 23,450 shares issuable upon the exercise of stock options granted to Mr. Saporito that are currently exercisable or will become exercisable within 60 days after January 24, 1997. See footnote (7) above. Includes 10,000 shares issuable upon the exercise of stock options granted to Mr. Hill. See footnote (8) above. Includes 3,000 shares issuable upon the exercise of stock options granted to Mr. Ward. See footnote (9) above. Includes 9,000 shares issuable upon the exercise of stock options granted to Mr. Smith that are currently exercisable or will become exercisable within 60 days after January 24, 1997. See footnote (11) above. Includes an aggregate of 6,000 shares issuable upon the exercise of currently exercisable stock options granted to each of Messrs. Pomeroy and Taylor. See footnote (12) above. (14) The above table assumes no exercise of the over-allotment options. If the Common Stock Underwriters exercise their over-allotment options in full, the number of shares offered, the number of shares beneficially owned after the Common Stock Offering, and the percent of shares beneficially owned after the offering for each of the Selling Stockholders would be: (a) Horace H. Irvine II -- 100,000, 823,512, 6.5%; (b) certain trusts for the benefit of members of Horace H. Irvine II's family -- 35,000, 194,158, 1.5%; (c) Andrew E. Lietz -- 40,000, 125,146, 1.0%; (d) J. Stanley Hill -- 10,000, 31,000,*%; (e) James C. Hamilton -- 3,000, 203,408, 1.6%; and (f) Kenneth Ogle -- 14,600,16,400,*%; and the percent of shares beneficially owned after the Common Stock Offering by all directors and executive officers as a group will be 10.4% if the Common Stock Underwriters exercise their over-allotment options in full. 46 48 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 25,000,000 shares of Common Stock, $.05 par value. As of January 24, 1997, there were 10,444,188 shares of Common Stock of the Company outstanding held by approximately 345 holders of record. COMMON STOCK Each outstanding share of Common Stock is entitled to one vote on all matters submitted to a vote of stockholders. Voting rights are not cumulative, so that the holders of a majority of the voting power of the Company could elect all the Directors standing for election at any annual or special meeting of stockholders, and the holders of the remaining shares may not be able to elect any Director. Dividends may be paid to the holders of Common Stock only when and if declared by the Board of Directors out of funds legally available therefor. No cash dividends have ever been paid by the Company on its Common Stock. See "Dividend Policy." Holders of Common Stock have no preemptive, conversion or other rights to subscribe for additional shares of stock or other securities of the Company. Shares of Common Stock are not subject to any redemption provisions. No share of Common Stock outstanding on the date hereof, sold in the Common Stock Offering or issuable on conversion of any Note is or will be subject to any call or assessment. In the event of any liquidation, dissolution or winding up of the affairs of the Company, the holders of Common Stock will be entitled to share ratably in all assets remaining after provision for payment of creditors. MASSACHUSETTS LAW The Company is subject to the provisions of Chapter 110F of the Massachusetts General Laws, the so-called Business Combination Statute. Under Chapter 110F, a Massachusetts corporation with over 200 stockholders, such as the Company, may not engage in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless (i) the interested stockholder obtains the approval of the Board of Directors prior to becoming an interested stockholder, (ii) the interested stockholder acquires 90% of the outstanding voting stock of the corporation (excluding shares held by certain affiliates of the corporation) at the time it becomes an interested stockholder, or (iii) the business combination is approved by both the Board of Directors and the holders of two-thirds of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder). An "interested stockholder" is a person who, together with affiliates and associates, owns (or at any time within the prior three years did own) 5% or more of the outstanding voting stock of the corporation. A "business combination" includes a merger, a stock or assets sale, and other transactions resulting in a financial benefit to the stockholder. The Company is subject to the provisions of Chapter 110D of the Massachusetts General Laws, entitled "Regulation of Control Share Acquisitions." In general, this statute provides that any stockholder of a corporation subject to this statute who acquires 20% or more of the outstanding voting stock of a corporation (except in certain transactions) may not vote such stock unless the stockholders of the corporation so authorize. The statute specifically excludes situations where any person acquires the triggering 20% ownership "solely by virtue of a revocable proxy conferring the right to vote." The Board of Directors may amend the Company's By-laws at any time to exclude the Company from this statute prospectively. On April 18, 1990, Massachusetts enacted Chapter 156B sec.50A of the Massachusetts General Laws which, in general, requires that publicly held Massachusetts corporations have a classified board of directors consisting of three classes as nearly equal in size as possible. Once the corporation is subject to the classified board provisions of this statute, directors may be removed by a majority vote of the stockholders only for cause. This statute provides that a corporation may elect to be exempt from the classified board provisions by a vote of its directors. By vote of the Board of Directors, the Company has elected to be exempt from the classified board provisions of this statute. 47 49 STOCKHOLDER RIGHTS PLAN On August 22, 1995, the Company's Board of Directors adopted a Stockholder Rights Plan (the "Rights Plan"), the adoption of which did not require stockholder approval, under which Common Stock Purchase Rights (the "Rights") were distributed as a Rights dividend on September 11, 1995 at the rate of one Right for each share of Common Stock held as of the close of business on that date. The Rights Plan is designed to prevent an acquirer from gaining control of the Company without offering a fair price to all of the Company's stockholders. The Rights Plan was not adopted by the Board in response to any specific offer or threat, but rather is intended to protect the interests of stockholders in the event the Company is confronted in the future with takeover tactics. Each Right will entitle holders of Common Stock to buy one share of Common Stock of the Company at an exercise price of $130. The Rights will be exercisable only after 10 days following a public announcement that a person or group has acquired more than 20% (exempting the stock ownership of Horace H. Irvine II, the founder and Chairman of the Board of the Company, and certain related persons and entities) of the Common Stock (the "Stock Acquisition Date"), or 10 business days after such person or group announces a tender or exchange offer which would result in its ownership of 25% or more of the Common Stock, or 10 business days after a person owning 10% or more of the Common Stock is determined by the Board to be an "Adverse Person," as defined in the Rights Plan. The more-than-20% stockholder threshold described above is not triggered by revocable proxies. Under the Rights Plan, an Acquiring Person is defined as a Beneficial Owner of more than 20% of Common Stock; however, such definition excludes any security the ownership of which arises solely from a revocable proxy given in response to a public proxy or consent solicitation in accordance with the provisions of the Exchange Act and not also reportable on Schedule 13D. If any person or group becomes the beneficial owner of 25% or more of the Company's Common Stock except pursuant to a tender offer for all shares at a price that a majority of the independent directors determines to be fair; if a more-than-20% stockholder engages in a merger with the Company in which the Company survives and its Common Stock remains outstanding and unchanged; if certain other events involving the Company and a more-than-20% stockholder occur; or, if under certain circumstances, the Board determines a 10% or more stockholder to be an Adverse Person, then each Right not owned by such person or related parties will entitle its holder to purchase, at the then current exercise price of the Right, Common Stock of the Company (or, in certain circumstances as determined by the Board, including the failure of the stockholders to increase the authorized Common Stock as proposed herein, a combination of cash, property, Common Stock or other securities or a reduction in the exercise price) having a value of twice the Right's exercise price. In such circumstances, the Company may also exchange one share of Common Stock for each Right outstanding. In addition, if the Company is involved in a merger or other business combination transaction with another person in which its Common Stock is changed or converted, or sells or transfers more than 50% of its assets or earning power to another person, each Right that has not previously been exercised will entitle its holder to purchase, at the then current exercise price of the Right, shares of Common Stock of such other person having a value of twice the Right's exercise price. In general, the Company can redeem the Rights at $0.01 per Right at any time prior to ten days following the Stock Acquisition Date. The Rights will expire on September 11, 2005, unless earlier redeemed or exchanged. The Rights have certain anti-takeover effects, in that they can cause substantial dilution to a person or group that attempts to acquire a significant interest in the Company on terms not approved by the Board of Directors. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Company's Common Stock is The First National Bank of Boston. 48 50 DESCRIPTION OF NOTES The Notes are to be issued under an indenture to be dated as of , 1997 (the "Indenture"), between the Company and State Street Bank and Trust Company, as trustee (the "Trustee"), a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The terms of the Notes will include those stated in the Indenture and those made a part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of the Indenture. The Notes will be subject to all such terms, and holders of the Notes are referred to the Indenture and the TIA for a statement of such terms. The following is a summary of important terms of the Notes and does not purport to be complete and is qualified in its entirety by reference to the Indenture and the TIA. Reference should be made to all provisions of the Indenture, including the definitions therein of certain terms and all terms made a part of the Indenture by reference to the TIA. As used in this "Description of Notes," the term "Company," unless otherwise indicated or the context otherwise requires, refers only to Hadco Corporation and does not include any of its subsidiaries including Zycon. GENERAL The Notes will be general unsecured obligations of the Company subordinate in right of payment to certain other obligations of the Company as described under "-- Subordination," and convertible into Common Stock as described under "-- Conversion." The Notes will be limited to $100,000,000 aggregate principal amount ($115,000,000 if the over-allotment option is exercised in full), will be issued in fully registered form only in denominations of $1,000 or any integral multiple thereof and will mature on , 2004, unless earlier redeemed at the option of the Company or repurchased by the Company at the option of the holder upon a Designated Event (as defined). The Notes will bear interest from , 1997 at the annual rate set forth on the cover page hereof, payable semiannually on and , commencing on , 1997, to holders of record at the close of business on the preceding and , respectively (subject to certain exceptions in the case of conversion, redemption or repurchase of such Notes prior to the applicable interest payment date). Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal of and premium, if any, and interest on the Notes will be payable, and the transfer of Notes will be registrable, and the Notes may be presented for conversion, at the office or agency of the Company maintained for such purposes in the Borough of Manhattan, State of New York, which shall initially be an office or agency of the Trustee. In addition, payment of interest may, at the option of the Company, be made by check mailed to the address of the person entitled thereto as it appears in the Note register, provided that the holder of Notes with an aggregate principal amount in excess of $2,000,000 shall, at the election of such holder, be paid by wire transfer in immediately available funds. No service charge will be made for any registration or transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company is not required to exchange or register the transfer of (i) any Note for a period of 15 days next preceding any selection of Notes to be redeemed, (ii) any Note or portion thereof selected for redemption, (iii) any Note or portion thereof surrendered for conversion, or (iv) any Note or portion thereof surrendered for repurchase (and not withdrawn) in connection with a Designated Event. The Indenture does not contain any financial covenants or any restrictions on the payment of dividends, the repurchase of securities of the Company or the incurrence of Senior Indebtedness. The Indenture contains no covenants or other provisions to afford protection to holders of Notes in the event of a highly leveraged transaction or a change in control of the Company except to the limited extent described under "-- Repurchase at Option of Holders Upon a Designated Event" below. 49 51 CONVERSION The holders of Notes will be entitled at any time through the close of business on the final maturity date of the Notes, subject to prior redemption or repurchase, to convert any Notes or portions thereof (in denominations of $1,000 or multiples thereof) into Common Stock of the Company, at the conversion price set forth on the cover page of this Prospectus, subject to adjustment as described below. Except as described below, no adjustment will be made on conversion of any Notes for interest accrued thereon or for dividends on any Common Stock issued. If Notes are converted after a record date for the payment of interest and on or prior to the close of business on the business day prior to the next succeeding interest payment date, such Notes, other than Notes called for redemption during such period, when submitted for conversion by the holder, must be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted. No such payment will be required with respect to interest payable on , 2000. The Company is not required to issue fractional shares of Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash adjustment based upon the market price of the Common Stock on the last business day prior to the date of conversion. In the case of Notes called for redemption, conversion rights will expire at the close of business on the business day preceding the date fixed for redemption, unless the Company defaults in payment of the redemption price in which case the conversion right shall terminate on the date such default is cured and such Note is redeemed. A Note for which a holder has delivered a Designated Event purchase notice exercising the option of such holder to require the Company to repurchase such Note may be converted only if such notice is withdrawn by a written notice of withdrawal delivered by the holder to the Company prior to the close of business on the business day preceding the date fixed for repurchase. The right of conversion attaching to any Note may be exercised by the holder by delivering the Note at the specified office of a conversion agent, accompanied by a duly signed and completed notice of conversion, together with any funds that may be required as described in the preceding paragraph. The conversion date shall be the date on which the Note, the duly signed and completed notice of conversion and any funds that may be required as described in the preceding paragraph shall have been so delivered. A holder delivering a Note for conversion will not be required to pay any taxes or duties payable in respect of the issue or delivery of Common Stock on conversion, but will be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue or delivery of the Common Stock in a name other than the holder of the Note. Certificates representing shares of Common Stock will not be issued or delivered unless all taxes and duties, if any, payable by the holder have been paid. The initial conversion price of $ per share of Common Stock is subject to adjustment (under formulae set forth in the Indenture) in certain events, including: (i) the issuance of Common Stock as a dividend or distribution on Common Stock of the Company; (ii) certain subdivisions and combinations of the Common Stock; (iii) the issuance to all holders of Common Stock of certain rights or warrants to purchase Common Stock at less than the current market price of the Common Stock; (iv) the dividend or other distribution to all holders of Common Stock of shares of capital stock of the Company (other than Common Stock) or evidence of indebtedness of the Company or assets (including securities, but excluding those rights, warrants, dividends and distributions referred to above or paid exclusively in cash); (v) dividends or other distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in clause (iv)) to all holders of Common Stock to the extent that such distributions, combined together with (A) all other such all-cash distributions made within the preceding 12 months in respect of which no adjustment has been made plus (B) any cash and the fair market value of other consideration payable in respect of any tender offers by the Company or any of its subsidiaries for Common Stock concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 10% of the Company's market capitalization (being the product of the then current market price of the Common Stock times the number of shares of Common Stock then outstanding) on the record date for such distribution; (vi) the purchase of Common Stock pursuant to a tender offer made by the Company or any of its subsidiaries to the extent 50 52 that the same involves an aggregate consideration that, together with (X) any cash and the fair market value of any other consideration payable in any other tender offer by the Company or any of its subsidiaries for Common Stock expiring within the 12 months preceding such tender offer in respect of which no adjustment has been made plus (Y) the aggregate amount of any such all-cash distributions referred to in clause (v) above to all holders of Common Stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 10% of the Company's market capitalization on the expiration of such tender offer; and (vii) payment in respect of a tender offer or exchange offer by a person other than the Company or any subsidiary of the Company in which, as of the closing of the offer, the Board of Directors is not recommending rejection of the offer. The adjustment referred to in clause (vii) above will only be made if the tender offer or exchange offer is for an amount which increases that person's ownership of Common Stock to more than 25% of the total shares of Common Stock outstanding, and only if the cash and value of any other consideration included in such payment per share of Common Stock exceeds the current market price per share of Common Stock on the business day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange. The adjustment referred to in clause (vii) above will not be made, however, if, as of the closing of the offer, the offering documents with respect to such offer disclose a plan or an intention to cause the Company to engage in a consolidation or merger of the Company or a sale of all or substantially all of the Company's assets. Under the terms of the Rights Plan, upon conversion of any Notes prior to the redemption or expiration of the Rights, the holders of such Notes will receive, subject to certain limited conditions, an appropriate number of Rights with respect to the shares of Common Stock issued upon such conversion. In addition, the Indenture will provide that if the Company amends the Rights Plan or implements a replacement or successor stockholders' rights plan, such rights plan must provide that upon conversion of the Notes the holders will receive, in addition to the Common Stock issuable upon such conversion, such rights whether or not such rights have separated from the Common Stock at the time of such conversion. In the case of (i) any reclassification or change of the Common Stock (other than changes in par value or resulting from a subdivision or combination) or (ii) a consolidation, merger or combination involving the Company or a sale or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, in each case as a result of which holders of Common Stock shall be entitled to receive stock, other securities, other property or assets (including cash) with respect to or in exchange for such Common Stock, the holders of the Notes then outstanding will be entitled thereafter to convert such Notes into the kind and amount of shares of stock, other securities or other property or assets which they would have owned or been entitled to receive upon such reclassification, change, consolidation, merger, combination, sale or conveyance had such Notes been converted into Common Stock immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance (assuming, in a case in which the Company's stockholders may exercise rights of election, that a holder of Notes would not have exercised any rights of election as to the stock, other securities or other property or assets receivable in connection therewith and received per share the kind and amount received per share by a plurality of nonelecting shares). In the event of a taxable distribution to holders of Common Stock (or other transaction) which results in any adjustment of the conversion price, the holders of Notes may, in certain circumstances, be deemed to have received a distribution subject to United States income tax as a dividend; in certain other circumstances, the absence of such an adjustment may result in a taxable dividend to the holders of Common Stock. See "Certain Federal Income Tax Considerations." The Company from time to time may, to the extent permitted by law, reduce the conversion price of the Notes by any amount for any period of at least 20 days, in which case the Company shall give at least 15 days' notice of such decrease, if the Board of Directors has made a determination that such decrease would be in the best interests of the Company, which determination shall be conclusive. The Company may at its option, make such reductions in the conversion price, in addition to those set forth 51 53 above, as the Board of Directors deems advisable to avoid or diminish any income tax to holders of Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. See "Certain Federal Income Tax Considerations." No adjustment in the conversion price will be required unless such adjustment would require a change of at least 1% in the conversion price then in effect; provided that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. Except as stated above, the conversion price will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing. OPTIONAL REDEMPTION BY THE COMPANY The Notes are not redeemable at the option of the Company prior to , 2000. At any time on or after that date the Notes may be redeemed at the Company's option on at least 20 but not more than 60 days' notice, as a whole or, from time to time in part, at the following prices (expressed in percentages of the principal amount), together with accrued interest to, but excluding, the date fixed for redemption; provided that if a redemption date is an interest payment date, the semi-annual payment of interest becoming due on such date shall be payable to the holder of record as of the relevant record date. If redeemed during the 12-month period beginning , 2000 (beginning , 2000 and ending , 2001 in the case of the first such period):
REDEMPTION YEAR PRICE ------------------------------------------------------------- ------------- 2000......................................................... % 2001......................................................... 2002......................................................... 2003.........................................................
and 100% at , 2004. If fewer than all the Notes are to be redeemed, the Trustee will select the Notes to be redeemed in principal amounts of $1,000 or multiples thereof by lot or, in its sole discretion, on a pro rata basis. If any Note is to be redeemed in part only, a new Note or Notes in principal amount equal to the unredeemed principal portion thereof will be issued. If a portion of a holder's Notes is selected for partial redemption and such holder converts a portion of such Notes, such converted portion shall be deemed to be taken from the portion selected for redemption. No sinking fund is provided for the Notes. REPURCHASE AT OPTION OF HOLDERS UPON A DESIGNATED EVENT The Indenture provides that if a Designated Event (as defined) occurs, each holder of Notes shall have the right, at the holder's option, to require the Company to repurchase all of such holder's Notes, or any portion thereof that is an integral multiple of $1,000, on the date (the "repurchase date") that is 40 calendar days after the date of the Company Notice (as defined below), for cash at a price equal to 100% of the principal amount of the Notes, together with accrued interest, if any, to (but excluding) the repurchase date (the "repurchase price"), provided, however, that if a repurchase date is an interest payment date, the semi-annual payment of interest becoming due on such date shall be payable to the holder of record as of the relevant record date. Within 15 days after the occurrence of a Designated Event, the Company is obligated to mail to all holders of record of the Notes a notice (the "Company Notice") of the occurrence of such Designated Event and of the repurchase right arising as a result thereof. The Company must deliver a copy of the Company Notice to the Trustee and cause a copy or a summary of such notice to be published in a 52 54 newspaper of general circulation in The City of New York. To exercise the repurchase right, a holder of such Notes must deliver, on or before the 40th day after the Company Notice, written notice to the Company (or an agent designated by the Company for such purpose) of the holder's exercise of such right, together with the Notes with respect to which the right is being exercised, duly endorsed for transfer. Such notice of exercise may be withdrawn by the holder by a written notice of withdrawal delivered to the Company at any time prior to the close of business on the last business day preceding the repurchase date. "Designated Event" means a Change in Control (as defined) or a Termination of Trading (as defined). "Change in Control" means an event or series of events after the original issuance of the Notes as a result of which (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of shares representing more than 50% of the combined voting power of the then outstanding securities entitled to vote generally in elections of directors of the Company ("Voting Stock"); (ii) the stockholders of the Company approve any plan or proposal for the liquidation, dissolution or winding up of the Company, (iii) the Company consolidates with or merges into any other corporation, or conveys, transfers or leases all or substantially all of its assets to any person, or any other corporation merges into the Company, and in the case of any such transaction, the outstanding Common Stock of the Company is changed or exchanged into or for other assets or securities as a result, unless the stockholders of the Company immediately before such transaction own, directly or indirectly immediately following such transaction, at least 51% of the combined voting power of the outstanding voting securities of the corporation resulting from such transaction in substantially the same proportion as their ownership of the Voting Stock immediately before such transaction; or (iv) any time Continuing Directors (as defined) do not constitute a majority of the Board of Directors of the Company (or, if applicable, a successor corporation to the Company); provided that a Change in Control shall not be deemed to have occurred if either (x) the last sale price of the Common Stock for any five trading days during the ten trading days immediately preceding the Change in Control is at least equal to 105% of the conversion price in effect on such day or (y) in the case of a merger or consolidation, at least 95% of the consideration (excluding cash payments for fractional shares or for dissenters' appraisal rights) in such merger or consolidation otherwise constituting the Change in Control consists of common stock traded on a United States national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted when issued or exchanged in connection with such Change in Control) and as a result of such transaction or transactions such Notes become convertible solely into such common stock. "Continuing Director" means at any date a member of the Company's Board of Directors (i) who was a member of such board on , 1997 or (ii) who was nominated or elected by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Company's Board of Directors was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or such lesser number comprising a majority of a nominating committee if authority for such nominations or elections has been delegated to a nominating committee whose authority and composition has been approved by at least a majority of the directors who were Continuing Directors at the time such committee was formed. (Under this definition, if the current Board of Directors of the Company were to approve a new director or directors and then resign, no Change in Control would occur even though the current Board of Directors would thereafter cease to be in office.) A "Termination of Trading" shall have occurred if the Common Stock (or other common stock into which the Notes are then convertible) is neither listed for trading on a United States national securities exchange nor approved for trading on an established automated over-the-counter trading market in the United States. 53 55 No quantitative or other established meaning has been given to the phrase "all or substantially all" (which appears in the definition of Change in Control) by courts which have interpreted this phrase in various contexts. In interpreting this phrase, courts, among other things, make a subjective determination as to the portion of assets conveyed, considering such factors as the value of assets conveyed, the proportion of an entity's income derived from the assets conveyed and the significance of those assets to the ongoing business of the entity. To the extent the meaning of such phrase is uncertain, uncertainty will exist as to whether or not a Change in Control may have occurred (and, accordingly, as to whether or not the holders of Notes will have the right to require the Company to repurchase their Notes). If a Designated Event were to occur, there can be no assurance that the Company would have sufficient financial resources, or would be able to arrange financing, to pay the repurchase price for all Notes tendered by holders thereof. In addition, the terms of certain of the Company's existing debt agreements prohibit the Company from repurchasing any Notes and also identify certain events that would constitute Designated Events, as well as certain other change in control events with respect to the Company or certain of its subsidiaries, which would constitute an event of default under such debt agreements. Any future credit agreements or other agreements relating to other indebtedness (including other Senior Indebtedness) to which the Company becomes a party may contain similar restrictions and provisions. In the event a Designated Event occurs at a time when the Company is prohibited from repurchasing Notes, the Company could seek the consent of its lenders to the repurchase of the Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company would remain prohibited from repurchasing Notes. Any failure by the Company to repurchase the Notes when required following a Designated Event would result in an Event of Default under the Indenture whether or not such repurchase is permitted by the subordination provisions of the Indenture. Any such default may, in turn, cause a default under Senior Indebtedness of the Company. Moreover, the occurrence of a Designated Event may cause an event of default under Senior Indebtedness of the Company. As a result, in each case, any repurchase of the Notes would, absent a waiver, be prohibited under the subordination provisions of the Indenture until the Senior Indebtedness is paid in full. See "-- Subordination" below and "Risk Factors -- Subordination of Notes and Absence of Financial Covenants." No Notes may be repurchased at the option of holders upon a Designated Event if there has occurred and is continuing an Event of Default described under "-- Events of Default and Remedies" below (other than a default in the payment of the repurchase price with respect to such Notes on the repurchase date). The foregoing provisions would not necessarily afford holders of the Notes protection in the event of a highly leveraged transaction, a change in control of the Company or other transactions involving the Company that may adversely affect holders. The Company could, in the future, enter into certain transactions, including certain recapitalizations of the Company, that would increase the amount of Senior Indebtedness (or other indebtedness) outstanding at such time or result in an actual change in control of the Company but that would not constitute a Change in Control giving rise to the right of the holders to cause the Company to repurchase the Notes. There are no restrictions in the Indenture or the Notes on the creation of additional Senior Indebtedness (or any other indebtedness) of the Company or any of its subsidiaries and the incurrence of significant amounts of additional indebtedness could have an adverse impact on the Company's ability to service its debt, including the Notes. The Notes are subordinate in right of payment to all existing and future Senior Indebtedness as described under "-- Subordination" below. Certain leveraged transactions and transactions involving a change in control of the Company sponsored by the Company's management or an affiliate of the Company could constitute a Change in Control that would give rise to the repurchase right. The Indenture does not provide the Company's Board of Directors with the right to limit or waive the repurchase right in the event of any such leveraged transaction or change in control. In addition, the right to require the Company to repurchase Notes as a result of a Change in Control could have the effect of delaying, deferring or 54 56 preventing a change of control or other attempts to acquire control of the Company unless arrangements have been made to enable the Company to repurchase all of the Notes at the repurchase date. Consequently, the right 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. The Designated Event repurchase right, however, is not the result of management's knowledge of any specific effort to accumulate shares of Common Stock or to obtain control of the Company by means of a merger, tender offer, solicitation or otherwise. Instead, the Designated Event repurchase right has resulted from negotiations between the Company and the Note Underwriters. No modification of the Indenture regarding the provisions on repurchase at the option of any holder of a Note is permissible without the consent of the holder of the Note so affected. The Company will comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act to the extent then applicable, and otherwise comply with all federal and state securities laws in connection with any offer by the Company to purchase Notes at the option of the holders upon a Designated Event. Rule 13e-4 under the Exchange Act requires, among other things, the dissemination of certain information to security holders in the event of an issuer tender offer and may apply in the event that the repurchase option becomes available to holders of the Notes. SUBORDINATION The indebtedness evidenced by the Notes is, to the extent provided in the Indenture, subordinate to the prior payment in full of all Senior Indebtedness (as defined) whether presently outstanding or hereafter incurred or created. Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company, the payment of the principal of, or premium, if any, and interest on the Notes is to be subordinated to the extent provided in the Indenture in right of payment to the prior payment in full, in cash or in such other form of payment as may be acceptable to the holders thereof, of all Senior Indebtedness. Moreover, in the event of any acceleration of the Notes because of an Event of Default, the holders of any Senior Indebtedness then outstanding would be entitled to payment in full in cash or such other form of payment as may be acceptable to the holders thereof of all such Senior Indebtedness before the holders of the Notes are entitled to receive any payment or distribution in respect thereof. The Company also may not make any payment upon or in respect of the Notes if (i) a default in the payment of principal of, premium, if any, interest, or other payment due on Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Indebtedness (as defined below) that permits holders of the Designated Senior Indebtedness as to which such default related to accelerate its maturity and the Trustee and the Company receive a notice of such default (a "Payment Blockage Notice") from a holder of Designated Senior Indebtedness or its representative or agent. Payments on the Notes may and shall be resumed (a) in case of payment default, on the date on which such default is cured or waived and (b) in case of a nonpayment default, on the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received. No new period of payment blockage may be commenced pursuant to a Payment Blockage Notice unless (i) 365 days have elapsed since the first day of the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest on the Notes that have become due have been paid in full in cash or the Trustee or the Noteholders shall not have instituted proceedings to enforce the Noteholders' right to receive such payments. No default (whether or not such event of default is on the same issue of Designated Senior Indebtedness) that existed or was continuing on the date of delivery of any Payment Blockage Notice shall be, or be made, the basis for a subsequent Payment Blockage Notice. 55 57 The term "Senior Indebtedness" means the principal of, premium, if any, interest on (including any interest accruing after the filing of a petition by or against the Company under any bankruptcy law, whether or not allowed as a claim after such filing in any proceeding under such bankruptcy law), and any other payment due pursuant to, any of the following, whether outstanding on the date of the Indenture or thereafter incurred or created: (a) all indebtedness of the Company for money borrowed or evidenced by notes, debentures, bonds, similar instruments or other debt securities (including, but not limited to, purchase money mortgages and any such indebtedness which is convertible or exchangeable for securities of the Company); (b) all indebtedness of the Company due and owing with respect to letters of credit, bankers' acceptances or similar credit transactions (including, but not limited to, reimbursement obligations with respect thereto); (c) all indebtedness or other obligations of the Company due and owing with respect to interest rate and currency swap agreements, cap, floor, collar and option agreements, currency spot and forward contracts and other similar agreements and arrangements; (d) all indebtedness consisting of commitment or standby fees due and payable to lending institutions with respect to credit facilities or letters of credit, bankers' acceptances or similar credit transactions; (e) all obligations of the Company for payment of money under leases required or permitted to be capitalized under generally accepted accounting principles; (f) all indebtedness or obligations of others of the kinds described in any of the preceding clauses (a), (b), (c), (d) or (e) assumed by or guaranteed in any manner by the Company or in effect guaranteed (directly or indirectly) by the Company through an agreement to purchase, contingent or otherwise, and all obligations of the Company under any such guarantee or other arrangements; and (g) all renewals, extensions, refundings, deferrals, amendments or modifications of indebtedness or obligations of the kinds described in any of the preceding clauses (a), (b), (c), (d), (e) or (f), unless in the case of any particular indebtedness, obligation, renewal, extension, refunding, deferral, amendment, modification or supplement, the instrument or other document creating or evidencing the same or the assumption or guarantee of the same expressly provides that such indebtedness, obligation, renewal, extension, refunding, deferral, amendment, modification or supplement is subordinate to, or is not superior to, or is pari passu with, the Notes; provided that Senior Indebtedness shall not include (i) any indebtedness of any kind of the Company to any subsidiary of the Company, a majority of the voting stock of which is owned, directly or indirectly, by the Company, (ii) indebtedness for trade payables or constituting the deferred purchase price of inventory, material or services incurred in the ordinary course of business or (iii) the Notes. The term "Designated Senior Indebtedness" means all Senior Indebtedness under the Credit Facility and all other Senior Indebtedness if the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of holders of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). In the event that, notwithstanding the foregoing, the Trustee or any holder of Notes receives any payment or distribution of assets of the Company of any kind in contravention of any of the terms of the Indenture, whether in cash, property or securities, including, without limitation, by way of set-off or otherwise, in respect of the Notes before all Senior Indebtedness is paid in full in cash or such other form of payment acceptable to the holders of such Senior Indebtedness, then such payment or distribution will be held by the recipient in trust for the benefit of the holders of Senior Indebtedness of the Company, and will be immediately paid over or delivered to the holders of Senior Indebtedness of the Company or their representative or representatives to the extent necessary to make payment in full in cash or such other form of payment acceptable to the holders of such Senior Indebtedness of all Senior Indebtedness of the Company remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to or for the holders of Senior Indebtedness of the Company. The Notes are obligations exclusively of the Company. As a significant portion of the Company's consolidated operations is conducted through subsidiaries, the cash flow and the consequent ability to 56 58 service debt, including the Notes, of the Company is partially dependent upon the earnings of such subsidiaries and the distribution of those earnings, or upon loans or other payments of funds by those subsidiaries, to the Company. Such subsidiaries are separate and distinct legal entities, and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes or to make any funds available therefor, whether by dividends, distributions, loans or other payments. In addition, the payment of dividends or distributions and the making of loans and advances to the Company by any such subsidiaries may be subject to statutory or contractual restrictions, and may be contingent upon the earnings of those subsidiaries and subject to various business considerations. Any right of the Company to receive assets of subsidiaries upon their liquidation or reorganization (and the consequent right of the holders of the Notes to participate in these assets) would be effectively subordinated to the claims of that subsidiary's creditors (including trade creditors), except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subordinate to any security interests in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. As of January 25, 1997, the Company had approximately $218 million of indebtedness outstanding that would have constituted Senior Indebtedness and the Company's subsidiaries had outstanding indebtedness and other liabilities of approximately $57 million (excluding intercompany liabilities and liabilities of a type not required to be reflected as liabilities on the balance sheets of such subsidiaries in accordance with generally accepted accounting principles) to which the Notes would have been effectively subordinated. The Indenture will not limit the amount of additional indebtedness, including Senior Indebtedness, which the Company can create, incur, assume or guarantee, nor will the Indenture limit the amount of indebtedness which any subsidiary of the Company can create, incur, assume or guarantee. No provision contained in the Indenture or the Notes will affect the obligation of the Company, which is absolute and unconditional, to pay, when due, principal of, premium, if any, and interest on, the Notes. The subordination provisions of the Indenture and the Notes will not prevent the occurrence of any default or Event of Default or limit the rights of any holder of Notes to pursue any other rights or remedies with respect to the Notes. As a result of these subordination provisions, in the event of the liquidation, bankruptcy, reorganization, insolvency, receivership or similar proceeding or an assignment for the benefit of the creditors of the Company or a marshaling of assets or liabilities of the Company and its subsidiaries, holders of the Notes may receive ratably less than other creditors. EVENTS OF DEFAULT AND REMEDIES An Event of Default is defined in the Indenture as being: (i) a default in payment of the principal of, or premium, if any, on the Notes (whether or not such payment is prohibited by the subordination provisions of the Indenture); (ii) default for 30 days in payment of any installment of interest on the Notes (whether or not such payment is prohibited by the subordination provisions of the Indenture); (iii) default by the Company for 45 days after notice given in accordance with the Indenture in the observance or performance of any other covenants in the Indenture; (iv) default in the payment of the repurchase price in respect of the Note on the repurchase date therefor (whether or not such payment is prohibited by the subordination provisions of the Indenture); (v) failure to provide timely notice of a Designated Event; (vi) failure of the Company or any Significant Subsidiary (as defined) to make any payment at maturity, including any applicable grace period, in respect of Indebtedness (which term as used in the Indenture means obligations (other than non-recourse obligations) of, or guaranteed or assumed by, the Company or any Significant Subsidiary for borrowed money or evidenced by bonds, notes or similar instruments) in an amount in excess of $10 million and continuance of such failure for 30 days after notice given in accordance with the Indenture; (vii) default by the Company or any Significant Subsidiary with respect to any Indebtedness, which default results in the acceleration of Indebtedness in an amount in excess of $10 million without such Indebtedness having been discharged or such acceleration having been rescinded or annulled for 30 days after notice given in accordance 57 59 with the Indenture; or (viii) certain events involving bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary. The Indenture provides that the Trustee shall, within 90 days after the occurrence of a default, give to the registered holders of the Notes notice of all uncured defaults known to it, but the Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the best interest of such registered holders, except in the case of a default in the payment of the principal of, or premium, if any, or interest on, any of the Notes when due or in the payment of any redemption or repurchase obligation. The Indenture provides that if any Event of Default shall have occurred and be continuing, the Trustee or the holders of not less than 25% in principal amount of the Notes then outstanding by notice to the Company and the Trustee may declare the principal of and premium, if any, and accrued interest on the Notes to be due and payable immediately, but if the Company shall cure all defaults (except the nonpayment of interest on, premium, if any, and principal of any Notes which shall have become due by acceleration) and certain other conditions are met, such declaration may be canceled and past defaults may be waived by the holders of a majority in principal amount of Notes then outstanding. If an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization were to occur, all unpaid principal of and accrued interest on the outstanding Notes will become due and payable immediately without any declaration or other act on the part of the Trustee or any holders of Notes, subject to certain limitations. The Indenture provides that the holders of a majority in principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, subject to certain limitations specified in the Indenture. Before proceeding to exercise any right or power under the Indenture at the direction of such holders, the Trustee shall be entitled to receive from such holders reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in complying with any such direction. The right of a holder to institute a proceeding with respect to the Indenture is subject to certain conditions precedent, including the written notice by such holder of an Event of Default and an offer to indemnify the Trustee, along with the written request by the holders of not less than 25% in principal amount of the outstanding Notes that such a proceeding be instituted, but the holder has an absolute right to institute suit for the enforcement of payment of the principal of, and premium, if any, and interest on, such holder's Notes when due and to enforce such holder's right to convert such Notes. The holders of not less than a majority in principal amount of the outstanding Notes may on behalf of the holders of all Notes waive any past defaults, except (i) a default in payment of the principal of, or premium, if any, or interest on, any Note when due, (ii) a failure by the Company to convert any Notes into Common Stock or (iii) in respect of certain provisions of the Indenture which cannot be modified or amended without the consent of the holder of each outstanding Note affected thereby. The Company is required to furnish to the Trustee annually within 120 days of the end of the fiscal year a statement of certain officers of the Company stating whether or not to the best of their knowledge the Company is in default in the performance and observation of certain terms of the Indenture and, if they have knowledge that the Company is in default, specifying such default and its status. The Company is also required, upon becoming aware of any default or Event of Default, to deliver to the Trustee a statement specifying such default or Event of Default and the action the Company has taken, is taking or proposes to take with respect thereto. LIMITATION ON MERGER, SALE OR CONSOLIDATION The Indenture provides that the Company may not, directly or indirectly, consolidate with or merge with or into another person or sell, lease, convey or transfer all or substantially all of its assets (computed on a consolidated basis), whether in a single transaction or a series of related transactions, to another person or group of affiliated persons, unless (i) either (a) the Company is the surviving 58 60 entity or (b) the resulting, surviving or transferee entity is a corporation organized under the laws of the United States, any state thereof or the District of Columbia and expressly assumes by written agreement all of the obligations of the Company in connection with the Notes and the Indenture; (ii) no default or Event of Default shall exist or shall occur immediately after giving effect on a pro forma basis to such transaction; and (iii) certain other conditions are satisfied. Upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, the successor corporation formed by such consolidation or into which the Company is merged or to which such transfer is made, shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor corporation had been named therein as the Company, and the Company will be released from its obligations under the Indenture and the Notes, except as to any obligations that arise from or as a result of such transaction. MODIFICATIONS OF THE INDENTURE The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in principal amount of the Notes at the time outstanding, to modify the Indenture or any supplemental indenture or the rights of the holders of the Notes, except that no such modification shall (i) extend the fixed maturity of any Note, reduce the rate or extend the time for payment of interest thereon, reduce the principal amount thereof or premium, if any, thereon, reduce any amount payable upon redemption or repurchase thereof, impair or change in any respect adverse to the holders of Notes the obligation of the Company to make repurchase of any Note upon the happening of a Designated Event, impair or adversely affect the right of a holder to institute suit for the payment thereof, change the currency in which the Notes are payable, or impair or change in any respect adverse to the holder of the Notes, the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture or modify the provisions of the Indenture with respect to the subordination of the Notes in a manner adverse to the holders of the Notes, without the consent of the holder of each Note so affected, or (ii) reduce the aforesaid percentage of Notes, without the consent of the holders of all of the Notes then outstanding. TAXATION OF NOTES See "Certain Federal Income Tax Considerations" for a discussion of certain federal tax aspects which will apply to holders of Notes. SATISFACTION AND DISCHARGE The Company may discharge its obligations under the Indenture while Notes remain outstanding if (i) all outstanding Notes will become due and payable at their scheduled maturity within one year or (ii) all outstanding Notes are scheduled for redemption within one year and, in either case, the Company has deposited with the Trustee an amount sufficient to pay and discharge all outstanding Notes on the date of their scheduled maturity or the scheduled date of redemption. GOVERNING LAW The Indenture and Notes will be governed by and construed in accordance with the laws of the State of New York. CONCERNING THE TRUSTEE State Street Bank and Trust Company, the Trustee under the Indenture, has been appointed by the Company as the initial paying agent, conversion agent, registrar and custodian with regard to the Notes. The Company may maintain deposit accounts and conduct other banking transactions with the Trustee or its affiliates in the ordinary course of business, and the Trustee and its affiliates may from time to time in the future provide banking and other services to the Company in the ordinary course of their business. 59 61 During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and the TIA will contain certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions, provided, however, that if it acquires any conflicting interest (as described in the TIA), it must eliminate such conflict or resign. 60 62 FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of material United States federal income tax considerations relevant to holders of the Notes. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. This discussion does not purport to deal with all aspects of federal income taxation that may be relevant to a particular investor's decision to purchase the Notes, and it is not intended to be wholly applicable to all categories of investors, some of which, such as dealers in securities, banks, insurance companies, tax-exempt organizations and non-United States persons, may be subject to special rules. In addition, this discussion is limited to persons that purchase the Notes in the Note Offering and hold the Notes as a "capital asset" within the meaning of Section 1221 of the Code. ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK. CONVERSION OF NOTES INTO COMMON STOCK In general, no gain or loss will be recognized for federal income tax purposes on a conversion of the Notes into shares of Common Stock. However, cash paid in lieu of a fractional share of Common Stock will result in taxable gain (or loss), which will be capital gain or loss, to the extent that the amount of such cash exceeds (or is exceeded by) the portion of the adjusted basis of the Note allocable to such fractional share. The adjusted basis of shares of Common Stock received on conversion will equal the adjusted basis of the Note converted, reduced by the portion of adjusted basis allocated to any fractional share of Common Stock exchanged for cash. The holding period of an investor in the Common Stock received on conversion will include the period during which the converted Notes were held. The conversion price of the Notes is subject to adjustment under certain circumstances. See "Description of Notes -- Conversion." Section 305 of the Code and the Treasury Regulations issued thereunder may treat the holders of the Notes as having received a constructive distribution, resulting in ordinary income (subject to a possible dividends received deduction in the case of corporate holders) to the extent of the Company's then current and/or accumulated earnings and profits, if and to the extent that certain adjustments in the conversion price that may occur in limited circumstances (particularly an adjustment to reflect a taxable dividend to holders of Common Stock) increase the proportionate interest of a holder of Notes in the fully diluted Common Stock, whether or not such holder ever exercises its conversion privilege. Moreover, if there is not a full adjustment to the conversion price of the Notes to reflect a stock dividend or other event increasing the proportionate interest of the holders of outstanding Common Stock in the assets or earnings and profits of the Company, then such increase in the proportionate interest of the holders of the Common Stock generally will be treated as a distribution to such Common Stock holders, taxable as ordinary income (subject to a possible dividends received deduction in the case of corporate holders) to the extent of the Company's then current and/or accumulated earnings. MARKET DISCOUNT Investors acquiring Notes pursuant to this Prospectus should note that the resale of those Notes may be adversely affected by the market discount provisions of sections 1276 through 1278 of the Code. Under the market discount rules, if a holder of a Note purchases it at a market discount (i.e., at a price below its stated redemption price at maturity) in excess of a statutorily-defined de minimis amount and thereafter recognizes gain upon a disposition or retirement of the Note, then the lesser of the gain recognized or the portion of the market discount that accrued on a ratable basis (or, if 61 63 elected, on a constant interest rate basis) generally will be treated as ordinary income at the time of the disposition. Moreover, any market discount on a Note may be taxable to an investor to the extent of appreciation at the time of certain otherwise non-taxable transactions (e.g., gifts). Any accrued market discount not previously taken into income prior to a conversion of a Note, however, may (pursuant to Committee Report) carry over to the Common Stock received on conversion and be treated as ordinary income upon a subsequent disposition of such Common Stock to the extent of any gain recognized on such disposition. In addition, absent an election to include market discount in income as it accrues, a holder of a market discount debt instrument may be required to defer a portion of any interest expense that otherwise may be deductible on any indebtedness incurred or maintained to purchase or carry such debt instrument until the holder disposes of the debt instrument in a taxable transaction. SALE, EXCHANGE OR RETIREMENT OF NOTES Each holder of Notes generally will recognize gain or loss upon the sale, exchange, redemption, repurchase, retirement or other disposition of those Notes measured by the difference (if any) between (i) the amount of cash and the fair market value of any property received (except to the extent that such cash or other property is attributable to the payment of accrued interest not previously included in income, which amount will be taxable as ordinary income), and (ii) the holder's adjusted tax basis in those Notes (including any market discount previously included in income by the holder). Each holder of Common Stock into which the Notes are converted, in general, will recognize gain or loss upon the sale, exchange, redemption, or other disposition of the Common Stock measured under rules similar to those described in the preceding sentence for the Notes. Special rules may apply to redemptions of Common Stock which may result in different treatment. Any such gain or loss recognized on the sale, exchange, redemption, repurchase, retirement or other disposition of a Note or share of Common Stock should be capital gain or loss (except as discussed under "-- Market Discount" above), and would be long-term capital gain or loss if the Note or the Common Stock had been held for more than one year at the time of the sale or exchange. An investor's initial basis in a Note will be the cash price paid therefor. BACK-UP WITHHOLDING Certain "reportable payments," including interest payments, and, under certain circumstances, principal payments on the Notes, as well as dividend payments on the Common Stock, may be subject to "back-up withholding" at a rate of 31%. These back-up withholding rules apply if the holder, among other things, (i) fails to furnish a social security number or other taxpayer identification number ("TIN") certified under penalties of perjury within a reasonable time after the request therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly interest or dividends, or (iv) under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN furnished is the correct number and that the holder is not subject to back-up withholding. A holder who does not provide the Company with its correct TIN also may be subject to penalties imposed by the IRS. Any amount withheld from a payment to a holder under the back-up withholding rules is creditable against the holder's federal income tax liability, provided the required information is furnished to the IRS. Back-up withholding will not apply, however, with respect to payments made to certain holders, including corporations, tax-exempt organizations and certain foreign persons, provided their exemption from back-up withholding is properly established. The Company will report to the holders of Notes and Common Stock and to the IRS the amount of any "reportable payments" for each calendar year and the amount of tax withheld, if any, with respect to such payments. 62 64 UNDERWRITING The Underwriters named below (the "Common Stock Underwriters"), acting through their representatives, Robertson, Stephens & Company LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Adams, Harkness & Hill, Inc. (the "Common Stock Representatives"), have severally agreed with the Company, subject to the terms and conditions of the applicable Underwriting Agreement, to purchase from the Company the number of shares of Common Stock set forth opposite their respective names below. The Common Stock Underwriters are committed to purchase and pay for all such shares if any shares are purchased. The closing of the Common Stock Offering is conditioned upon the closing of the Note Offering.
COMMON STOCK NUMBER UNDERWRITER OF SHARES -------------------------------------------------------------------------- --------- Robertson, Stephens & Company LLC......................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated................................................ Adams, Harkness & Hill, Inc............................................... --------- Total................................................................ 2,000,000 =========
The Underwriters named below (the "Note Underwriters"), acting through their representatives, Robertson, Stephens & Company LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Note Representatives"), have severally agreed with the Company, subject to the terms and conditions of the applicable Underwriting Agreement, to purchase from the Company the principal amount of Notes set forth opposite their respective names below. The Note Underwriters are committed to purchase and pay for all such Notes if any Notes are purchased. The closing of the Note Offering is conditioned upon the closing of the Common Stock Offering.
PRINCIPAL AMOUNT NOTE UNDERWRITER OF NOTES ----------------------------------------------------------------------- ------------ Robertson, Stephens & Company LLC...................................... $ Merrill Lynch, Pierce, Fenner & Smith Incorporated............................................. --------- Total............................................................. $100,000,000 =========
The Common Stock Representatives and the Note Representatives are sometimes referred to collectively as the "Representatives." The Common Stock Underwriters and the Note Underwriters are sometimes referred to collectively as the "Underwriters." The respective Representatives have advised the Company that the respective Underwriters propose to offer the shares of Common Stock and the Notes to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession of, respectively, not in excess of $ per share, of which $ may be reallowed to other dealers, and of not more than % of the principal amount of the Notes. After the consummation of each Offering, the public offering price, concession and reallowance to dealers for such Offering may 63 65 be reduced by the respective Representatives. No such reduction shall change the amount of proceeds to be received by the Company with respect to such Offering as set forth on the cover page of this Prospectus. The Company and the Selling Stockholders have granted to the Common Stock Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to 97,400 and 202,600 shares of Common Stock, respectively, to cover over-allotments, if any, at the same price per share as the Company receives for the 2,000,000 shares of Common Stock that the Common Stock Underwriters have agreed to purchase from the Company. The first 202,600 shares of Common Stock purchased by the Common Stock Underwriters pursuant to this option will be sold by the Selling Stockholders and the subsequent 97,400 shares, if any, purchased by the Common Stock Underwriters pursuant to this option will be sold by the Company. The Company also has granted to the Note Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to $15 million principal amount of Notes to cover over-allotments, if any, at the same price per Note as the Company receives for the first $100 million principal amount of Notes that the Note Underwriters have agreed to purchase from the Company. To the extent that the Common Stock Underwriters exercise such option for shares of Common Stock, each of the Common Stock Underwriters will have a firm commitment to purchase approximately the same percentage of such additional shares of Common Stock as the number of shares of Common Stock to be purchased by it shown in the above table represents as a percentage of the 2,000,000 shares offered hereby. If purchased, such additional shares will be sold by the Common Stock Underwriters on the same terms as those on which the 2,000,000 shares of Common Stock are being sold. To the extent that the Note Underwriters exercise such option for Notes, each of the Note Underwriters will have a firm commitment to purchase approximately the same percentage of such additional Notes as the principal amount of Notes to be purchased by it shown in the above table represents as a percentage of the $100 million principal amount of Notes offered hereby. If purchased, such additional Notes will be sold by the Note Underwriters on the same terms as those on which the $100 million principal amount of Notes are being sold. The respective Underwriting Agreements contain covenants of indemnity among the respective Underwriters, the Company and, in the case of the Underwriting Agreement for the Common Stock Offering, the Selling Stockholders, against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). Pursuant to the terms of Lockup Agreements, all executive officers and Selling Stockholders, and certain directors, of the Company have agreed with the respective Representatives that, for a period 90 days after the date of the Offerings (the "Lock-Up Period"), they will not offer to sell, contract to sell or otherwise sell, dispose of or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock now owned or hereafter acquired directly by such holders or with respect to which they have the power of disposition, otherwise than with the prior written consent of Robertson Stephens & Company LLC which may, in its sole discretion and at any time, without notice, release all or any portion of the securities subject to Lockup Agreements. The Company has also agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or any options or warrants to purchase Common Stock other than shares or options issued under the Company's stock option plans and stock issued upon the exercise of outstanding options and warrants during the Lock-Up Period except with the prior written consent of Robertson, Stephens & Company LLC. The respective Representatives have advised the Company that the respective Underwriters do not intend to confirm any sales to accounts over which they exercise discretionary authority. The offering price of the Common Stock will be determined by negotiations among the Company and the Common Stock Representatives, based largely upon the market price for the Common Stock as reported on the Nasdaq National Market. 64 66 Certain persons participating in these Offerings may engage in transactions, including syndicate covering transactions or the imposition of penalty bids, which may involve the purchase of Common Stock and Notes on the Nasdaq National Market, the over-the-counter market or otherwise. Such transactions may stabilize or maintain the market price of the Common Stock and the Notes at levels above that which might otherwise prevail in the open market. A stabilizing bid means the placing of any bid or effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of the Common Stock or the Notes. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the offering. A penalty bid means an arrangement that permits the Underwriters to reclaim a selling concession from a syndicate member in connection with the offering when shares of Common Stock or Notes sold by the syndicate member are purchased in syndicate covering transactions. Such transactions may be effected on the Nasdaq Stock Market, in the over-the-counter market, or otherwise. Such stabilizing, if commenced, may be discontinued at any time. Prior to the Note Offering, there has been no trading market for the Notes. The Company expects that the Notes will trade on the over-the-counter market. However, there can be no assurance that an active trading market for the Notes will develop or, if such market develops, as to the liquidity or sustainability of such market. Robertson, Stephens & Company LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated have advised the Company that they currently intend to make a market in the Notes, but they are not obligated to do so and may discontinue such market making at any time. There can be no assurance that an active market for the Notes will develop and continue upon completion of the Note Offering or that the market price of the Notes will not decline. Various factors such as changes in prevailing interest rates or changes in perceptions of the Company's creditworthiness could cause the market price of the Notes to fluctuate significantly. The trading price of the Notes could also be significantly affected by the market price of the Common Stock, which could be subject to wide fluctuations in response to a variety of factors, including quarterly variations in operating results, announcements of technological innovations or new products by the Company, its customers or its competitors, developments in patents or other intellectual property rights, general conditions in the electronics industry and general economic and market conditions. Factors creating volatility in the trading price of the Common Stock could have a significant impact on the trading price of the Notes. LEGAL MATTERS The validity of the shares of Common Stock offered hereby and the validity of the Notes offered hereby and the shares of Common Stock issuable upon conversion thereof will be passed upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts, special counsel to the Company. The validity of the shares of Common Stock offered hereby by the Selling Stockholders will be passed upon for the Selling Stockholders by Berlin, Hamilton & Dahmen, LLP, Boston, Massachusetts. A member of Testa, Hurwitz & Thibeault, LLP is the beneficial owner of 100 shares of Common Stock of the Company. James C. Hamilton, a partner at Berlin, Hamilton & Dahmen, LLP, which is general counsel to the Company, is the Company's Clerk. He is the beneficial owner of 12,250 shares of Common Stock of the Company. He is also the co-trustee of certain irrevocable trusts for the benefit of members of the family of Horace H. Irvine II, Chairman of the Board of the Company. See "Principal Shareholders." Certain legal matters relating to the Common Stock Offering and the Note Offering will be passed upon for the respective Underwriters by Hale and Dorr, LLP, Boston, Massachusetts, and the validity of the Notes offered hereby will be passed upon for the Note Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. EXPERTS The Company's audited consolidated financial statements and schedule included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, 65 67 independent public accountants, as indicated in its reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The consolidated financial statements of Zycon Corporation included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as of December 31, 1996 and for the one-year period ended December 31, 1996 to the extent indicated in its report, and are included herein in reliance upon the authority of such firm as experts in giving said report. The consolidated financial statements of Zycon Corporation as of December 31, 1995 and for each of the years in the two-year period ended December 31, 1995, have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-3 under the Securities Act with respect to the securities offered hereby (the "Registration Statement"). This Prospectus, which constitutes part of the Registration Statement, does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete. Reference is made to such contract or other document filed, or incorporated by reference, as an exhibit to the Registration Statement, and each such statement is qualified in all respects by such reference. For further information pertaining to the Company and the Common Stock and Notes, reference is made to the Registration Statement and the exhibits and schedules thereto, which may be inspected without charge at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and at the following Regional Offices of the Commission: Seven World Trade Center, New York, New York, 10048; and 500 West Madison Avenue, Suite 1400, Chicago, Illinois 60621. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Exchange Act, and in accordance therewith files reports, proxy statements and other information with the Commission. All such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: 90 Devonshire Street, Suite 700, Boston, Massachusetts 02109; 7 World Trade Center, 13th Floor, New York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be obtained from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its public reference facilities at Boston, Massachusetts, New York, New York and Chicago, Illinois at prescribed rates. In addition, the aforementioned materials may also be inspected at the offices of the Nasdaq National Market at 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a World-Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the Commission's Web site is http.//www.sec.gov. 66 68 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----- HADCO CORPORATION: Report of Independent Public Accountants........................................... F-2 Consolidated Balance Sheets at October 28, 1995, October 26, 1996 and January 25, 1997 (Unaudited)................................................................ F-3 Consolidated Statements of Operations for the Years Ended October 29, 1994, October 28, 1995 and October 26, 1996 and for the Three Months Ended January 27, 1996 (Unaudited) and January 25, 1997 (Unaudited).................................... F-4 Consolidated Statements of Stockholders' Investment for the Years Ended October 29, 1994, October 28, 1995 and October 26, 1996 and for the Three Months Ended January 25, 1997 (Unaudited).................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended October 29, 1994, October 28, 1995 and October 26, 1996 and for the Three Months Ended January 27, 1996 (Unaudited) and January 25, 1997 (Unaudited).................................... F-6 Notes to Consolidated Financial Statements......................................... F-7 PRO FORMA FINANCIAL STATEMENTS: Pro Forma Condensed Consolidated Financial Statements.............................. F-23 Pro Forma Condensed Consolidated Statement of Operations for the Fiscal Year Ended October 26, 1996 (Unaudited).................................................... F-24 Pro Forma Condensed Consolidated Statement of Operations for the Quarter Ended January 25, 1997 (Unaudited).................................................... F-25 ZYCON CORPORATION: Report of Independent Public Accountants (Arthur Andersen LLP)..................... F-26 Independent Auditors' Report (KPMG Peat Marwick LLP)............................... F-27 Consolidated Balance Sheets as of December 31, 1995 and 1996....................... F-28 Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and 1996............................................................................ F-29 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1995 and 1996............................................................. F-30 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996........................................................................ F-31 Notes to Consolidated Financial Statements......................................... F-32
F-1 69 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 28, 1995 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 26, 1996. 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 as of October 28, 1995 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 26, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts November 15, 1996 (except for the matter discussed in Note 2, as to which the date is January 10, 1997) F-2 70 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share information)
OCTOBER 28, OCTOBER 26, JANUARY 25, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents........................... $ 21,307 $ 32,786 $ 8,825 Short-term investments.............................. 15,167 9,401 3,264 Accounts receivable, net of allowance of $850 in 1995, $1,100 in 1996 and $1,830 in 1997.......... 35,797 40,622 72,616 Inventories......................................... 13,304 21,786 34,107 Deferred tax asset.................................. 6,288 7,483 7,483 Prepaid and other expenses.......................... 1,696 1,483 5,607 -------- -------- -------- Total current assets........................ 93,559 113,561 131,902 PROPERTY, PLANT AND EQUIPMENT, NET.................... 67,692 103,735 203,639 DEFERRED TAX ASSET.................................... 1,646 2,117 -- ACQUIRED INTANGIBLE ASSETS, NET....................... -- -- 108,699 OTHER ASSETS.......................................... 94 88 4,314 -------- -------- -------- $162,991 $219,501 $448,554 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Short-term debt, current portion of long-term debt and capital lease obligations.................... $ 2,143 $ 1,907 $ 8,116 Accounts payable.................................... 27,002 42,265 69,709 Accrued payroll and other employee benefits......... 16,030 17,592 19,771 Other accrued expenses.............................. 7,341 8,236 12,234 -------- -------- -------- Total current liabilities................... 52,516 70,000 109,830 -------- -------- -------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION..................................... 2,387 1,515 228,168 -------- -------- -------- DEFERRED TAX LIABILITY................................ -- -- 30,285 -------- -------- -------- OTHER LONG-TERM LIABILITIES........................... 7,314 9,145 9,214 -------- -------- -------- COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDERS' INVESTMENT: Common stock, $.05 par value; Authorized -- 25,000 shares Issued and outstanding -- 9,939 shares in 1995, 10,382 in 1996 and 10,444 shares in 1997......... 497 521 523 Paid-in capital..................................... 25,077 30,939 32,283 Deferred compensation............................... (407) (240) (209) Retained earnings................................... 75,607 107,621 38,460 -------- -------- -------- Total stockholders' investment.............. 100,774 138,841 71,057 -------- -------- -------- $162,991 $219,501 $448,554 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 71 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
FOR THE YEARS ENDED, THREE MONTHS ENDED, ------------------------------------- ------------------------ OCTOBER 29, OCTOBER 28, OCTOBER 26, JANUARY 27, JANUARY 25, 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Net Sales.................................................. $ 221,570 $ 265,168 $ 350,685 $76,481 $ 111,536 Cost of Sales.............................................. 177,597 200,673 264,537 56,999 86,681 -------- -------- -------- ------- -------- Gross Profit............................................... 43,973 64,495 86,148 19,482 24,855 Selling, General and Administrative Expenses............... 27,491 30,589 34,616 7,948 9,298 Write-off of Acquired in-Process Research and Development.............................................. -- -- -- -- 78,000 -------- -------- -------- ------- -------- Income (Loss) From Operations.............................. 16,482 33,906 51,532 11,534 (62,443) Interest and Other Income.................................. 843 1,669 1,287 355 880 Interest Expense........................................... (891) (537) (338) (95) (933) -------- -------- -------- ------- -------- Income (Loss) Before Provision for Income Taxes............ 16,434 35,038 52,481 11,794 (62,496) Provision for Income Taxes................................. 6,491 13,664 20,467 4,603 6,665 -------- -------- -------- ------- -------- Net Income (Loss).......................................... $ 9,943 $ 21,374 $ 32,014 $ 7,191 $ (69,161) ======== ======== ======== ======= ======== Net Income (Loss) Per Share................................ $ .93 $ 1.98 $ 2.89 $ .65 $ (6.64) ======== ======== ======== ======= ======== Weighted Average Shares Outstanding........................ 10,720 10,806 11,084 11,104 10,413 ======== ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 72 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT (In thousands)
COMMON STOCK -------------------- NUMBER $.05 PAR PAID-IN DEFERRED RETAINED OF SHARES VALUE CAPITAL COMPENSATION EARNINGS --------- -------- ------- ------------ -------- BALANCE, OCTOBER 30, 1993.................... 9,734 $487 $21,953 $ (1,316) $ 47,307 Terminated stock options................... -- -- (225) 225 -- Exercise of stock options.................. 332 16 837 -- -- Tax benefit of exercise of nonqualified stock options........................... -- -- 319 -- -- Compensation expense associated with granting nonqualified stock options..... -- -- -- 360 -- Purchase and retirement of common stock.... (328) (16) (121) -- (2,329) Net income................................. -- -- -- -- 9,943 ------ ---- ------- ------- -------- 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 Exercise of stock options (unaudited)...... 62 2 326 -- -- Tax benefit of exercise of nonqualified stock options (unaudited)............... -- -- 1,018 -- -- Compensation expense associated with granting nonqualified stock options (unaudited)............................. -- -- -- 31 -- Net loss (unaudited)....................... -- -- -- -- (69,161) ------ ---- ------- ------- -------- BALANCE, JANUARY 25, 1997 (Unaudited)........ 10,444 $523 $32,283 $ (209) $ 38,460 ====== ==== ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 73 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
FOR THE YEARS ENDED, THREE MONTHS ENDED, --------------------------------------- --------------------------- OCTOBER 29, OCTOBER 28, OCTOBER 26, JANUARY 27, JANUARY 25, 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)....................................... $ 9,943 $ 21,374 $ 32,014 $ 7,191 $ (69,161) 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...................................... 12,708 11,218 17,330 3,840 6,531 Gain on sale of fixed assets.......................... (81) (415) (205) (194) -- Changes in assets and liabilities, net of acquisition of Zycon Corporation-- Increase in accounts receivable................... (2,739) (10,485) (4,825) (465) (7,158) Increase in inventories........................... (288) (3,009) (8,482) (1,166) (931) (Increase) decrease in prepaid taxes and other expenses........................................ (685) (364) 213 (775) (1,053) Decrease (increase) in other assets............... 55 25 33 15 (628) Increase in accounts payable and accrued expenses........................................ 8,661 15,291 17,720 304 2,661 Increase in long-term liabilities................. 1,710 2,714 1,831 700 70 -------- -------- -------- -------- --------- Net cash provided by operating activities....... 29,284 36,349 55,629 9,450 8,331 -------- -------- -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Net (purchases) sales of short-term investments......... (4,095) (2,668) 5,766 1,933 6,137 Purchases of property, plant and equipment.............. (19,510) (28,865) (53,966) (13,713) (11,011) Proceeds from sale of property, plant and equipment..... 177 429 290 194 -- Acquisition of Zycon Corporation, net of cash acquired of $2,824............................................. -- -- -- -- (209,661) -------- -------- -------- -------- --------- Net cash used in investing activities........... (23,428) (31,104) (47,910) (11,586) (214,535) -------- -------- -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments under capital lease obligations...... (4,447) (2,584) (2,047) (630) (413) Principal payments of long-term debt.................... (92) (2,091) (92) (22) (33,690) Proceeds from issuance of long-term debt................ -- -- -- -- 215,000 Proceeds from exercise of stock options................. 853 1,095 1,738 2,952 328 Tax benefit from exercise of options.................... 319 1,597 4,161 -- 1,018 Purchase and retirement of common stock................. (2,466) (1,019) -- -- -- -------- -------- -------- -------- --------- Net cash (used in) provided by financing activities.................................... (5,833) (3,002) 3,760 2,300 182,243 -------- -------- -------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 23 2,243 11,479 164 (23,961) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............ 19,041 19,064 21,307 21,307 32,786 -------- -------- -------- -------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 19,064 $ 21,307 $ 32,786 $ 21,471 $ 8,825 ======== ======== ======== ======== ========= 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.............................................. $ 859 $ 576 $ 279 $ -- $ 311 ======== ======== ======== ======== ========= Income taxes (net of refunds)......................... $ 8,939 $ 13,609 $ 16,794 $ 3,101 $ 405 ======== ======== ======== ======== ========= ACQUISITION OF ZYCON CORPORATION-- Fair value of assets acquired........................... $ 212,509 Liabilities assumed..................................... (114,993) Cash paid............................................... (204,885) Acquisition costs incurred.............................. (7,600) Write-off of acquired in-process research and development........................................... 78,000 --------- Goodwill................................................ $ (36,969) =========
The accompanying notes are an integral part of these consolidated financial statements. F-6 74 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (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. 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:
1995 1996 1997 ----------------- --------------- --------------- FAIR FAIR FAIR MARKET MARKET MARKET COST VALUE COST VALUE COST VALUE MATURITY ------- ------- ------ ------ ------ ------ ------------- (IN THOUSANDS) US Government Securities..... $ 6,039 $ 6,058 $1,000 $ 999 $1,000 $ 999 within 1 year State and Local Securities... 1,000 1,000 5,270 5,271 2,264 2,264 within 1 year Corporate Debt Securities.... 8,128 8,064 3,131 3,069 -- -- within 1 year ------- ------- ------ ------ ------ ------ $15,167 $15,122 $9,401 $9,339 $3,264 $3,263 ======= ======= ====== ====== ====== ======
The Company has no financial instruments requiring disclosure under Financial Accounting Standards Board issued Statement of Financial Accounting Standard (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 concentration. The Company has no significant off-balance-sheet F-7 75 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) 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................................................ 3-9 Years Furniture and fixtures................................................. 5-7 Years Computer software...................................................... 3 Years Vehicles............................................................... 3 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 1994, 1995 and 1996 and the quarter ended January 25, 1997, research and development expenses were approximately $1,545,000, $2,945,000, $4,307,000, and $1,522,000, respectively, and are included in cost of sales. New Accounting Standard The Company accounts for its stock-based compensation plans under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The Company is required to adopt SFAS No. 123, Accounting for Stock-Based Compensation, in fiscal 1997. SFAS No. 123 defines a fair- F-8 76 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) 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 will adopt the disclosure-only alternative. 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. 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. Interim Financial Statements The accompanying consolidated balance sheet as of January 25, 1997, the consolidated statements of operations and cash flows for the three-month periods ended January 27, 1996 and January 25, 1997 and the statement of stockholders' investment for the three-month period ended January 25, 1997 are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of results for these interim periods. The results of operations for the three months ended January 25, 1997 are not necessarily indicative of results to be expected for the entire year. (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 is being accounted for as a purchase in accordance with APB 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 has 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, has been 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 $28,800,000 have been provided as part of the purchase price allocation in accordance with SFAS No. 109. F-9 77 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) 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.................................................. 72,000 In-process R&D........................................................ 78,000 Other assets.......................................................... 3,526 Goodwill.............................................................. 36,969 Liabilities assumed................................................... (114,993) --------- $ 212,485 =========
Unaudited pro forma operating results for the Company, assuming the acquisition of Zycon occurred on October 29, 1995 are as follows:
THREE MONTHS ENDED YEAR ENDED --------------------------- OCTOBER JANUARY 27, JANUARY 25, 26, 1996 1996 1997 ---------- ----------- ----------- (IN THOUSANDS) Net sales..................................... $570,345 $ 129,901 $ 172,547 Net income.................................... 27,222 7,651 7,900 Net income per share.......................... $ 2.46 $ .69 $ .72
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:
1995 1996 1997 ------- ------- ------- (IN THOUSANDS) Raw materials......................................... $ 6,318 $ 8,008 $12,668 Work-in-process....................................... 6,986 13,778 21,439 ------- ------- ------- $13,304 $21,786 $34,107 ======= ======= =======
The work-in-process consists of materials, labor and manufacturing overhead. F-10 78 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (4) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
1995 1996 1997 --------- --------- --------- (IN THOUSANDS) Land betterments................................ $ 1,838 $ 1,991 $ 2,174 Buildings and improvements...................... 42,885 52,961 97,895 Construction-in-progress........................ 15,173 22,543 23,841 Machinery and equipment......................... 94,611 126,878 228,099 Furniture and fixtures.......................... 11,721 14,082 15,500 Computer software............................... 2,343 2,662 3,581 Vehicles........................................ 141 159 584 Capital leases.................................. 15,048 14,972 16,620 --------- --------- --------- 183,760 236,248 388,294 Accumulated depreciation and amortization....... (116,068) (132,513) (184,655) --------- --------- --------- $ 67,692 $ 103,735 $ 203,639 ========= ========= =========
(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. Intangible assets are amortized on a straight-line basis, based on their estimated lives, as follows:
ESTIMATED JANUARY 25, LIFE 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 13,000 Goodwill................................................. 20 years 36,969 -------- 108,969 Less -- Accumulated amortization......................... (270) -------- $108,699 ========
(6) INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. F-11 79 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) The provision for income taxes shown in the accompanying consolidated statements of operations is comprised of the following:
YEARS ENDED OCTOBER --------------------------- 1994 1995 1996 ------- ------- ------- (IN THOUSANDS) Federal -- Current................................................. $ 6,566 $14,331 $18,341 Deferred................................................ (1,224) (2,954) (1,206) ------- ------- ------- 5,342 11,377 17,135 ------- ------- ------- State -- Current................................................. 1,440 2,928 3,611 Deferred................................................ (291) (641) (279) ------- ------- ------- 1,149 2,287 3,332 ------- ------- ------- $ 6,491 $13,664 $20,467 ======= ======= =======
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:
1994 1995 1996 ---- ---- ---- Provision for statutory rate................................. 34.0% 34.0% 34.0% Increase (decrease) in tax resulting from -- State income taxes, net of federal tax benefit............. 4.6 4.5 4.4 Tax-exempt interest income................................. (0.4) (0.5) (0.4) Other, net................................................. 1.3 1.0 1.0 ---- ---- ---- Provision for income taxes.............................. 39.5% 39.0% 39.0% ==== ==== ====
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 the three months ended January 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 Company anticipates that the effective annual income tax rate for fiscal 1997 will be 43%, which is more than the expected combined federal and state statutory rates. This difference is caused primarily by anticipated losses incurred by the Company's Malaysian subsidiary for which the Company cannot record any tax benefit, and by amortization of goodwill and acquired intangibles which is not tax deductible. These items are partially offset by tax advantaged investment income, the tax benefit of the Company's Foreign Sales Corporation and various state investment tax credits. F-12 80 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) The deferred provision for income taxes results from the following:
1994 1995 1996 ------- ------- ------- (IN THOUSANDS) Difference between book and tax depreciation........ $ (352) $ (144) $ (46) Deferred compensation............................... 143 73 266 Reserves and expenses recognized in different periods for book and tax purposes................. (1,288) (3,506) (1,658) Other, net........................................ (18) (18) (47) ------- ------- ------- $(1,515) $(3,595) $(1,485) ======= ======= =======
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 28, 1995 and October 26, 1996 are as follows:
1995 1996 ------- ------- (IN THOUSANDS) Deferred Tax Assets -- Not currently deductible reserves............................ $ 6,184 $ 7,475 Not currently deductible environmental accruals.............. 3,197 3,907 Deferred compensation from issuance of nonqualified stock options................................................... 579 275 ------- ------- Total gross deferred tax assets...................... 9,960 11,657 Less -- valuation allowance.................................. 290 137 ------- ------- 9,670 11,520 Deferred Tax Liability -- Property, plant and equipment, principally due to differences in depreciation........................................... (1,736) (1,920) ------- ------- Net deferred tax asset............................... $ 7,934 $ 9,600 ======= =======
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 $290,000 and $137,000 as of October 28, 1995 and October 26, 1996, respectively. The reduction of this allowance for the year ended October 26, 1996 is a result of the decrease in the deferred tax asset relating to deferred compensation. (7) LINES OF CREDIT Prior to the acquisition of Zycon discussed in Note 2, the Company had an unsecured Revolving Credit and Term Loan Agreement with a bank. The agreement provided for up to $15,000,000 in revolving credit until June 30, 1997. The Company could designate the rate of interest at either the Eurodollar Rate plus 0.6%, or the bank's base rate. As of October 26, 1996, no amounts were outstanding under this line 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, replacing the previous $15,000,000 agreement described above. 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 F-13 81 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) 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 January 25, 1997, borrowings of $215,000,000 were outstanding under the Agreement at a weighted average interest rate of 6.68%. 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 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 January 25, 1997, the Company was in compliance with all loan covenants. 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 $4.4 million for the purpose of acquiring land, facilities and equipment for the Company's Malaysian subsidiary. The arrangement is renewable annually. At January 25, 1997, there was $2,929,000 outstanding under this arrangement at a weighted average interest rate of approximately 10%. (8) LONG-TERM DEBT Long-term debt consists of the following:
OCTOBER ----------------- JANUARY 1995 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................. $1,008 $ 916 $ 893 Revolving credit agreement (Note 7).................................... -- -- 215,000 Loan agreements in connection with the purchase of manufacturing equipment. The loans bear interest at 7.17% to 11.37%, are payable in monthly installments of principal and interest through June 2001, and are collateralized by machinery and equipment........................ -- -- 15,331 Line of credit arrangement with a Malaysia bank (Note 7)............... -- -- 2,929 Obligations under capital leases....................................... 3,522 2,506 2,131 ------ ------ -------- 4,530 3,422 236,284 Less -- Current portion................................................ 2,143 1,907 8,116 ------ ------ -------- $2,387 $1,515 $228,168 ====== ====== ========
F-14 82 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) Maturities of long-term debt and capital lease obligations are as follows as of October 26, 1996:
AMOUNT ------ Year Ending October-- 1997............................................................. $1,907 1998............................................................. 401 1999............................................................. 474 2000............................................................. 92 2001............................................................. 92 2002 and thereafter.............................................. 456 ------ $3,422 ======
(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 January 25, 1997 (in thousands) are as follows:
REAL EQUIPMENT ESTATE TOTAL --------- ------- ------- (IN THOUSANDS) Year Ending October -- 1997 (nine months)................................ $48 $ 4,804 $ 4,852 1998.............................................. 15 4,728 4,743 1999.............................................. 5 4,641 4,646 2000.............................................. -- 4,395 4,395 2001.............................................. -- 4,088 4,088 Thereafter........................................ -- 26,175 26,175 --- ------- ------- Future minimum lease payments................ $68 $48,831 $48,895 === ======= =======
Total rental expense of approximately $1,317,000, $1,447,000, $1,434,000 and $516,000 was incurred for the fiscal years ended October 1994, 1995, 1996 and for the three months ended January 25, 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 1994, 1995 and 1996 and the quarter ended January 25, 1997, the related rental expense was approximately $571,000, $479,000 $529,000 and $140,000, 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 F-15 83 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) remediation program of groundwater withdrawal and treatment and interactive 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 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 1997 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. 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 selling, general and administrative (SG&A) expenses are charges for actual expenditures and accruals, based on estimates, for environmental matters. During fiscal 1994, 1995, 1996 and for the three months ended January 25, 1997, the Company made, and charged to SG&A expenses, actual payments of approximately $1,040,000, $1,111,000, $680,000 and $70,000, respectively, for environmental matters. In 1994, 1995 and 1996, the Company also accrued and charged to SG&A expenses approximately $2,100,000, $2,740,000 and $1,825,000, respectively, as cost estimates for environmental matters. F-16 84 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) 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 $8.2 million at October 28, 1995 and $10.0 million at October 26, 1996 and January 25, 1997. The current portion of these costs as of October 26, 1995, October 28, 1996 and January 25, 1997, amounted to approximately $900,000 in each period, and is included in Other accrued expenses. The long-term portion of these costs amounted to approximately $7.3 million, $9.1 million and $9.2 million as of October 28, 1995, October 26, 1996 and January 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. 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. In March 1993, the EPA notified 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 Zycon 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, Zycon'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 Zycon violated any law in the disposal of material at the site, rather the F-17 85 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) 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 Zycon's status as a generator of hazardous waste. In September 1996, a Consent Decree among the EPA and 48 entities (including Zycon) acting through the Casmalia Steering Committee ("CSC") was lodged with the United States District Court in Los Angeles, California, which must approve the agreement. Although this approval is pending, work has started under the Consent Decree. 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 $15,668,000 of manufacturing equipment and approximately $1,520,000 of leasehold improvements as of January 25, 1997. The majority of these commitments is expected to be completed by the end of fiscal 1997. F-18 86 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (10) STOCKHOLDERS' INVESTMENT Stock Options The following table summarizes stock option activity with respect to the nonqualified stock options:
EXERCISE PRICE RANGE NUMBER --------------- OF SHARES -------------- (IN THOUSANDS) Outstanding, October 30, 1993.......................... 1,921 $2.00 - $ 9.00 Options granted...................................... 340 8.00 - 8.81 Options exercised.................................... (332) 2.00 - 4.94 Options canceled..................................... (239) 2.00 - 9.00 ----- --------------- Outstanding, October 29, 1994.......................... 1,690 2.00 - 9.00 Options granted...................................... 223 8.50 - 25.69 Options exercised.................................... (320) 2.00 - 11.06 Options canceled..................................... (147) 2.10 - 8.81 ----- --------------- Outstanding, October 28, 1995.......................... 1,446 2.00 - 25.69 Options granted...................................... 150 27.00 - 31.50 Options exercised.................................... (443) 2.00 - 11.06 Options canceled..................................... (45) 2.00 - 31.50 ----- --------------- Outstanding, October 26, 1996.......................... 1,108 2.00 - 31.50 Options granted...................................... 174 47.44 Options exercised.................................... (62) 2.00 - 31.50 ----- --------------- Outstanding, January 25, 1997.......................... 1,220 $2.00 - $47.44 ===== ===============
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. DECEMBER 1987 PLAN The options under this plan become exercisable according to each option agreement and expire no later than June 30, 1997. 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. F-19 87 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) DECEMBER 1991 DIRECTOR PLAN This plan provides 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. The Board of Directors has amended this plan, subject to the approval of the shareholders in February 1997, (i) to increase the number of shares available to 300,000, (ii) provide that any current non-employee director who will have 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 does not have five years of service in such capacity on March 15, 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. The status of the stock option plans at January 25, 1997 is as follows:
AVERAGE OPTIONS OPTIONS EXERCISE PLAN OUTSTANDING EXERCISABLE PRICE ------------------------------------------------ ----------- ----------- -------- (IN THOUSANDS) *December 1985 and 1986 Plans................... 203 203 $ 2.92 *December 1987 Plan............................. 75 75 3.00 *September 1990 Plan............................ 691 263 11.99 December 1991 Director Plan.................... 88 37 18.49 November 1995 Plan............................. 163 -- 46.93 ----- --- ------ 1,220 578 $15.06 ===== === ======
- ------------ * The Board of Directors has determined to make no further grants under the December 1985 Plan, December 1986 Plan, December 1987 Plan and September 1990 Plan. The Company had reserved as of January 25, 1997, a total of 2,062,829 shares of common stock for issuance under the nonqualified stock option plans listed in the above chart. During fiscal 1994, 1995 and 1996 and the quarter ended January 25, 1997, approximately $360,000, $287,000, $154,000 and $32,000, respectively, were charged against income as compensation expense associated with the granting of these options. 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. F-20 88 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (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 $1,074,000, $2,285,000 and $3,335,000 to the Plan for the years ended October 1994, 1995 and 1996, respectively. The Company has provided $1,100,000 for the three months ended January 25, 1997 for profit sharing contributions. 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 $500,000, $600,000 and $736,000 during fiscal 1994, 1995 and 1996, respectively. The Company has provided $178,000 for matching contributions during the quarter ended January 25, 1997. (12) QUARTERLY RESULTS (UNAUDITED) The following summarized unaudited results of operations for the fiscal quarters in the years ended October 1995 and 1996 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. F-21 89 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1995 1996 ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) First Fiscal Quarter -- Net sales........................................................... $56,825 $76,481 Gross profit........................................................ 11,292 19,482 Net income.......................................................... 3,003 7,191 Net income per share................................................ .29 .65 Weighted average shares outstanding................................. 10,446 11,104 Second Fiscal Quarter -- Net sales........................................................... $67,637 $88,096 Gross profit........................................................ 16,261 21,893 Net income.......................................................... 5,193 7,895 Net income per share................................................ .49 .71 Weighted average shares outstanding................................. 10,626 11,135 Third Fiscal Quarter -- Net sales........................................................... $67,752 $88,225 Gross profit........................................................ 17,540 21,451 Net income.......................................................... 6,152 7,994 Net income per share................................................ .56 .72 Weighted average shares outstanding................................. 11,034 11,100 Fourth Fiscal Quarter -- Net sales........................................................... $72,954 $97,883 Gross profit........................................................ 19,402 23,322 Net income.......................................................... 7,026 8,934 Net income per share................................................ .63 .81 Weighted average shares outstanding................................. 11,124 11,008
(13) CUSTOMERS During fiscal years 1994, 1995 and 1996 and the quarter ended January 25, 1997, no customer accounted for more than 7%, 7%, 15% and 14% of consolidated net sales, respectively. The Company's five largest customers accounted for 28%, 28%, 34% and 33% of consolidated net sales during fiscal 1994, 1995 and 1996 and the quarter ended January 25, 1997, respectively. For the first quarter of fiscal 1997 and the 1996 fiscal year, one customer accounted for more than 10% of consolidated net sales. F-22 90 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In January 1997, Hadco purchased substantially all of Zycon's common stock for approximately $205 million in cash. The Company also incurred approximately $7.5 million in acquisition related costs resulting in a total purchase price of approximately $212.5 million. The acquisition was financed by a new Credit Facility of up to $250 million. The Company borrowed approximately $215 million under the new Credit Facility, upon consummation of the transaction. This acquisition is being accounted for as a purchase, and due to the different bases in certain assets for book and tax purposes, deferred taxes have been provided for as part of the purchase price allocation in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. A significant portion of the purchase price, as outlined in the attached notes to these pro forma financial statements, has been identified in an appraisal as intangible assets, including approximately $78 million of in-process R&D (see discussion in Note 1 to October 26, 1996 Pro Forma Condensed Consolidated Statement of Operations). The accompanying Pro Forma Condensed Consolidated Statements of Operations for the year ended October 26, 1996 and the three months ended January 25, 1997 assume that the acquisition of Zycon took place on October 29, 1995, the beginning of Hadco's fiscal year ended October 26, 1996. The Pro Forma Condensed Consolidated Statements of Operations do not include the effect of any non-recurring write-offs directly attributable to the acquisition. The accompanying pro forma information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations which would actually have been reported had the acquisition been in effect during the periods presented, or which may be reported in the future. The accompanying Pro Forma Condensed Consolidated Financial Statements should be read in conjunction with the historical financial statements and related notes thereto for Hadco and Zycon. F-23 91 HADCO CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 26, 1996 (Unaudited) (In thousands, except per share data)
HISTORICAL ------------------------------------ HADCO ZYCON PRO FORMA PRO FORMA YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA EFFECTS OF COMBINED OCTOBER 26, 1996 DECEMBER 31, 1996 ADJUSTMENTS COMBINED THE OFFERINGS AS ADJUSTED ---------------- ----------------- ----------- --------- --------------- ----------- Net Sales....................... $350,685 $ 219,660 $570,345 $ 570,345 Cost of Sales................... 264,537 186,314 450,851 450,851 -------- --------- -------- --------- Gross Profit.................... 86,148 33,346 119,494 119,494 Selling, General and Administrative Expenses....... 34,616 16,079 50,695 50,695 Amortization of Acquired Intangible Assets............. -- -- 6,468(2) 6,468 6,468 -------- --------- --------- -------- ------- --------- Income from Operations.......... 51,532 17,267 (6,468) 62,331 62,331 Interest and Other Income....... 1,287 726 (805)(3) 1,208 1,208 Interest Expense................ (338) (2,567) (13,292)(4) (16,197) 5,723(6)(7) (10,474) Other Expense................... -- (6,019) 6,019 (1) -- -- -- -------- --------- --------- -------- ------- --------- Income Before Provisions for Income Taxes.................. 52,481 9,407 (14,546) 47,342 5,723 53,065 Provision for Income Taxes...... 20,467 6,518 (6,865)(5) 20,120 2,432(8) 22,552 -------- --------- --------- -------- ------- --------- Net Income (Loss)............... $ 32,014 $ 2,889 $ (7,681) $ 27,222 $ 3,291 $ 30,513 ======== ========= ========= ======== ======= ========= Net Income per Share: Primary....................... $ 2.89 $ 2.46 $ 2.33 ======== ======== ========= Fully diluted................. $ 2.24 ========= Weighted Average Shares Outstanding: Primary....................... 11,084 11,084 2,000(9) 13,084 ======== ======== ======= ========= Fully diluted................. 4,124(9) 15,208 ======= =========
NOTE 1: For purpose of this Pro Forma Condensed Consolidated Statement of Operations, the acquired in-process R&D was assumed to have been written off prior to the period presented herein, so that the statement of operations includes only recurring costs. NOTE 2: PRO FORMA ADJUSTMENTS The following is a description of each of the pro forma adjustments. (1) Eliminate non-recurring acquisition costs incurred by Zycon. (2) Amortization of acquired intangible assets over lives ranging from 12 to 30 years. (3) Reduce interest income as a result of utilizing cash for acquisition. (4) Interest expense on debt issued to finance acquisition, at an assumed weighted average rate of 7.5%. (5) Related tax effect of adjustments (1) through (4). NOTE 3: PRO FORMA EFFECTS OF THE OFFERINGS The following is a description of each of the pro forma adjustments to reflect the effects of the Offerings. (6) Amortization of deferred financing costs of $514,000 relating to the convertible notes. (7) Reduction of interest expense of $6,237,000 based on an assumed interest rate of 5.75% on the convertible notes, and due to the pay down of bank debt from the sale of 2,000,000 shares of common stock. (8) Related tax effect of adjustments (6) and (7). (9) Issuance of 2,000,000 shares offered hereby for purposes of calculating primary net income per share and an additional 2,124,000 shares for purposes of calculating fully diluted net income per share. NOTE 4: In connection with the acquisition of Zycon, Hadco eliminated nine executive positions at Zycon, which resulted in pre-tax annual savings of $2,637,000. Taking these savings into account for the year ended October 26, 1996, pro forma net income and pro forma net income, as adjusted, would have been $28,700,000 and $32,029,000, respectively and pro forma net income per share and pro forma net income per share, as adjusted, would have been $2.59 and $2.45, respectively. F-24 92 HADCO CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED JANUARY 25, 1997 (Unaudited) (In thousands, except per share data)
HISTORICAL ------------------------------------ HADCO ZYCON PRO FORMA PRO FORMA QUARTER ENDED QUARTER ENDED PRO FORMA PRO FORMA EFFECTS OF COMBINED JANUARY 25, 1997 DECEMBER 31, 1996 ADJUSTMENTS COMBINED THE OFFERINGS AS ADJUSTED ---------------- ----------------- ----------- --------- ------------- ----------- Net Sales........................... $111,536 $61,011 $172,547 $ 172,547 Cost of Sales....................... 86,681 52,925 139,606 139,606 -------- ------- -------- --------- Gross Profit........................ 24,855 8,086 32,941 32,941 Selling, General and Administrative Expenses.......................... 9,028 4,342 13,370 13,370 Amortization of Acquired Intangible Assets............................ 270 136 1,188 (3) 1,594 1,594 Write-off of In-process Research and Development....................... 78,000 -- (78,000)(1) -- -- -------- ------- --------- -------- ------- --------- Income (Loss) From Operations....... (62,443) 3,608 76,812 17,977 17,977 Interest and Other Income........... 880 167 (496)(4) 551 551 Interest Expense.................... (933) (1,033) (2,703)(5) (4,669) 1,430(7)(8) (3,239) Other Expense....................... -- (6,019) 6,019 (2) -- -- -------- ------- --------- -------- ------- --------- Income (Loss) Before Provision for Income Taxes...................... (62,496) (3,277) 79,632 13,859 1,430 15,289 Provision for Income Taxes.......... 6,665 1,247 (1,953)(6) 5,959 615(9) 6,574 -------- ------- --------- -------- ------- --------- Net Income (Loss)................... $(69,161) $(4,524) $ 81,585 $ 7,900 $ 815 $ 8,715 ======== ======= ========= ======== ======= ========= Net Income (Loss) per Share: Primary........................... $ (6,64) $ 0.72 $ 0.67 ======== ======== ========= Fully Diluted..................... $ 0.64 ========= Weighted Average Shares Outstanding: Primary........................... 10,413 10,944 2,000(10) 12,944 ======== ======== ========= Fully Diluted..................... 4,124(10) 15,068 ======= =========
NOTE 1: PRO FORMA ADJUSTMENTS The following is a description of each of the pro forma adjustments: (1) Eliminate non-recurring write-off of in-process R&D. (2) Eliminate non-recurring acquisition costs incurred by Zycon. (3) Amortization of acquired intangible assets over lives ranging from 12 to 30 years. (4) Reduce interest income as a result of utilizing cash for acquisition. (5) Interest expense on debt issued to finance acquisition, at an assumed weighted average rate of 7.5%. (6) Related tax effect of adjustments (1) through (5). NOTE 2: PRO FORMA EFFECTS OF THE OFFERINGS The following is a description of each of the pro forma adjustments to reflect the effects of the Offerings. (7) Amortization of deferred financing costs of $129,000 relating to the convertible notes. (8) Reduction of interest expense of $1,559,000 based on an assumed interest rate of 5.75% on the convertible notes, and due to the pay down of bank debt from the sale of 2,000,000 shares of common stock. (9) Related tax effect of adjustments (7) and (8). (10) Issuance of 2,000,000 shares offered hereby for purposes of calculating primary net income per share and an additional 2,124,000 shares for purposes of calculating fully diluted net income per share. NOTE 3: In connection with the acquisition of Zycon, Hadco eliminated nine executive positions at Zycon, which resulted in pre-tax annual savings of $2,637,000. Taking these savings into account for the quarter ended January 25, 1997, pro forma net income and pro forma net income, as adjusted, would have been $8,275,000, and $9,091,000, respectively, and pro forma net income per share and pro forma net income per share, as adjusted, would have been $.76 and $.70, respectively. F-25 93 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Zycon Corporation: We have audited the accompanying consolidated balance sheet of Zycon Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. 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 audit. We conducted our audit 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 audit provides 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 Zycon Corporation and subsidiaries as of December 31, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Jose, California January 17, 1997 F-26 94 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Zycon Corporation: We have audited the accompanying consolidated balance sheet of Zycon Corporation and subsidiary as of December 31, 1995 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 1995. These consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Zycon Corporation and subsidiary as of December 31, 1995 and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP San Jose, California January 19, 1996 F-27 95 ZYCON CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1996 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1995 1996 ------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents............................................. $11,264 $ 7,549 Receivables, net of allowances of $250 in 1995 and $255 in 1996....... 20,886 28,430 Inventories........................................................... 6,131 11,343 Prepaid expenses and other current assets............................. 1,734 2,569 ------- -------- Current assets................................................ 40,015 49,891 PLANT AND EQUIPMENT, net................................................ 52,130 95,297 DEPOSITS AND OTHER ASSETS............................................... 2,830 3,304 EXCESS OF COST OVER NET ASSETS ACQUIRED, net of accumulated amortization of $272 in 1996....................................................... -- 5,396 ------- -------- $94,975 $153,888 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt and bank borrowings................. $ 2,567 $ 9,122 Accounts payable...................................................... 17,624 26,192 Accrued liabilities................................................... 5,021 7,479 Income taxes payable.................................................. 1,770 870 ------- -------- Current liabilities........................................... 26,982 43,663 LONG-TERM DEBT AND LIABILITIES, net of current portion.................. 5,458 43,777 DEFERRED INCOME TAXES................................................... 6,634 7,003 ------- -------- Total liabilities............................................. 39,074 94,443 -------- -------- COMMITMENTS AND CONTINGENCIES (see Note 7) STOCKHOLDERS' EQUITY: Preferred stock; $0.001 par value; 20,000,000 shares authorized; none outstanding........................................................ -- -- Common stock; $0.001 par value; 25,000,000 shares authorized; 11,000,000 and 11,056,600 shares issued and outstanding in 1995 and 1996, respectively................................................. 11 11 Additional paid-in capital............................................ 32,369 33,024 Retained earnings..................................................... 23,521 26,410 ------- -------- Total stockholders' equity.................................... 55,901 59,445 ------- -------- $94,975 $153,888 ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-28 96 ZYCON CORPORATION CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
1994 1995 1996 -------- -------- -------- Net Sales.................................................. $149,151 $180,944 $219,660 Cost of Sales.............................................. 133,043 153,109 186,314 -------- -------- -------- Gross Profit............................................... 16,108 27,835 33,346 Selling, General and Administrative Expenses............... 8,350 11,233 16,079 -------- -------- -------- Income from Operations..................................... 7,758 16,602 17,267 -------- -------- -------- Other Income (Expense): Interest Income............................................ 264 711 726 Interest Expense........................................... (2,250) (2,427) (2,567) Other Expense.............................................. -- -- (6,019) -------- -------- -------- Other Income (Expense)..................................... (1,986) (1,716) (7,860) -------- -------- -------- Income Before Income Taxes................................. 5,772 14,886 9,407 Provision For Income Taxes................................. 97 7,409 6,518 -------- -------- -------- Net Income................................................. $ 5,675 $ 7,477 $ 2,889 ======== ======== ======== Pro Forma Net Income Data (Unaudited): Income Before Income Taxes, as reported.................... $ 5,772 $ 14,886 Pro Forma Provision for Income Taxes....................... 2,333 5,925 -------- Pro Forma Net Income....................................... $ 3,439 $ 8,961 ========
The accompanying notes are an integral part of these consolidated financial statements. F-29 97 ZYCON CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
NOTES COMMON STOCK ADDITIONAL RECEIVABLE TOTAL --------------- PAID-IN FROM RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS EQUITY ------ ------ ---------- ------------ -------- ------------- BALANCES AS OF DECEMBER 31, 1993........ 8,000 $ 8 $ 22 $ -- $23,483 $23,513 Stockholder distributions............. -- -- -- -- (3,859) (3,859) Issuance of stockholder notes......... -- -- -- (575) -- (575) Collections on stockholder notes...... -- -- -- 45 -- 45 Net income............................ -- -- -- -- 5,675 5,675 ------ --- ------- ----- ------- ------- BALANCES AS OF DECEMBER 31, 1994........ 8,000 8 22 (530) 25,299 24,799 Sale of common stock, net of $3,650 issuance costs..................... 3,000 3 32,347 -- -- 32,350 Stockholder distributions............. -- -- -- -- (9,255) (9,255) Collections on stockholder notes...... -- -- -- 530 -- 530 Net income............................ -- -- -- -- 7,477 7,477 ------ --- ------- ----- ------- ------- BALANCES AS OF DECEMBER 31, 1995........ 11,000 11 32,369 -- 23,521 55,901 Issuance of common stock in connection with Alternate Circuit Technology, Inc. (ACT) acquisition............. 50 -- 600 -- -- 600 Issuance of common stock pursuant to the stock option plan.............. 7 -- 55 -- -- 55 Net income............................ -- -- -- -- 2,889 2,889 ------ --- ------- ----- ------- ------- BALANCES AS OF DECEMBER 31, 1996........ 11,057 $11 $33,024 $ -- $26,410 $59,445 ====== === ======= ===== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-30 98 ZYCON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
1994 1995 1996 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................................... $ 5,675 $ 7,477 $ 2,889 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................................... 9,199 9,691 11,016 Deferred income taxes............................................. -- 5,618 38 Changes in operating assets and liabilities, net of effects from purchase of ACT: Increase in receivables.......................................... (4,234) (5,723) (5,538) (Increase) decrease in inventories............................... 156 (1,661) (3,106) (Increase) decrease in prepaid expenses, deposits and other assets.......................................................... 339 (2,491) 2,134 Increase in accounts payable..................................... 772 7,010 7,862 Increase in accrued liabilities.................................. 204 1,708 1,060 Increase (decrease) in income taxes payable...................... -- 1,770 (607) -------- -------- -------- Net cash provided by operating activities.................... 12,111 23,399 15,748 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of ACT, net of cash acquired................................ -- -- (8,888) Purchases of plant and equipment..................................... (13,060) (22,365) (52,156) Sale of short-term investments....................................... 2,026 -- -- -------- -------- -------- Net cash used for investing activities....................... (11,034) (22,365) (61,044) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank borrowings, net................................................. 1,000 (7,000) 2,543 Proceeds from long-term debt......................................... 11,378 1,761 46,206 Repayment of long-term debt.......................................... (7,685) (14,863) (7,223) Proceeds from sale of common stock................................... -- 32,350 55 Issuance of stockholder notes........................................ (575) -- -- Collections on stockholder notes..................................... 45 530 -- Distribution paid to stockholders.................................... (3,185) (10,765) -- -------- -------- -------- Net cash provided by financing activities.................... 978 2,013 41,581 -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... 2,055 3,047 (3,715) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 6,162 8,217 11,264 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 8,217 $ 11,264 $ 7,549 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest............................................... $ 2,149 $ 2,427 $ 2,351 Cash paid for income taxes........................................... $ 20 $ 60 $ 6,357 SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: Issuance of common stock in connection with ACT acquisition.......... $ -- $ -- $ 600 Assets of $8,802 acquired, net of related liabilities of $4,961 assumed from ACT.................................................. $ -- $ -- $ 3,841 Stockholder distributions declared but not paid...................... $ 1,510 $ -- $ --
The accompanying notes are an integral part of these consolidated financial statements. F-31 99 ZYCON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Company and Consolidation Zycon Corporation (the "Company") manufactures multilayer printed circuit boards for original equipment manufacturers and contract manufacturers of sophisticated electronic equipment. The Company's principal customers serve diverse market segments, including data communications, telecommunications, advanced storage systems, workstation, servers and personal computers. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Cash Equivalents Cash equivalents consist primarily of money market funds and highly liquid debt instruments with original maturity dates up to 90 days. Short-Term Investments In 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Short-term investments are classified as available for sale under the provisions of SFAS No. 115 and are stated at fair value. Any unrealized gains and losses are reported as a separate component of stockholders' equity, but to date have not been significant. Inventories Inventories are stated at the lower of first-in, first-out cost or market. The Company periodically reviews its inventories for potential slow-moving and obsolete items and writes down impaired items to net realizable value. Plant and Equipment Plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 40 years. Leasehold improvements are amortized over the shorter of the respective lease terms, ranging from 10 to 20 years, or their estimated useful lives. Intangible Assets Excess of cost over net assets acquired (goodwill) from the ACT acquisition (see Note 5) is amortized using the straight-line method over ten years. In order to comply with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived F-32 100 ZYCON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Assets and for Long-Lived Assets to be Disposed of," the realizability is evaluated periodically by management as events or circumstances indicate a possible inability to recover its carrying amount. Such evaluation is based on various analyses, including cash flow and profitability projections that incorporate, as applicable, the impact on existing lines of business. The analysis necessarily involves significant management judgment to evaluate the ability of an acquired business to perform within projections. Revenue Recognition Sales are recognized upon shipment. Product returns and warranty costs have been insignificant. Research and Development Expenses The Company charges research and development expenses to operations as incurred. For the years ended December 31, 1994, 1995 and 1996, research and development expenses were approximately $968,000, $1,066,000 and $1,100,000, respectively, and are included in cost of sales. Other Expense The Company incurred other expense of $6,019,000 during the year ended December 31, 1996 relating to the acquisition of the Company by Hadco Corporation (see Note 8). Income Taxes The Company accounts for income taxes using the liability method under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of changes in tax rates is recognized in income in the period that includes the enactment date. The Company was an S corporation for Federal and state income tax reporting purposes prior to the initial public offering on September 26, 1995. Federal and state income taxes on the income of an S corporation are generally payable by the individual stockholders rather than the corporation. Accordingly, only the California S corporation franchise tax was provided while the Company was as S corporation. Upon termination of the Company's S corporation status, the Company established its net deferred tax liability and recorded an accompanying charge of $4.5 million to income tax expense in 1995. The accompanying consolidated statements of income for the years ended December 31, 1994 and 1995 include provisions for income taxes on an unaudited pro forma basis, using the asset and liability method, as if the Company had been a C corporation, fully subject to Federal and state income taxes. Environmental Remediation Costs The Company accrues for expenses associated with environmental remediation obligations when such expenses are probable and can be reasonably estimated. Accruals for estimated expenses for environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information becomes available or F-33 101 ZYCON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) circumstances change. Estimates of future expenditures for environmental remediation obligations are not discounted to their present value. Concentration of Credit Risk Financial instruments potentially subjecting the Company to concentration of credit risk consist primarily of cash equivalents and accounts receivable. By policy, the Company limits the amounts invested in any one type of investment. Management believes the financial risks associated with such investments are minimal. Substantially all of the Company's accounts receivable are derived from domestic sales to original equipment manufacturers and contract assemblers of workstations, networking products, computers, telecommunications equipment and instrumentation devices. A significant percentage of the Company's receivables are concentrated with a few customers. Historically, the Company has not incurred material credit-related losses. Foreign Currency Translation The functional currency of the Company's Malaysian subsidiary is the United States dollar. Accordingly, all translation gains and losses resulting from transactions denominated in currencies other than United States dollars are included in the consolidated statements of income. To date, the resulting gains and losses have not been material. Reclassifications Certain 1994 and 1995 balances have been reclassified to conform with the 1996 consolidated financial statement presentation. 2. BALANCE SHEET COMPONENTS: Cash Equivalents Cash equivalents include certain investments classified as available-for-sale securities as follows as of December 31 (in thousands):
1995 1996 ------- ------ Money market funds................................................ $ -- $3,574 U.S. governmental treasury bills.................................. 1,995 1,975 Commercial paper.................................................. 11,000 2,000 ------- ------ $12,995 $7,549 ======= ======
These securities all have original maturity dates of 90 days or less, with fair values approximating their cost. Inventories A summary of inventories follows as of December 31 (in thousands):
1995 1996 ------ ------- Raw materials..................................................... $1,392 $ 5,599 Work in process................................................... 4,739 5,744 ------ ------- $6,131 $11,343 ====== =======
F-34 102 ZYCON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Plant and Equipment A summary of plant and equipment follows as of December 31 (in thousands):
1995 1996 ------- -------- Machinery and equipment......................................... $61,975 $ 98,699 Leasehold improvements.......................................... 23,704 25,744 Building and building improvements.............................. -- 15,458 Office furniture and equipment.................................. 520 553 Construction in progress........................................ 3,250 813 Other........................................................... 580 -- ------- -------- 90,029 141,267 Less -- Accumulated depreciation and amortization............... (37,899) (45,970) ------- -------- $52,130 $ 95,297 ======= ========
Plant and equipment with a cost of approximately $32 million are located at the Company's wholly owned subsidiary in Malaysia. Accrued Liabilities Accrued liabilities consisted of the following as of December 31 (in thousands):
1995 1996 ------ ------ Vacation........................................................... $1,883 $2,120 Payroll............................................................ 1,099 1,764 Bonuses............................................................ 1,170 1,104 Health care and workers compensation............................... 530 1,150 Other.............................................................. 339 1,341 ------ ------ $5,021 $7,479 ====== ======
Long-Term Debt and Liabilities and Bank Borrowings Long-term debt and liabilities and bank borrowings consisted of the following as of December 31 (in thousands):
1995 1996 ------- ------- Line of credit arrangement with a U.S. bank...................... $ -- $16,136 Line of credit arrangement with a Malaysian bank................. -- 2,543 Notes payable to financial lending companies and banks........... 8,025 32,857 Long-term liabilities............................................ -- 1,363 ------- ------- 8,025 52,899 Less -- Current maturities....................................... (2,567) (9,122) ------- ------- Long-term debt and liabilities................................... $ 5,458 $43,777 ======= =======
The Company has available a revolving bank line of credit arrangement with a U.S. bank aggregating the lesser of $28,000,000 or a specified percentage of eligible accounts receivable. As of December 31, 1996, there was $16,136,000 outstanding under the line of credit agreement. The line of credit agreement expires on July 1, 1998. Borrowings under the line of credit agreement incur interest at the bank's prime rate (8.25% as of December 31, 1996) and are secured by receivables, inventories F-35 103 ZYCON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and machinery and equipment. The maximum balance outstanding during the year under this arrangement was $20,752,000, and the average outstanding balance during the year was $10,490,000. The Company also has a line of credit arrangement with a Malaysian bank for aggregate borrowings of approximately $4.3 million for the purpose of acquiring land, facilities and equipment for the Company's Malaysian subsidiary. The arrangement is renewable annually. As of December 31, 1996, there was $2,543,000 outstanding under this arrangement and the weighted average interest rate was 10%. Notes payable to financial lending companies and banks are secured by machinery and equipment and are generally payable in equal monthly installments, bearing interest ranging from approximately 7.2% to 11.4% (8.3% weighted average). Annual maturities of the notes payable are as follows (in thousands):
YEAR ENDING DECEMBER 31, ------------ 1997.......................................................... $ 6,450 1998.......................................................... 6,788 1999.......................................................... 6,125 2000.......................................................... 5,260 2001.......................................................... 8,234 ------ $32,857 =======
In connection with the acquisition of the Company by Hadco Corporation (see Note 8), approximately $33.5 million of these notes payable and borrowings under the line of credit arrangement with the U.S. bank were repaid subsequent to year end. The Company has a commitment from a bank for a $15.5 million term loan facility which expires in 2005 for the purpose of acquiring equipment and for working capital to be invested in the Company's Malaysia subsidiary. Borrowings are to be repaid over five years with interest payable at either a fixed rate equal to the bank's cost of funds at the time of borrowing plus 3.25% or an adjustable rate equal to the bank's prime rate plus 1.75%. As of December 31, 1996, there were no borrowings outstanding under this facility. Upon the acquisition of the Company by Hadco (see Note 8), the commitment under this facility was decreased to $4.4 million. 3. STOCKHOLDERS' EQUITY: Stockholder Distributions On September 26, 1995, the Company elected C corporation status for Federal and state income tax reporting purposes. Simultaneously with the election of C corporation status, the Company declared a distribution payable to existing stockholders of the Company. This distribution represented undistributed S corporation earnings of the Company through the completion of the Company's initial public offering and the amount of the stockholders' S corporation tax bases. Stock-Based Compensation Plan In 1993, the Company adopted the 1993 Long-Term Equity Incentive Plan (the "Stock Plan"). The Company accounts for this Stock Plan under APB Opinion No. 25, Accounting for Stock Issued to Employees, under which no compensation expense has been recognized. Had compensation expense for the Stock Plan been determined consistent with Statement of Financial Accounting Standards F-36 104 ZYCON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company's net income would have been reduced to the following pro forma amounts (in thousands):
1995 1996 ------ ------ As Reported........................................................ $7,477 $2,889 Pro Forma.......................................................... $6,975 $1,579
The Company may grant up to 1,100,000 shares of stock to its employees and consultants under the Stock Plan. The Company grants options with an exercise price at least equal to the fair market price at date of grant. Options granted under the Stock Plan vest between 20% and 60% at the end of the first year and ratably thereafter for a period of four years. There was no activity under the Stock Plan during 1994. A summary of the activity under the Stock Plan during 1995 and 1996 follows:
WEIGHTED AVERAGE NUMBER OF EXERCISE OPTIONS PRICE --------- -------- Outstanding at December 31, 1994............................. -- $ -- Granted.................................................... 707,600 10.36 ------- ------ Outstanding at December 31, 1995............................. 707,600 10.36 Granted.................................................... 105,200 10.50 Exercised.................................................. (6,600) 8.36 Cancelled.................................................. (36,900) 11.54 ------- ------ Outstanding at December 31, 1996............................. 769,300 $10.35 ======= ======
As of December 31, 1996, 765,800 of the 769,300 options outstanding have exercise prices between $8 and $12.00, with a weighted average exercise price of $10.34 and a weighted average remaining contractual life of 3.7 years. 230,200 of these options are exercisable as of December 31, 1996. The remaining 3,500 options have an exercise price and a weighted average exercise price of $13.25 and a weighted average remaining contractual life of 3.88 years. 700 of these options are exercisable as of December 31, 1996. There was no options exercisable as of December 31, 1995. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1995 and 1996; risk-free interest rate of 6 percent; expected dividend yields of 0 percent; expected lives of 7 years; expected volatility of 35 percent. Weighted average fair values of options granted in 1995 and 1996 were $4.30 and $3.00, respectively. In connection with the acquisition of the Company by Hadco Corporation (see Note 8), the vesting for all outstanding options as of January 9, 1997 was immediately accelerated pursuant to the terms of the Stock Plan and then redeemed for cash equal to the difference between the exercise price of the vested option and $18.00 per share. 4. INCOME TAXES The components of income tax expense, as presented in the accompanying consolidated statements of income, comprise California S corporation franchise taxes for 1994 and through September 26, 1995, and Federal and state taxes for the remainder of 1995 and all of 1996. The pro forma provision for income taxes reflects the income tax expense that would have been reported if the F-37 105 ZYCON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company had been a C corporation in 1994 and all of 1995. The components of the provision for income taxes and unaudited pro forma provision for income taxes are as follows (in thousands):
YEARS ENDED DECEMBER 31 ------------------------------------------------ ACTUAL PRO FORMA -------------------------- ----------------- 1994 1995 1996 1994 1995 ---- ------ ------ ------ ------ Current Federal..................................... $-- $1,349 $4,835 $1,431 $3,547 State....................................... 97 342 483 453 975 --- ------ ------ ------ ------ Total current....................... 97 1,691 5,318 1,884 4,522 --- ------ ------ ------ ------ Deferred Federal..................................... -- 1,123 928 368 1,271 State....................................... -- 116 272 81 132 Termination of S corporation status......... -- 4,479 -- -- -- --- ------ ------ ------ ------ Total deferred...................... -- 5,718 1,200 449 1,403 --- ------ ------ ------ ------ Net tax provision............................. $97 $7,409 $6,518 $2,333 $5,925 === ====== ====== ====== ======
The following table reconciles the expected Federal income tax expense to the Company's actual income tax expense and unaudited pro forma income tax expense (in thousands):
YEARS ENDED DECEMBER 31 --------------------------------------------------- ACTUAL PRO FORMA ----------------------------- ----------------- 1994 1995 1996 1994 1995 ------ ------- ------ ------ ------ Expected Federal income tax expense.......... $1,962 $ 5,061 $3,292 $1,962 $5,061 State income taxes, net of Federal tax benefit.................................... 97 337 569 352 776 Nondeductible foreign subsidiary loss........ -- -- 721 -- -- Nondeductible acquisition costs.............. -- -- 2,107 -- -- Termination of S corporation status.......... -- 4,479 -- -- -- Effect of S corporation earnings taxable to stockholders............................... (1,962) (2,557) -- -- -- Other, net................................... -- 89 (171) 19 88 ------ ------- ------ ------ ------ $ 97 $ 7,409 $6,518 $2,333 $5,925 ====== ======= ====== ====== ======
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liability are presented below as of December 31 (in thousands):
1995 1996 ------- ------- Deferred income tax assets: Reserves and accruals.................................................. $ 749 $ 1,013 State income taxes..................................................... 167 234 ------- ------- Total deferred income tax assets............................... 916 1,247 Deferred income tax liability: Depreciation and amortization.......................................... (6,634) (7,003) ------- ------- Net deferred income tax liability........................................ $(5,718) $(5,756) ======= =======
Deferred income tax assets are classified in other current assets in the accompanying consolidated balance sheets. F-38 106 ZYCON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. ACQUISITION OF ALTERNATIVE CIRCUIT TECHNOLOGY, INC.: On June 7, 1996, the Company completed the acquisition of the assets of Alternate Circuit Technology, Inc. (ACT). ACT was in the business of owning, operating and managing a quick turnaround printed circuit board manufacturing facility in Massachusetts. The purchase price consisted of cash of $8,641,000, 50,000 shares of the Company's common stock with a total market value of $600,000 and a covenant not to compete arrangement to two ACT shareholders amounting to $200,000. The acquisition has been recorded using the purchase method of accounting. The excess of the aggregate purchase price over the fair market value of net assets acquired was $5,668,000, and this goodwill is being amortized over ten years. The operating results of ACT have been included in the Company's consolidated financial statements since the date of acquisition. 6. CUSTOMERS: In 1994, one customer accounted for 15%, one for 11% and one for 10% of consolidated net sales. In 1995, one customer accounted for 13% and two companies each accounted for 10% of the Company's consolidated net sales. These three customers comprised 35% of accounts receivable at December 31, 1995. In 1996, one customer accounted for 12% of the Company's consolidated net sales. Of the accounts receivable balance at December 31, 1996, 9% is related to this customer. 7. COMMITMENTS AND CONTINGENCIES: Operating Leases The Company occupies its facilities under various operating lease agreements. In addition, the Company leases certain machinery and equipment under operating leases. Future minimum lease payments required under operating leases in the years subsequent to December 31, 1996 will be as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------ 1997.................................................. $ 3,984 1998.................................................. 3,830 1999.................................................. 3,926 2000.................................................. 4,022 2001.................................................. 4,091 2002 and thereafter................................... 26,175 ------- $46,028 =======
Facility and equipment rent expense was approximately $4,452,000, $4,566,000 and $4,609,000 for the years ended December 31, 1994, 1995 and 1996, respectively. Approximately $360,000 and $135,000 of these amounts in 1994 and 1995, respectively were paid to a partnership whose partners were also stockholders of the Company. Purchase Commitments Purchase commitments aggregated $4,126,000 as of December 31, 1996, primarily for the acquisition of machinery and equipment. F-39 107 ZYCON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stockholders' Benefit and Deferred Compensation Plan The Company has agreements with its original four stockholders providing for payment aggregating two years salary per stockholder in the event of death in service or disability and for payments in the event of an adjustment of the Company's taxable income for any period the corporation was subject to S corporation status under the Federal or state income tax laws. To date, no payments have been required under these agreements. Subsequent to the year end and upon the acquisition of the Company by Hadco Corporation, the Company entered into a deferred compensation plan with key executive employees (none of whom was a director of the Company). The plan will provide these key executive employees with certain deferred compensation under certain circumstances. Workers' Compensation The Company self-insures its workers' compensation plan and accrues for incurred claims development and estimated incurred but not reported claims. If future incurred claims development substantially exceeds historical claim patterns used to estimate the accrual, the Company could incur significant additional obligations. Environmental Matters In March 1993, the U.S. Environmental Protection Agency (EPA) notified 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 Zycon 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, Zycon'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 Zycon 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 Zycon's status as a generator of hazardous waste. In September 1996, a Consent Decree among the EPA and 48 entities (including Zycon) acting through the Casmalia Steering Committee ("CSC") was lodged with the United States District Court in Los Angeles, California, which must approve the agreement. Although this approval is pending, work has started under the Consent Decree. 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. 8. ACQUISITION BY HADCO CORPORATION: In December 1996, Hadco Corporation ("Hadco") agreed to acquire all of the outstanding shares of the Company's common stock at a purchase price of $18.00 per share upon the terms and subject to the conditions set forth in the Tender Offer Statement. The Tender Offer Statement was made pursuant to an Agreement and Plan of Merger dated as of December 4, 1996 between Hadco and the Company. The offer expired on January 9, 1997 after which substantially all of the outstanding shares of the Company's common stock were acquired by Hadco. The Company incurred costs aggregating $2,869,000 which represented investment banking, financial advisory and legal fees incurred relating to F-40 108 ZYCON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the acquisition by Hadco. These costs have been expensed in the accompanying consolidated statement of income for the year ended December 31, 1996 as other expense. The Company paid approximately $2,100,000 of the total costs incurred to a financial advisory firm in which the president of such firm was also a member of the Company's Board of Directors. Prior to entering into the Agreement and the Plan of Merger with Hadco, the Company and certain of its principal shareholders had entered into an agreement to sell all of the outstanding shares of the Company's common stock at $16.25 per share to an unrelated party, but the Company subsequently terminated this agreement. In connection with this termination, the Company incurred break-up fees and legal costs amounting to approximately $3,150,000, which was expensed in the accompanying consolidated statement of income for the year ended December 31, 1996 as other expense. F-41 109 HADCO The Largest Interconnect Manufacturer in North America Backplane Assembly - Hadco provides backplane assembly services utilizing advanced automated manufacturing systems. - Advanced systems include split axis assembly, "smart" feeder systems, and optical centering for high density electronic packages. - Hadco's backplane assembly facilities are located in California and New Hampshire. Includes pictures of various assembled backplane products and a backplane assembly line. 110 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following statement sets forth the amounts of expenses in connection with the offering of the Common Stock and Notes pursuant to this Registration Statement, all of which shall be borne by the Company. SEC Registration Fee..................................................... $ 72,921 NASD Fee................................................................. 25,064 Nasdaq Listing Fee....................................................... 25,000 Blue Sky Fees and Expenses............................................... 30,000 Printing and Engraving Expenses.......................................... 10,000 Accounting Fees and Expenses............................................. 175,000 Legal Fees and Expenses.................................................. 525,000 Transfer Agent and Registrar Fees........................................ 10,000 Miscellaneous Expenses................................................... 237,015 ---------- Total.......................................................... $1,200,000 ==========
All of the expenses listed above, except the SEC Registration Fee and NASD Fee, represent estimates only. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Reference is made to Article V, Section 2 of the By-Laws of the Registrant and to Section 67 of the Massachusetts Business Corporation Law. Article V, Section 2 of the Company's By-Laws provides: "2. Indemnification. Each Director, officer, employee and other agent of the corporation, and any person who, at the request of the corporation, serves as a director, officer, employee or other agent of another organization in which the corporation directly or indirectly owns shares or of which it is a creditor shall be indemnified by the corporation against any cost, expense (including attorney's fees), judgment, liability and/or amount paid in settlement reasonably incurred by or imposed upon him in connection with any action, suit or proceeding (including any proceeding before any administrative or legislative body or agency), to which he may be made a party or otherwise involved or with which he shall be threatened, by reason of his being, or related to his status as, a director, officer, employee or other agent of the corporation or of any other organization in which the corporation directly or indirectly owns shares or of which the corporation is a creditor, which other organization he serves or has served as director, officer, employee or other agent at the request of the corporation (whether or not he continues to be an officer, director, employee or other agent of the corporation or such other organization at the time such action, suit or proceeding is brought or threatened), unless such indemnification is prohibited by the Business Corporation Law of the Commonwealth of Massachusetts. The foregoing right of indemnification shall be in addition to any rights to which any such person may otherwise be entitled and shall inure to the benefit of the executors or administrators of each such person. The corporation may pay the expenses incurred by any such person in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by such person to repay such payment if it is determined that such person is not entitled to indemnification hereunder. This section shall be subject to amendment or repeal only by action of the stockholders." II-1 111 Section 67 of the Massachusetts Corporation Law provides: "Indemnification of directors, officers, employees and other agents of a corporation, and persons who serve at its request as directors, officers, employees or other agents of another organization, or who serve at its request in any capacity with respect to any employee benefit plan, may be provided by it to whatever extent shall be specified in or authorized by (i) the articles of organization or (ii) a by-law adopted by the stockholders or (iii) a vote adopted by the holders of a majority of the shares of stock entitled to vote on the election of directors. Except as the articles of organization or by-laws otherwise require, indemnification of any persons referred to in the preceding sentence who are not directors of the corporation may be provided by it to the extent authorized by the directors. Such indemnification may include payment by the corporation of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by the person indemnified to repay such payment if he shall be adjudicated to be not entitled to indemnification under this section which undertaking may be accepted without reference to the financial ability of such person to make repayment. Any such indemnification may be provided although the person to be indemnified is no longer an officer, director, employee or agent of the corporation or of such other organization or no longer serves with respect to any such employee benefit plan. No indemnification shall be provided for any person with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation or to the extent that such matter relates to service with respect to any employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. The absence of any express provision for indemnification shall not limit any right of indemnification existing independently of this section. A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or other agent of another organization or with respect to any employee benefit plan, against any liability incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability." The Registrant's Restated Articles of Organization, as amended, provide: "The Corporation eliminates the personal liability of each director to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any statutory provision or other law imposing such liability; provided, that nothing in this paragraph shall eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (iii) under Section sixty-one or sixty-two of Chapter 156B of the Massachusetts General Laws, or (iv) for any transaction from which the director derived an improper personal benefit." II-2 112 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. This Registration Statement includes the following exhibits:
EXHIBIT NO. - ----------- 1.1 Form of Common Stock Underwriting Agreement by and among Registrant, certain stockholders of the Company and Robertson, Stephens & Company LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Adams, Harkness & Hill, Inc., as representatives of the several Underwriters. 1.2 Form of Note Underwriting Agreement by and among Registrant and Robertson, Stephens & Company LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several Underwriters. 3.1+ Restated Articles of Organization of Registrant. 3.2+ By-laws, as amended, of Registrant. 4 Form of Indenture (including Form of Note). 5* Opinion of Testa, Hurwitz & Thibeault, LLP as to the legality of the securities to be offered. 10.1+ 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. 10.2+ 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. 10.3 Construction Agreement dated August 3, 1995 by and between Zycon Corporation and Hiti Engineering Sdn.Bhd. 10.4+ Facilities Agreement dated February 9, 1996 by and among the Zycon Corporation Sdn.Bhd., Bank Bumiputra Malaysia Berhad and BBMB Kewangan Berhad. 10.5+ Corporate Guarantee dated February 9, 1996 issued by Zycon Corporation in favor of Bank Bumiputra Malaysia Berhad and BBMB Kewangan Berhad. 10.6+ Lease for the three acre premises located in Santa Clara, California by and between Zycon Corporation and Sobrato Interests III, dated January 4, 1996. 10.7 Profit Sharing Plan and Trust of Registrant, as amended and restated effective January 1, 1988 and as amended June 20, 1990. 10.8 First Amendment and Modification Agreement by and among Registrant and The First National Bank of Boston (the "Bank of Boston") dated as of February 27, 1997 amending the Revolving Credit Agreement dated January 8, 1997 among Registrant and the Bank of Boston (the "Revolving Credit Agreement"). 10.9 Form of Assignment and Acceptance to Revolving Credit Agreement. 11+ Statement re: Computation of Earnings per Share. 12+ Statement re: Computation of Ratios. 23.1* Consent of Testa, Hurwitz & Thibeault, LLP (included as part of Exhibit 5). 23.2 Consent of Arthur Andersen LLP, Boston. 23.3 Consent of KPMG Peat Marwick LLP. 23.4 Consent of Authur Andersen LLP, San Jose. 24+ Power of Attorney (included on signature page). 25+ Statement of Eligibility of Trustee on Form T-1. 27+ Financial Data Schedule.
- --------------- + Filed previously. * To be filed by amendment. FINANCIAL STATEMENT SCHEDULES: Report of Independent Public Accountants on Schedule Schedule II -- Valuation and Qualifying Accounts II-3 113 ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes as follows: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 114 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Salem, State of New Hampshire, on April 15, 1997. HADCO CORPORATION By /s/ TIMOTHY P. LOSIK ---------------------------------- TIMOTHY P. LOSIK Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE - --------------------------------- -------------------------------------------- --------------- * Chairman of the Board and Director April 15, 1997 - --------------------------------- (HORACE H. IRVINE) * President, Chief Executive Officer and April 15, 1997 - --------------------------------- Director (Principal Executive Officer) (ANDREW E. LIETZ) /s/ TIMOTHY P. LOSIK Vice President, Chief Financial Officer April 15, 1997 - --------------------------------- and Treasurer (Principal Financial Officer (TIMOTHY P. LOSIK) and Principal Accounting Officer) * Director April 15, 1997 - --------------------------------- (LAWRENCE COOLIDGE) * Director April 15, 1997 - --------------------------------- (J. STANLEY HILL) * Director April 15, 1997 - --------------------------------- (JOHN F. SMITH) * Director April 15, 1997 - --------------------------------- (OLIVER O. WARD) * Director April 15, 1997 - --------------------------------- (PATRICK SWEENEY) * Director April 15, 1997 - --------------------------------- (JOHN E. POMEROY) * Director April 15, 1997 - --------------------------------- (JAMES C. TAYLOR)
By: /s/ TIMOTHY P. LOSIK ------------------------- (TIMOTHY P. LOSIK) ATTORNEY-IN-FACT II-5 115 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To Hadco Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Hadco Corporation included in this registration statement and have issued our report thereon dated November 15, 1996 (except with respect to the matter discussed in Note 2, as to which the date is January 10, 1997). Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 16(b) is the responsibility of the Company's management and 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 audit 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 15, 1996 S-1 116 SCHEDULE II HADCO CORPORATION VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT BEGINNING COSTS AND FROM END OF OF PERIOD EXPENSES RESERVES(1) PERIOD ---------- ---------- ------------ ---------- Allowance for Doubtful Accounts October 29, 1994........................... $600 234 (109) $ 725 October 28, 1995........................... $725 277 (152) $ 850 October 26, 1996........................... $850 329 (79) $1,100
- --------------- (1) Amounts deemed uncollectible. S-2 117 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ----------------------------------------------------------------------- -------- 1.1 Form of Common Stock Underwriting Agreement by and among Registrant, certain stockholders of the Company and Robertson, Stephens & Company LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Adams, Harkness & Hill, Inc., as representatives of the several Underwriters........................................................... 1.2 Form of Note Underwriting Agreement by and among Registrant and Robertson, Stephens & Company LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several Underwriters..... 3.1+ Restated Articles of Organization of Registrant. ...................... 3.2+ By-laws, as amended, of Registrant..................................... 4 Form of Indenture (including form of Note)............................. 5* Opinion of Testa, Hurwitz & Thibeault, LLP as to the legality of the securities to be offered............................................... 10.1+ 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............ 10.2+ 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. ......................... 10.3 Construction Agreement dated August 3, 1995 by and between Zycon Corporation and Hiti Engineering Sdn.Bhd............................... 10.4+ Facilities Agreement dated February 9, 1996 by and among the Zycon Corporation Sdn.Bhd., Bank Bumiputra Malaysia Berhad and BBMB Kewangan Berhad................................................................. 10.5+ Corporate Guarantee dated February 9, 1996 issued by Zycon Corporation in favor of Bank Bumiputra Malaysia Berhad and BBMB Kewangan Berhad. ............................................................... 10.6+ Lease for the three acre premises located in Santa Clara, California by and between Zycon Corporation and Sobrato Interests III, dated January 4, 1996. .............................................................. 10.7 Profit Sharing Plan and Trust of Registrant, as amended and restated effective January 1, 1988 and as amended June 20, 1990................. 10.8 First Amendment and Modification Agreement by and among Registrant and The First National Bank of Boston (the "Bank of Boston") dated as of February 27, 1997 amending the Revolving Credit Agreement dated January 8, 1997 among Registrant and the Bank of Boston (the "Revolving Credit Agreement")............................................................ 10.9 Form of Assignment and Acceptance to Revolving Credit Agreement........ 11+ Statement re: Computation of Earnings per Share........................ 12+ Statement re: Computation of Ratios.................................... 23.1* Consent of Testa, Hurwitz & Thibeault, LLP (included as part of Exhibit 5)..................................................................... 23.2 Consent of Arthur Andersen LLP, Boston................................. 23.3 Consent of KPMG Peat Marwick LLP....................................... 23.4 Consent of Arthur Andersen LLP, San Jose............................... 24+ Power of Attorney (included on signature page).........................
118
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ----------------------------------------------------------------------- -------- 25+ Statement of Eligibility of Trustee on Form T-1........................ 27+ Financial Data Schedule................................................
- --------------- + Filed previously. * To be filed by amendment. EX-1.1 2 FORM OF COMMON STOCK UNDERWRITING AGREEMENT 1 H&D DRAFT OF 2/24/97 EXHIBIT 1.1 2,000,000 SHARES(1) HADCO CORPORATION COMMON STOCK UNDERWRITING AGREEMENT ---------------------- ____________, 1997 ROBERTSON, STEPHENS & COMPANY LLC MERRILL LYNCH & CO. ADAMS, HARKNESS & HILL, INC. As Representatives of the several Underwriters c/o Robertson, Stephens & Company LLC 555 California Street Suite 2600 San Francisco, California 94104 Ladies/Gentlemen: Hadco Corporation, a Massachusetts corporation (the "Company"), and certain shareholders of the Company named in Schedule B hereto (hereafter called the "Selling Shareholders" address you as the Representatives of each of the persons, firms and corporations listed in Schedule A hereto (herein collectively called the "Underwriters") and hereby confirm their respective agreements with the several Underwriters as follows: 1. DESCRIPTION OF SHARES. The Company proposes to issue and sell 2,000,000 shares of its authorized and unissued Common Stock, $0.05 par value per share, to the several Underwriters. The 2,000,000 shares of Common Stock, $0.05 par value, of the Company to be sold by the Company are hereinafter referred to as the "Firm Shares." The Company and the Selling Shareholders also propose to grant, severally and not jointly, to the Underwriters an option to purchase up to 300,000 - ----------------- 1 Plus an option to purchase up to 97,400 additional shares from the Company and up to 202,600 additional shares from certain shareholders of the Company to cover over-allotments. 2 additional shares of the Company's Common Stock, $0.05 par value, as provided in Section 7 hereof. Of such shares, 97,400 shares of Common Stock, $0.05 par value, will be offered by the Company (the "Company Option Shares") and 202,600 shares of Common Stock, $0.05 par value, will be offered by the Selling Shareholders. The 202,600 shares of Common Stock, $0.05 par value, to be sold by the Selling Shareholders are hereinafter referred to as the "Selling Shareholder Shares". The Company Option Shares and the Selling Shareholder Shares are collectively referred to herein as the "Option Shares". As used in this Agreement, the term "Shares" shall include the Firm Shares and the Option Shares. All shares of Common Stock, $0.05 par value, of the Company to be outstanding after giving effect to the sales contemplated hereby, including the Shares, are hereinafter referred to as "Common Stock." 2. Representations, Warranties and Agreements of the Company. --------------------------------------------------------- I. The Company represents and warrants to and agrees with each Underwriter and each Selling Shareholder that: (a) A registration statement on Form S-3 (File No. 333-21977) with respect to the Shares, including a prospectus subject to completion, has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the applicable rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") under the Act and has been filed with the Commission; such amendments to such registration statement, such amended prospectuses subject to completion and such abbreviated registration statements pursuant to Rule 462(b) of the Rules and Regulations as may have been required prior to the date hereof have been similarly prepared and filed with the Commission; and the Company will file such additional amendments to such registration statement, such amended prospectuses subject to completion and such abbreviated registration statements as may hereafter be required. Copies of such registration statement and amendments, of each related prospectus subject to completion (the "Preliminary Prospectuses"), including all documents incorporated by reference therein, and of any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you. The Company and the transactions contemplated by this Agreement meet the requirements for using Form S-3 under the Act. If the registration statement relating to the Shares has been declared effective under the Act by the Commission, the Company will prepare and promptly file with the Commission the information omitted from the registration statement pursuant to Rule 430A(a) of the Rules and Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and Regulations or as part of a post-effective amendment to the registration statement (including a final form of prospectus). If the registration statement relating to the Shares has not been declared -2- 3 effective under the Act by the Commission, the Company will prepare and promptly file an amendment to the registration statement, including a final form of prospectus. The term "Registration Statement" as used in this Agreement shall mean such registration statement, including financial statements, schedules and exhibits, in the form in which it became or becomes, as the case may be, effective (including, if the Company omitted information from the registration statement pursuant to Rule 430A(a) of the Rules and Regulations) and, in the event of any amendment thereto or the filing of any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations relating thereto after the effective date of such registration statement, shall also mean (from and after the effectiveness of such amendment or the filing of such abbreviated registration statement) such registration statement as so amended, together with any such abbreviated registration statement. The term "Prospectus" as used in this Agreement shall mean the prospectus relating to the Shares as included in such Registration Statement at the time it becomes effective (including, if the Company omitted information from the Registration Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information deemed to be a part of the Registration Statement at the time it became effective pursuant to Rule 430A(b) of the Rules and Regulations); last provided to the Underwriters by the Company and circulated by the Underwriters to all prospective purchasers of the Shares (including the information deemed to be a part of the Registration Statement at the time it became effective pursuant to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Shares that differs from the prospectus referred to in the immediately preceding sentence (whether or not such revised prospectus is required to be filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use. Any reference to the Registration Statement or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of the Registration Statement or the Prospectus, as the case may be, and any reference to any amendment or supplement to the Registration Statement or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which, upon filing, are incorporated by reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used in this Agreement, the term "Incorporated Documents" means the documents which at the time are incorporated by reference in the Registration Statement, the Prospectus or any amendment or supplement thereto. (b) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus or instituted proceedings for that purpose, and each such Preliminary Prospectus has conformed in all material respects to the requirements of the Act and the Rules and Regulations and, as of its date, has -3- 4 not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and at the time the Registration Statement became or becomes, as the case may be, effective and at all times subsequent thereto up to and on the Closing Date (hereinafter defined) and on any later date on which Option Shares are to be purchased, (i) the Registration Statement and the Prospectus, and any amendments or supplements thereto, contained and will contain all material information required to be included therein by the Act and the Rules and Regulations and will in all material respects conform to the requirements of the Act and the Rules and Regulations, (ii) the Registration Statement, and any amendments or supplements thereto, did not and will not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (iii) the Prospectus, and any amendments or supplements thereto, did not and will not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that none of the representations and warranties contained in this subparagraph (b) shall apply to information contained in or omitted from the Registration Statement or Prospectus, or any amendment or supplement thereto, in reliance upon, and in conformity with, written information relating to any Underwriter furnished to the Company by such Underwriter specifically for use in the preparation thereof. The Incorporated Documents heretofore filed, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder; any further Incorporated Documents so filed will, when they are filed, conform in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder; no such document when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and no such further amendment will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) Each of the Company and its subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation with full power and authority (corporate and other) to own, lease and operate its properties and conduct its business as described in the Prospectus; the Company owns all of the outstanding capital stock of its subsidiaries free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest (other than any appraisal rights resulting from the Company's -4- 5 recent acquisition of Zycon Corporation); each of the Company and its subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing would not have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise; no proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification; each of the Company and its subsidiaries is in possession of and operating in compliance with all authorizations, licenses, certificates, consents, orders and permits from state, federal and other regulatory authorities which are material to the conduct of its business, all of which are valid and in full force and effect; neither the Company nor any of its subsidiaries is in violation of its respective charter or bylaws or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material bond, debenture, note or other evidence of indebtedness, or in any material lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of its subsidiaries or their respective properties may be bound; and neither the Company nor any of its subsidiaries is in material violation of any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or over their respective properties of which it has knowledge. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than Hadco Foreign Sales Corporation, Zycon Corporation, Zycon Acquisition Corporation and Zycon Corporation SDN.BHV. (d) The Company has full legal right, power and authority to enter into this Agreement and perform the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding agreement on the part of the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; the performance of this Agreement and the consummation of the transactions herein contemplated will not result in a material breach or violation of any of the terms and provisions of, or constitute a default under, (i) any bond, debenture, note or other evidence of indebtedness, or under any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of its subsidiaries or their respective properties may be bound (except for such agreement or instrument for which a waiver or consent has been obtained), (ii) the charter or bylaws of the -5- 6 Company or any of its subsidiaries, or (iii) any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or over their respective properties. No consent, approval, authorization or order of or qualification with any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or over their respective properties is required for the execution and delivery of this Agreement and the consummation by the Company or any of its subsidiaries of the transactions herein contemplated, except such as may be required under the Act, the Exchange Act (if applicable), or under state or other securities or Blue Sky laws, all of which requirements have been satisfied in all material respects. (e) Except as set forth in the Registration Statement and Prospectus and any Incorporated Document, there is not any pending or, to the best of the Company's knowledge, threatened action, suit, claim or proceeding against the Company, any of its subsidiaries or any of their respective officers or any of their respective properties, assets or rights before any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or over their respective officers or properties or otherwise which (i) might result in any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise or might materially and adversely affect their properties, assets or rights, (ii) might prevent consummation of the transactions contemplated hereby or (iii) is required to be disclosed in the Registration Statement or Prospectus and is not so disclosed. There are no agreements, contracts, leases or documents of the Company or any of its subsidiaries of a character required to be described or referred to in the Registration Statement or Prospectus or any Incorporated Document or to be filed as an exhibit to the Registration Statement or any Incorporated Document by the Act or the Rules and Regulations or by the Exchange Act or the rules and regulations of the Commission thereunder which have not been accurately described in all material respects in the Registration Statement or Prospectus or any Incorporated Document or filed as exhibits to the Registration Statement or any Incorporated Document. (f) All outstanding shares of capital stock of the Company (including the Selling Shareholder Shares) have been duly authorized and validly issued and are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and the authorized and outstanding capital stock of the Company is as set forth in the Prospectus under the caption "Capitalization" and conforms in all material respects to the statements relating thereto contained in the Registration Statement and the Prospectus and any Incorporated Document (and such statements correctly state the substance of the instruments defining the capitalization of the Company); the Firm Shares and the -6- 7 Option Shares to be purchased from the Company hereunder have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company against payment therefor in accordance with the terms of this Agreement, will be duly and validly issued and fully paid and nonassessable, and will be sold free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest; and no preemptive right, co-sale right, registration right, right of first refusal or other similar right of shareholders exists with respect to any of the Firm Shares or Option Shares to be purchased from the Company hereunder or the issuance and sale thereof other than those that have been expressly waived prior to the date hereof and those that will automatically expire upon and will not apply to the consummation of the transactions contemplated on the Closing Date. No further approval or authorization of any shareholder, the Board of Directors of the Company or others is required for the issuance and sale or transfer of the Shares except as may be required under the Act, the Exchange Act or under state or other securities or Blue Sky laws. All issued and outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued and are fully paid and nonassessable, and were not issued in violation of or subject to any preemptive right, or other rights to subscribe for or purchase shares and are owned by the Company free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest. Except as disclosed in the Prospectus and the financial statements of the Company, and the related notes thereto, included or incorporated by reference in the Prospectus, neither the Company nor any subsidiary has outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted and exercised thereunder, set forth or incorporated by reference in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. (g) Arthur Andersen LLP, which has examined (i) the consolidated financial statements of the Company, together with the related schedules and notes, as of October 26, 1996 and for each of the years in the three (3) years ended October 26, 1996 and (ii) the consolidated financial statements of Zycon Corporation ("Zycon"), together with the related schedules and notes as of December 31, 1996 and for the year ended December 31, 1996 filed with the Commission as a part of or incorporated by reference into the Registration Statement, which are included or incorporated by reference in the Prospectus, and KPMG Peat Marwick LLP, which has examined the consolidated financial statements of Zycon together with the related schedules and notes, as of December 31, 1995 and for each of the years in the two (2) years ended December 31, 1995 filed with the Commission as part of or incorporated by reference into the Registration Statement, which are included or incorporated by reference in -7- 8 the Report of our independent accountants within the meaning of the Act and the Rules and Regulations are independent accountants within the meaning of the Act and the Rules and Regulations; the audited consolidated financial statements of the Company and Zycon, together with the related schedules and notes, and the unaudited consolidated financial information, forming part of the Registration Statement and Prospectus, fairly present the financial position and the results of operations of the Company and its subsidiaries and Zycon and its subsidiaries at the respective dates and for the respective periods to which they apply; and all audited consolidated financial statements of the Company and Zycon, together with the related schedules and notes, and the unaudited consolidated financial information, filed with the Commission as part of or incorporated by reference into the Registration Statement, have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved except as may be otherwise stated therein. The selected and summary financial and statistical data included or incorporated by reference in the Registration Statement present fairly the information shown therein and have been compiled on a basis consistent with the audited financial statements presented therein. No other financial statements or schedules are required to be included or incorporated by reference in the Registration Statement. (h) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been (i) any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise, (ii) any transaction that is material to the Company and its subsidiaries considered as one enterprise, except transactions entered into in the ordinary course of business, (iii) any obligation, direct or contingent, that is material to the Company and its subsidiaries considered as one enterprise, incurred by the Company or its subsidiaries, except obligations incurred in the ordinary course of business, (iv) any change in the capital stock or outstanding indebtedness of the Company or any of its subsidiaries that is material to the Company and its subsidiaries considered as one enterprise, (v) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its subsidiaries, or (vi) any loss or damage (whether or not insured) to the property of the Company or any of its subsidiaries which has been sustained or will have been sustained which has a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. (i) Except as set forth in the Registration Statement and Prospectus and any Incorporated Document, (i) each of the Company and its subsidiaries has good and marketable title to all properties and assets described in the Registration Statement and Prospectus and any Incorporated Document as owned by it, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest, -8- 9 other than such as would not have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise, (ii) the agreements to which the Company or any of its subsidiaries is a party described in the Registration Statement and Prospectus and any Incorporated Document are valid agreements, enforceable by the Company and its subsidiaries (as applicable), except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles and, to the best of the Company's knowledge, the other contracting party or parties thereto are not in material breach or material default under any of such agreements, and (iii) each of the Company and its subsidiaries has valid and enforceable leases for all properties described in the Registration Statement and Prospectus and any Incorporated Document as leased by it, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. Except as set forth in the Registration Statement and Prospectus and any Incorporated Document, the Company owns or leases all such properties as are necessary to its operations as now conducted or as proposed to be conducted. (j) The Company and its subsidiaries have timely filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes shown thereon as due, and there is no tax deficiency that has been or, to the best of the Company's knowledge, might be asserted against the Company or any of its subsidiaries that might have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise; and all tax liabilities are adequately provided for on the books of the Company and its subsidiaries. (k) The Company and its subsidiaries maintain insurance with insurers of recognized financial responsibility of the types and in the amounts generally deemed adequate for their respective businesses and consistent with insurance coverage maintained by similar companies in similar businesses, including, but not limited to, insurance covering real and personal property owned or leased by the Company or its subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect; neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for; and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. -9- 10 (l) To the best of Company's knowledge, no labor disturbance by the employees of the Company or any of its subsidiaries exists or is imminent; and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, subassemblers, value added resellers, subcontractors, original equipment manufacturers, authorized dealers or international distributors that might be expected to result in a material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. No collective bargaining agreement exists with any of the Company's employees and, to the best of the Company's knowledge, no such agreement is imminent. (m) Each of the Company and its subsidiaries owns or possesses adequate rights to use all patents, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names and copyrights which are necessary to conduct its businesses as described in the Registration Statement and Prospectus and any Incorporated Document; the expiration of any patents, patent rights, trade secrets, trademarks, service marks, trade names or copyrights would not have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise; the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of the Company by others with respect to any patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights; and the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of others with respect to any patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, might have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. (n) The Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on The Nasdaq National Market, and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from The Nasdaq National Market, nor has the Company received any notification that the Commission or the National Association of Securities Dealers, Inc. ("NASD") is contemplating terminating such registration or listing. (o) The Company has been advised concerning the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder, and has in the past conducted, and intends in the future to conduct, its affairs in such a manner as to ensure that it will not become an "investment company" or a company "controlled" by an "investment company" within the -10- 11 meaning of the 1940 Act and such rules and regulations. (p) The Company has not distributed and will not distribute prior to the later of (i) the Closing Date, or any date on which Option Shares are to be purchased, as the case may be, and (ii) completion of the distribution of the Shares, any offering material in connection with the offering and sale of the Shares other than any Preliminary Prospectuses, the Prospectus, the Registration Statement and other materials, if any, permitted by the Act. (q) Neither the Company nor any of its subsidiaries has at any time during the last five (5) years (i) made any unlawful contribution to any candidate for foreign office or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. (r) The Company has not taken and will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (s) Each officer and director of the Company and each Selling Shareholder has agreed in writing that such person will not, directly or indirectly, without the prior written consent of Robertson, Stephens & Company, LLC, offer, sell, contract to sell, grant any option to purchase, pledge or otherwise dispose of or transfer (collectively, a "Disposition") any shares of Common Stock or any securities convertible into or exchangeable for, or any rights to purchase or acquire, shares of Common Stock held by such officer, director or Selling Stockholder, acquired by such officer, director or Selling Stockholder after the date of the Prospectus or which may be deemed to be beneficially owned by such officer, director or Selling Stockholder pursuant to the Rules and Regulations promulgated under the Act (the "Lock-up Shares") other than pursuant to this Agreement, for a period ending 90 days after the date that the Registration Statement is declared effective (the "Lock-up Period"). The foregoing restriction has been expressly agreed to preclude the holder of Lock-up Shares from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Lock-up Shares during the Lock-up Period, even if such Lock-up Shares would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Lock-up Shares or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from Lock-up Shares. Notwithstanding the foregoing, the holder may transfer any or all of the Lock-up Shares (i) as a bona fide gift or gifts, provided the -11- 12 donee or donees thereof agrees in writing as a condition precedent to such gift or gifts to be bound by this restriction, or (ii) as a distribution to partners or shareholders of the holder, provided that the distributees thereof agree in writing to be bound by this restriction. The transferor shall notify Robertson, Stephens & Company LLC in writing prior to the transfer, and there shall be no further transfer of such Lock-up Shares except in accordance with this restriction. Furthermore, such person has also agreed and consented to the entry of stop transfer instructions with the Company's transfer agent against the transfer of the Lock-up Shares held by such person except in compliance with this restriction. The Company has provided to counsel for the Underwriters true, accurate and complete copies of all of the agreements pursuant to which its officers, directors and shareholders have agreed to such or similar restrictions (the "Lock-up Agreements") presently in effect or effected hereby. The Company hereby represents and warrants that it will not release any of its officers, directors or other shareholders from any Lock-up Agreements currently existing or hereafter effected without the prior written consent of Robertson, Stephens & Company LLC. (t) Except as set forth in the Registration Statement and Prospectus and any Incorporated Document, (i) the Company is in compliance with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of health or the environment in effect as of the date hereof ("Environmental Laws") which are applicable to its business, (ii) the Company has received no notice from any governmental authority or third party of an asserted claim under Environmental Laws, which claim is required to be disclosed in the Registration Statement and the Prospectus and any Incorporated Document, (iii) the Company will not be required to make future material capital expenditures to comply with Environmental Laws and (iv) no property which is owned, leased or occupied by the Company has been designated as a Superfund site pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss. 9601, et seq.), or otherwise designated as a contaminated site under applicable state or local law. (u) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (v) There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of -12- 13 indebtedness by the Company to or for the benefit of any of the executive officers or directors of the Company or any of the members of the families of any of them, except as disclosed in the Registration Statement and the Prospectus and any Incorporated Document. (w) The Company has complied with all provisions of Section 517.075, Florida Statutes relating to doing business with the Government of Cuba or with any person or affiliate located in Cuba. II. Each Selling Shareholder, severally and not jointly, represents and warrants to and agrees with each Underwriter and the Company that: (a) Such Selling Shareholder now has and on the Closing Date, and on any later date on which Option Shares are purchased, will have valid marketable title to the Shares to be sold by such Selling Shareholder, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than pursuant to this Agreement; and upon delivery of such Shares hereunder and payment of the purchase price as herein contemplated, each of the Underwriters will obtain valid marketable title to the Shares purchased by it from such Selling Shareholder, free and clear of any pledge, lien, security interest pertaining to such Selling Shareholder or such Selling Shareholder's property, encumbrance, claim or equitable interest, including any liability for estate or inheritance taxes, or any liability to or claims of any creditor, devisee, legatee or beneficiary of such Selling Shareholder. (b) Such Selling Shareholder has duly authorized (if applicable), executed and delivered, in the form heretofore furnished to the Representatives an irrevocable Power of Attorney (the "Power of Attorney") appointing Andrew E. Lietz and Timothy P. Losik as attorneys-in-fact (collectively, the "Attorneys" and individually, an "Attorney") and a Letter of Transmittal and Custody Agreement (the "Custody Agreement") with Hadco Corporation, as custodian (the "Custodian"); each of the Power of Attorney and the Custody Agreement constitutes a valid and binding agreement on the part of such Selling Shareholder, enforceable in accordance with its terms, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; and each of such Selling Shareholder's Attorneys, acting alone, is authorized to execute and deliver this Agreement and the certificate referred to in Section 6(h) hereof on behalf of such Selling Shareholder, to determine the purchase price to be paid by the several Underwriters to such Selling Shareholder as provided in Section 3 hereof, to authorize the delivery of the Selling Shareholder Shares under this Agreement and to duly endorse (in blank or otherwise) the certificate or certificates representing such Shares or a stock power or powers with respect thereto, to accept payment therefor, -13- 14 and otherwise to act on behalf of such Selling Shareholder in connection with this Agreement. (c) All consents, approvals, authorizations and orders required for the execution and delivery by such Selling Shareholder of the Power of Attorney and the Custody Agreement, the execution and delivery by or on behalf of such Selling Shareholder of this Agreement and the sale and delivery of the Selling Shareholder Shares under this Agreement (other than, at the time of the execution hereof (if the Registration Statement has not yet been declared effective by the Commission), the issuance of the order of the Commission declaring the Registration Statement effective and such consents, approvals, authorizations or orders as may be necessary under state or other securities or Blue Sky laws) have been obtained and are in full force and effect; such Selling Shareholder, if other than a natural person, has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization as the type of entity that it purports to be; and such Selling Shareholder has full legal right, power and authority to enter into and perform its obligations under this Agreement and such Power of Attorney and Custody Agreement, and to sell, assign, transfer and deliver the Shares to be sold by such Selling Shareholder under this Agreement. (d) Such Selling Shareholder will not, directly or indirectly, without the prior written consent of Robertson, Stephens & Company, LLC, effect the Disposition of any Lock-up Shares during the Lock-up Period. The foregoing restriction is expressly agreed to preclude the holder of the Lock-up Shares from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Lock-up Shares during the Lock-up Period, even if such Lock-up Shares would be disposed of by someone other than the Selling Shareholder. Such prohibited hedging or other transactions would including, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Lock-up Shares or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from Lock-up Shares. Notwithstanding the foregoing, the Selling Stockholder may transfer any or all of the Lock-up Shares (i) as a bona fide gift or gifts, provided the donee or donees thereof agrees in writing as a condition precedent to such gift or gifts to be bound by this restriction, or (ii) as a distribution to partners or shareholders of the Selling Stockholder, provided that the distributees thereof agree in writing to be bound by this restriction. The transferor shall notify Robertson, Stephens & Company LLC in writing prior to the transfer, and there shall be no further transfer of such Lock-up Shares except in accordance with this restriction. Such Selling Shareholder also agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the transfer of the securities held by such Selling Shareholder except in compliance with this restriction. -14- 15 (e) Certificates in negotiable form for all Shares to be sold by such Selling Shareholder under this Agreement, together with a stock power or powers duly endorsed in blank by such Selling Shareholder, have been placed in custody with the Custodian for the purpose of effecting delivery hereunder. (f) This Agreement has been duly authorized by each Selling Shareholder that is not a natural person and has been duly executed and delivered by or on behalf of such Selling Shareholder and is a valid and binding agreement of such Selling Shareholder, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; and the performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of or constitute a default under any bond, debenture, note or other evidence of indebtedness, or under any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which such Selling Shareholder is a party or by which such Selling Shareholder, or any Selling Shareholder Shares hereunder, may be bound or, to the best of such Selling Shareholders' knowledge, result in any violation of any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over such Selling Shareholder or over the properties of such Selling Shareholder, or, if such Selling Shareholder is other than a natural person, result in any violation of any provisions of the charter, bylaws or other organizational documents of such Selling Shareholder. (g) Such Selling Shareholder has not taken and will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (h) Such Selling Shareholder has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares. (i) All information furnished by or on behalf of such Selling Shareholder relating to such Selling Shareholder and the Selling Shareholder Shares that is contained in the representations and warranties of such Selling Shareholder in such Selling Shareholder's Power of Attorney or set forth in the Registration Statement or the Prospectus is, and at the time the Registration Statement became or becomes, as the case may be, effective and at all times subsequent thereto up to and on the Closing Date, and on any later date on which Option Shares are to be purchased, was or will be, true, correct and complete, and does not, and at the time -15- 16 the Registration Statement became or becomes, as the case may be, effective and at all times subsequent thereto up to and on the Closing Date (hereinafter defined), and on any later date on which Option Shares are to be purchased, will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information not misleading. (j) Such Selling Shareholder will review the Prospectus and will comply with all agreements and satisfy all conditions on its part to be complied with or satisfied pursuant to this Agreement on or prior to the Closing Date, or any later date on which Option Shares are to be purchased, as the case may be, and will advise one of its Attorneys and Robertson, Stephens & Company LLC prior to the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, if any statement to be made on behalf of such Selling Shareholder in the certificate contemplated by Section 6(h) would be inaccurate if made as of the Closing Date or such later date on which Option Shares are to be purchased, as the case may be. (k) Such Selling Shareholder does not have, or has waived prior to the date hereof, any preemptive right, co-sale right or right of first refusal or other similar right to purchase any of the Shares that are to be sold by the Company or any of the other Selling Shareholders to the Underwriters pursuant to this Agreement; such Selling Shareholder does not have, or has waived prior to the date hereof, any registration right or other similar right to participate in the offering made by the Prospectus, other than such rights of participation as have been satisfied by the participation of such Selling Shareholder in the transactions to which this Agreement relates in accordance with the terms of this Agreement; and such Selling Shareholder does not own any warrants, options or similar rights to acquire, and does not have any right or arrangement to acquire, any capital stock, rights, warrants, options or other securities from the Company, other than those described in the Registration Statement and the Prospectus and any Incorporated Document. (l) Such Selling Shareholder is not aware that any of the representations and warranties of the Company set forth in Section 2.I above is untrue or inaccurate in any material respect; provided that if such Selling Stockholder is not a natural person, the representation and warranty will be made without such Selling Stockholder having conducted any investigation or inquiry. 3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees, to sell to the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $_____ per share, the respective number of Firm Shares as hereinafter set forth. The obligation of each Underwriter to the Company shall be to purchase from the Company that number of Firm Shares which is set forth opposite -16- 17 the name of such Underwriter in Schedule A hereto (subject to adjustment as provided in Section 10). Delivery of definitive certificates for the Firm Shares to be purchased by the Underwriters pursuant to this Section 3 shall be made against payment of the purchase price therefor by the several Underwriters by certified or official bank check or checks drawn in next-day funds, payable to the order of the Company agrees not to deposit any such check in the bank on which it is drawn, and not to take any other action with the purpose or effect of receiving immediately available funds, until the business day following the date of its delivery to the Company, and, in the event of any breach of the foregoing, the Company shall reimburse the Underwriters for the interest lost and any other expenses borne by them by reason of such breach), at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, MA 02110 (or at such other place as may be agreed upon among the Representatives and the Company), at 7:00 A.M., San Francisco time (a) on the third (3rd) full business day following the first day that Shares are traded, (b) if this Agreement is executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th) full business day following the day that this Agreement is executed and delivered or (c) at such other time and date not later than seven (7) full business days following the first day that Shares are traded as the Representatives and the Company may determine (or at such time and date to which payment and delivery shall have been postponed pursuant to Section 10 hereof), such time and date of payment and delivery being herein called the "Closing Date;" PROVIDED, HOWEVER, that if the Company has not made available to the Representatives copies of the Prospectus within the time provided in Section 4(d) hereof, the Representatives may, in their sole discretion, postpone the Closing Date until no later than two (2) full business days following delivery of copies of the Prospectus to the Representatives. The certificates for the Firm Shares to be so delivered will be made available to you at such office or such other location including, without limitation, in New York City, as you may reasonably request for checking at least one (1) full business day prior to the Closing Date and will be in such names and denominations as you may request, such request to be made at least two (2) full business days prior to the Closing Date. If the Representatives so elect, delivery of the Firm Shares may be made by credit through full fast transfer to the accounts at The Depository Trust Company designated by the Representatives. It is understood that you, individually, and not as the Representatives of the several Underwriters, may (but shall not be obligated to) make payment of the purchase price on behalf of any Underwriter or Underwriters whose check or checks shall not have been received by you prior to the Closing Date for the Firm Shares to be purchased by such Underwriter or Underwriters. Any such payment by you shall not relieve any such Underwriter or Underwriters of any of its or their obligations hereunder. -17- 18 After the Registration Statement becomes effective, the several Underwriters intend to make a public offering (as such term is described in Section 11 hereof) of the Firm Shares at an initial public offering price of $_____ per share. After completion of the public offering, the several Underwriters may, in their discretion, vary the public offering price. The information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), on the inside front cover concerning stabilization and by the Underwriters, and in the penultimate paragraph under the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus constitutes the only information furnished by the Underwriters to the Company for inclusion in any Preliminary Prospectus, the Prospectus or the Registration Statement or any Incorporated Document, and you, on behalf of the respective Underwriters, represent and warrant to the Company and the Selling Shareholders that the statements made therein do not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the several Underwriters that: (a) The Company will use its best efforts to cause the Registration Statement and any amendment thereof, if not effective at the time and date that this Agreement is executed and delivered by the parties hereto, to become effective as promptly as possible; the Company will use its best efforts to cause any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations as may be required subsequent to the date the Registration Statement is declared effective to become effective as promptly as possible; the Company will notify you, promptly after it shall receive notice thereof, of the time when the Registration Statement, any subsequent amendment to the Registration Statement or any abbreviated registration statement has become effective or any supplement to the Prospectus has been filed; if the Company omitted information from the Registration Statement at the time it was originally declared effective in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will provide evidence satisfactory to you that the Prospectus contains such information and has been filed, within the time period prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part of a post-effective amendment to such Registration Statement as originally declared effective which is declared effective by the Commission if for any reason the filing of the final form of Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, it will provide evidence satisfactory to you that the Prospectus contains such information and has been filed with the Commission within the time period prescribed; it will notify you promptly of any request by the Commission for the amending or supplementing of the -18- 19 Registration Statement or the Prospectus or for additional information; promptly upon your request, it will prepare and file with the Commission any amendments or supplements to the Registration Statement or Prospectus which, in the opinion of counsel for the several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in connection with the distribution of the Shares by the Underwriters; it will promptly prepare and file with the Commission, and promptly notify you of the filing of, any amendments or supplements to the Registration Statement or Prospectus which may be necessary to correct any statements or omissions, if, at any time when a prospectus relating to the Shares is required to be delivered under the Act, any event shall have occurred as a result of which the Prospectus or any other prospectus relating to the Shares as then in effect would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; in case any Underwriter is required to deliver a prospectus nine (9) months or more after the effective date of the Registration Statement in connection with the sale of the Shares, it will prepare promptly upon request, but at the expense of such Underwriter, such amendment or amendments to the Registration Statement and such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Act; and it will file no amendment or supplement to the Registration Statement or Prospectus or the Incorporated Documents, or, prior to the end of the period of time in which a prospectus relating to the Shares is required to be delivered under the Act, file any document which upon filing becomes an Incorporated Document, which shall not previously have been submitted to you a reasonable time prior to the proposed filing thereof or to which you shall reasonably object in writing, subject, however, to compliance with the Act and the Rules and Regulations, the Exchange Act and the rules and regulations of the Commission thereunder and the provisions of this Agreement. (b) The Company will advise you, promptly after it shall receive notice or obtain knowledge, of the issuance of any stop order by the Commission suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. (c) The Company will use its best efforts to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may designate and to continue such qualifications in effect for so long as may be required for purposes of the distribution of the Shares, except that the Company shall not be required in connection therewith or as a condition thereof to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction in which it is not otherwise required to be so qualified or to so execute a general consent to service of process. In each jurisdiction in which the Shares shall have been -19- 20 qualified as above provided, the Company will make and file such statements and reports in each year as are or may be required by the laws of such jurisdiction. (d) The Company will furnish to you, as soon as available, and, in the case of the Prospectus and any term sheet or abbreviated term sheet under Rule 434, in no event later than the first (1st) full business day following the first day that Shares are traded, copies of the Registration Statement (three of which will be signed and which will include all exhibits), each Preliminary Prospectus, the Prospectus and any amendments or supplements to such documents, including any prospectus prepared to permit compliance with Section 10(a)(3) of the Act, and the Incorporated Documents (three of which will include all exhibits,) all in such quantities as you may from time to time reasonably request. Notwithstanding the foregoing, if Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall agree to the utilization of Rule 434 of the Rules and Regulations, the Company shall provide to you copies of a Preliminary Prospectus updated in all respects through the date specified by you in such quantities as you may from time to time reasonably request. (e) The Company will make generally available to its securityholders as soon as practicable, but in any event not later than the forty-fifth (45th) day following the end of the full fiscal quarter first occurring after the first anniversary of the effective date of the Registration Statement, an earnings statement (which will be in reasonable detail but need not be audited) complying with the provisions of Section 11(a) of the Act and covering a twelve (12) month period beginning after the effective date of the Registration Statement. (f) During a period of five (5) years after the date hereof, the Company will furnish to its shareholders as soon as practicable after the end of each respective period, annual reports (including financial statements audited by independent certified public accountants) and unaudited quarterly reports of operations for each of the first three quarters of the fiscal year, and will furnish to you and the other several Underwriters hereunder, upon request (i) concurrently with furnishing such reports to its shareholders, statements of operations of the Company for each of the first three (3) quarters in the form furnished to the Company's shareholders, (ii) concurrently with furnishing to its shareholders, a balance sheet of the Company as of the end of such fiscal year, together with statements of operations, of shareholders' equity, and of cash flows of the Company for such fiscal year, accompanied by a copy of the certificate or report thereon of independent certified public accountants, (iii) as soon as they are available, copies of all reports (financial or other) mailed to shareholders, (iv) as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, any securities exchange or the NASD, (v) every material press release and every material news item or article in respect of the Company or its affairs which was generally released to shareholders or prepared by the Company or any of its subsidiaries, and -20- 21 (vi) any additional information of a public nature concerning the Company or its subsidiaries, or its business which you may reasonably request. During such five (5) year period, if the Company shall have active subsidiaries, the foregoing financial statements shall be on a consolidated basis to the extent that the accounts of the Company and its subsidiaries are consolidated, and shall be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. (g) The Company will apply the net proceeds from the sale of the Shares being sold by it in the manner set forth under the caption "Use of Proceeds" in the Prospectus. (h) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar (which may be the same entity as the transfer agent) for its Common Stock. (i) If the transactions contemplated hereby are not consummated by reason of any failure, refusal or inability on the part of the Company or any Selling Shareholder to perform any agreement on their respective parts to be performed hereunder or to fulfill any condition of the Underwriters' obligations hereunder, or if the Company shall terminate this Agreement pursuant to Section 11(a) hereof, or if the Underwriters shall terminate this Agreement pursuant to Section 11(b)(i), the Company will reimburse the several Underwriters for all out-of-pocket expenses (including fees and disbursements of Underwriters' Counsel) incurred by the Underwriters in investigating or preparing to market or marketing the Shares. (j) If at any time during the ninety (90) day period after the Registration Statement becomes effective, any rumor, publication or event relating to or affecting the Company shall occur as a result of which in your opinion the market price of the Common Stock has been or is likely to be materially affected (regardless of whether such rumor, publication or event necessitates a supplement to or amendment of the Prospectus), the Company will, after written notice from you advising the Company to the effect set forth above, forthwith prepare, consult with you concerning the substance of and disseminate a press release or other public statement, reasonably satisfactory to you, responding to or commenting on such rumor, publication or event. (k) During the Lock-up Period, the Company will not, without the prior written consent of Robertson Stephens & Company LLC, effect the Disposition of, directly or indirectly, any Securities other than the sale of the Firm Shares and the Option Shares to be sold by the Company hereunder and the Company's issuance of options or Common Stock under the Company's presently authorized December 1985 Option Plan, December 1986 Option Plan, December 1987 Option Plan, September 1990 Plan, December 1991 Director Option Plan and November 1995 Stock Option Plan (collectively, the "Option Plans"). -21- 22 5. Expenses. -------- (a) The Company agrees with each Underwriter that: (i) The Company will pay and bear all costs and expenses in connection with the preparation, printing and filing of the Registration Statement (including financial statements, schedules and exhibits), Preliminary Prospectuses and the Prospectus and the Incorporated Documents and any amendments or supplements thereto; the photocopying of this Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power of Attorney, and any instruments related to any of the foregoing; the issuance and delivery of the Shares hereunder to the several Underwriters, including transfer taxes, if any, the cost of all certificates representing the Shares and transfer agents' and registrars' fees; the fees and disbursements of counsel for the Company; all fees and other charges of the Company's independent certified public accountants; the cost of furnishing to the several Underwriters copies of the Registration Statement (including appropriate exhibits), Preliminary Prospectus and the Prospectus and the Incorporated Documents, and any amendments or supplements to any of the foregoing; NASD filing fees and the cost of qualifying the Shares under the laws of such jurisdictions as you may designate (including filing fees and fees and disbursements of Underwriters' Counsel in connection with such NASD filings and Blue Sky qualifications); and all other expenses directly incurred by the Company and the Selling Shareholders in connection with the performance of their obligations hereunder. Any additional expenses incurred as a result of the sale of the Shares by the Selling Shareholders will be borne collectively by the Company and the Selling Shareholders. The provisions of this Section 5(a)(i) are intended to relieve the Underwriters from the payment of the expenses and costs which the Selling Shareholders and the Company hereby agree to pay, but shall not affect any agreement which the Selling Shareholders and the Company may make, or may have made, for the sharing of any of such expenses and costs. Such agreements shall not impair the obligations of the Company and the Selling Shareholders hereunder to the several Underwriters. (ii) In addition to its other obligations under Section 8(a) hereof, the Company agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding described in Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held -22- 23 to have been improper, the Underwriters shall promptly return such payment to the Company together with interest, compounded daily, determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) listed from time to time in The Wall Street Journal which represents the base rate on corporate loans posted by a substantial majority of the nation's thirty (30) largest banks (the "Prime Rate"). Any such interim reimbursement payments which are not made to the Underwriters within thirty (30) days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. (b) In addition to their other obligations under Section 8(c) hereof, the Underwriters severally and not jointly agree that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding described in Section 8(c) hereof, they will reimburse the Company on a monthly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Underwriters' obligation to reimburse the Company for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Company shall promptly return such payment to the Underwriters together with interest, compounded daily, determined on the basis of the Prime Rate. Any such interim reimbursement payments which are not made to the Company within thirty (30) days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. (c) It is agreed that any controversy arising out of the operation of the interim reimbursement arrangements set forth in Sections 5(a)(ii) and 5(b) hereof, including the amounts of any requested reimbursement payments, the method of determining such amounts and the basis on which such amounts shall be apportioned among the reimbursing parties, shall be settled by arbitration conducted under the provisions of the Constitution and Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD. Any such arbitration must be commenced by service of a written demand for arbitration or a written notice of intention to arbitrate, therein electing the arbitration tribunal. In the event the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to said demand or notice is authorized to do so. Any such arbitration will be limited to the operation of the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b) hereof and will not resolve the ultimate propriety or enforceability of the obligation to indemnify for expenses which is created by the provisions of Sections 8(a) and 8(c) hereof or the obligation to contribute to expenses which is created by the provisions of Section 8(e) hereof. -23- 24 6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several Underwriters to purchase and pay for the Shares as provided herein shall be subject to the accuracy, as of the date hereof and the Closing Date and any later date on which Option Shares are to be purchased, as the case may be, of the representations and warranties of the Company and the Selling Shareholders herein, to the performance by the Company and the Selling Shareholders of their respective obligations hereunder and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 2:00 P.M., San Francisco time, on the date following the date of this Agreement, or such later date as shall be consented to in writing by you; and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been initiated or, to the knowledge of the Company, any Selling Shareholder or any Underwriter, threatened by the Commission, and any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or any Incorporated Document or otherwise) shall have been complied with to the satisfaction of Underwriters' Counsel. (b) All corporate proceedings and other legal matters in connection with this Agreement, the form of Registration Statement and the Prospectus, and the registration, authorization, issue, sale and delivery of the Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and such counsel shall have been furnished with such papers and information as they may reasonably have requested to enable them to pass upon the matters referred to in this Section. (c) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date, or any later date on which Option Shares are to be purchased, as the case may be, (i) there shall not have been any change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise from that set forth in the Registration Statement or Prospectus, which, in your sole judgment, is material and adverse and that makes it, in your sole judgment, impracticable or inadvisable to proceed with the public offering of the Shares as contemplated by the Prospectus; and (ii) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Act. -24- 25 (d) You shall have received on the Closing Date and on any later date on which Option Shares are to be purchased, as the case may be, the following opinion of Berlin, Hamilton & Dahmen LLP, general counsel for the Company and counsel to the Selling Shareholders, dated the Closing Date or such later date on which Option Shares are to be purchased addressed to the Underwriters and with reproduced copies or signed counterparts thereof for each of the Underwriters, to the effect that: (i) The Company and each subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation; (ii) The Company and each subsidiary has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus; (iii) The Company and each subsidiary is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction, if any, in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing would not have a material adverse effect on the condition (financial or otherwise), earnings, operations or business of the Company and its subsidiaries considered as one enterprise. To such counsel's knowledge, the Company does not own or control, directly or indirectly, any corporation, association or other entity other than [list subsidiaries]; (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the caption "Capitalization" as of the dates stated therein, the issued and outstanding shares of capital stock of the Company (including the Selling Shareholder Shares) have been duly and validly issued and are fully paid and nonassessable, and, to such counsel's knowledge, will not have been issued in violation of or subject to any preemptive right, co-sale right, registration right, right of first refusal or other similar right; (v) All issued and outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued and are fully paid and nonassessable, and, to such counsel's knowledge, have not been issued in violation of or subject to any preemptive right, co-sale right, registration right, right of first refusal or other similar right and are owned by the Company free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest; (vi) The Company has the corporate power and authority to enter into this Agreement and to issue, sell and deliver to the Underwriters the Shares to be issued and sold by it hereunder; -25- 26 (vii) This Agreement has been duly authorized by all necessary corporate action on the part of the Company and has been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by you, is a valid and binding agreement of the Company, enforceable in accordance with its terms, except insofar as indemnification provisions may be limited by applicable law and except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally or by general equitable principles; (viii) The information in the Prospectus under the caption "Description of Capital Stock," to the extent that it constitutes matters of law or legal conclusions, has been reviewed by such counsel and is a fair summary of such matters and conclusions; and the forms of certificates evidencing the Common Stock comply with Massachusetts law; (ix) The description in the Registration Statement and the Prospectus of the charter and bylaws of the Company and of statutes are accurate and fairly present the information required to be presented by the Act and the applicable Rules and Regulations; (x) The performance of this Agreement and the consummation of the transactions herein contemplated (other than performance of the Company's indemnification obligations hereunder, concerning which no opinion need be expressed) will not (a) result in any violation of the Company's charter or bylaws or (b) to such counsel's knowledge, result in a material breach or violation of any of the terms and provisions of, or constitute a default under, any bond, debenture, note or other evidence of indebtedness, or any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument known to such counsel to which the Company is a party or by which its properties are bound, or any applicable statute, rule or regulation known to such counsel or, to such counsel's knowledge, any order, writ or decree of any court, government or governmental agency or body having jurisdiction over the Company or any of its subsidiaries, or over any of their properties or operations; (xi) No consent, approval, authorization or order of or qualification with any court, government or governmental agency or body having jurisdiction over the Company or any of its subsidiaries, or over any of their properties or operations is necessary in connection with the consummation by the Company of the transactions herein contemplated, except such as have been obtained under the Act, the Exchange Act or such as may be required under state or other securities or Blue Sky laws in connection with the purchase and the distribution of the Shares by the Underwriters; -26- 27 (xii) To such counsel's knowledge, except as set forth in the Registration Statement and Prospectus and any Incorporated Document, no holders of Common Stock or other securities of the Company have registration rights with respect to securities of the Company and, except as set forth in the Registration Statement and Prospectus, all holders of securities of the Company having rights known to such counsel to registration of such shares of Common Stock or other securities, because of the filing of the Registration Statement by the Company have, with respect to the offering contemplated thereby, waived such rights or such rights have expired by reason of lapse of time following notification of the Company's intent to file the Registration Statement or have included securities in the Registration Statement pursuant to the exercise of and in full satisfaction of such rights; (xiii) Each Selling Shareholder which is not a natural person has full right, power and authority to enter into and to perform its obligations under the Power of Attorney and Custody Agreement to be executed and delivered by it in connection with the transactions contemplated herein; the Power of Attorney and Custody Agreement of each Selling Shareholder that is not a natural person has been duly authorized by such Selling Shareholder; the Power of Attorney and Custody Agreement of each Selling Shareholder has been duly executed and delivered by or on behalf of such Selling Shareholder; and the Power of Attorney and Custody Agreement of each Selling Shareholder constitutes the valid and binding agreement of such Selling Shareholder, enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; (xiv) Each of the Selling Shareholders has full right, power and authority to enter into and to perform its obligations under this Agreement and to sell, transfer, assign and deliver the Shares to be sold by such Selling Shareholder hereunder; (xv) This Agreement has been duly authorized by each Selling Shareholder that is not a natural person and has been duly executed and delivered by or on behalf of each Selling Shareholder; and (xvi) Upon the delivery of and payment for the Shares as contemplated in this Agreement, each of the Underwriters will receive valid marketable title to the Shares purchased by it from such Selling Shareholder, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest. In rendering such opinion, such counsel may assume that the Underwriters are without notice of any defect in the title of the Shares being purchased from the Selling Shareholders. -27- 28 Counsel rendering the foregoing opinion may rely as to questions of law not involving the laws of the United States or the Commonwealth of Massachusetts upon opinions of local counsel, and as to questions of fact upon representations or certificates of officers of the Company, the Selling Shareholders or officers of the Selling Shareholders (when the Selling Shareholder is not a natural person), and of government officials, in which case their opinion is to state that they are so relying and that they have no knowledge of any material misstatement or inaccuracy in any such opinion, representation or certificate. Copies of any opinion, representation or certificate so relied upon shall be delivered to you, as Representatives of the Underwriters, and to Underwriters' Counsel. (e) You shall have received on the Closing Date and on any later date on which Option Shares are to be purchased, as the case may be, an opinion of Hale and Dorr LLP, in form and substance satisfactory to you, with respect to the sufficiency of all such corporate proceedings and other legal matters relating to this Agreement and the transactions contemplated hereby as you may reasonably require, and the Company shall have furnished to such counsel such documents as they may have requested for the purpose of enabling them to pass upon such matters. (f) You shall have received on the Closing Date and on any later date on which Option Shares are to be purchased, as the case may be, a letter from Arthur Andersen LLP and KPMG Peat Marwick LLP addressed to the Underwriters, dated the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, confirming, in each case, that they are independent certified public accountants with respect to Zycon and the Company within the meaning of the Act and the applicable published Rules and Regulations and based upon the procedures described in each such letter delivered to you concurrently with the execution of this Agreement (each such letter being herein called the "Original Letter"), but carried out to a date not more than five (5) business days prior to the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, (i) confirming, to the extent true, that the statements and conclusions set forth in the Original Letter are accurate as of the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, and (ii) setting forth any revisions and additions to the statements and conclusions set forth in the Original Letter which are necessary to reflect any changes in the facts described in the Original Letter since the date of such letter, or to reflect the availability of more recent financial statements, data or information. The letter shall not disclose any change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise from that set forth in the Registration Statement or Prospectus, which, in your sole judgment, is material and adverse and that makes it, in your sole judgment, impracticable or inadvisable to proceed with the public offering of the Shares as contemplated by the Prospectus. The Original Letter from Arthur Andersen LLP shall be addressed to or for the use of the Underwriters in form and substance -28- 29 satisfactory to the Underwriters and shall (i) represent, to the extent true, that they are independent certified public accountants with respect to Zycon and the Company within the meaning of the Act and the applicable published Rules and Regulations, (ii) set forth their opinion with respect to their examination of the consolidated balance sheet of the Company as of October 26, 1996 and related consolidated statements of operations, shareholders' equity, and cash flows for the twelve (12) months ended October 26, 1996, (iii) set forth in their opinion with respect to their examination of the consolidated balance sheet of Zycon as of December 31, 1996 and related consolidated statement of operations of shareholders's equity and cash flow for the twelve (12) months ended December 31, 1996, (iv) state that Arthur Andersen LLP has performed the procedures set out in Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim financial information and providing the report of Arthur Andersen LLP as described in SAS 71 on the financial statements for the quarter ended January 25, 1997 (the "Quarterly Financial Statements"), (v) state that in the course of such review, nothing came to their attention that leads them to believe that any material modifications need to be made to any of the Quarterly Financial Statements in order for them to be in compliance with generally accepted accounting principles consistently applied across the periods presented, and (vi) address other matters agreed upon by Arthur Andersen LLP and you. The Original Letter from KPMG Peat Marwick LLP shall be addressed to or for the use of the underwriters in for and substance satisfactory to the underwriters and shall (i) represent to the extent true, that they are independent certified public accounts with respect to Zycon and the Company within the meaning of the Act and applicable published Rules and Regulations and (ii) set forth in their opinion with respect to their examination of the consolidated balance sheet of Zycon at December 31, 1995 and related consolidated statements of operations of shareholders' equity and cash flow for the twelve (12) months ended December 31, 1995. In addition, you shall have received from Arthur Andersen LLP a letter addressed to the Company and made available to you for the use of the Underwriters stating that their review of the Company's system of internal accounting controls, to the extent they deemed necessary in establishing the scope of their examination of the Company's consolidated financial statements as of October 26, 1996, did not disclose any weaknesses in internal controls that they considered to be material weaknesses. (g) You shall have received on the Closing Date and on any later date on which Option Shares are to be purchased, as the case may be, a certificate of the Company, dated the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, signed by the Chief Executive Officer and Chief Financial Officer of the Company, to the effect that, and you shall be satisfied that: (i) The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Date or any later date on which Option Shares are to be purchased, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its -29- 30 part to be performed or satisfied at or prior to the Closing Date or any later date on which Option Shares are to be purchased, as the case may be; (ii) No stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Act; (iii) When the Registration Statement became effective and at all times subsequent thereto up to the delivery of such certificate, the Registration Statement and the Prospectus, and any amendments or supplements thereto and the Incorporated Documents, when such Incorporated Documents became effective or were filed with the Commission, contained all material information required to be included therein by the Act and the Rules and Regulations or the Exchange Act and the applicable rules and regulations of the Commission thereunder, as the case may be, and in all material respects conformed to the requirements of the Act and the Rules and Regulations or the Exchange Act and the applicable rules and regulations of the Commission thereunder, as the case may be, the Registration Statement, and any amendment or supplement thereto, did not and does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, the Prospectus, and any amendment or supplement thereto, did not and does not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and, since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been so set forth; and (iv) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been (a) any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise, (b) any transaction that is material to the Company and its subsidiaries considered as one enterprise, except transactions entered into in the ordinary course of business, (c) any obligation, direct or contingent, that is material to the Company and its subsidiaries considered as one enterprise, incurred by the Company or its subsidiaries, except obligations incurred in the ordinary course of business, (d) any change in the capital stock or outstanding indebtedness of the Company or any of its subsidiaries that is material to the Company and its subsidiaries considered as one enterprise, (e) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its subsidiaries, or (f) any loss or damage (whether or not insured) to the property of the Company or any of its subsidiaries which has been sustained or will have been sustained which has a material adverse effect on the condition (financial or otherwise), earnings, -30- 31 operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. (h) You shall be satisfied that, and you shall have received a certificate, dated the Closing Date, or any later date on which Option Shares are to be purchased, as the case may be, from the Attorneys for each Selling Shareholder to the effect that, as of the Closing Date, or any later date on which Option Shares are to be purchased, as the case may be, they have not been informed that: (i) The representations and warranties made by such Selling Shareholder herein are not true or correct in any material respect on the Closing Date or on any later date on which Option Shares are to be purchased, as the case may be; or (ii) Such Selling Shareholder has not complied with any obligation or satisfied any condition which is required to be performed or satisfied on the part of such Selling Shareholder at or prior to the Closing Date or any later date on which Option Shares are to be purchased, as the case may be. (i) The Company shall have obtained and delivered to you an agreement from each officer and director of the Company and each Selling Shareholder in writing prior to the date hereof that such person will not, during the Lock-up Period, effect the Disposition of any Securities now owned or hereafter acquired directly by such person or with respect to which such person has or hereafter acquires the power of disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee or donees thereof agree in writing to be bound by this restriction, (ii) as a distribution to partners or shareholders of such person, provided that the distributees thereof agree in writing to be bound by the terms of this restriction, or (iii) with the prior written consent of Robertson, Stephens & Company LLC. The foregoing restriction shall have been expressly agreed to preclude the holder of the Securities from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Securities during the Lock-up Period, even if such Securities would be disposed of by someone other than the such holder. Such prohibited hedging or other transactions would including, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Securities or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from Securities. Furthermore, such person will have also agreed and consented to the entry of stop transfer instructions with the Company's transfer agent against the transfer of the Securities held by such person except in compliance with this restriction. -31- 32 (j) The Company and the Selling Shareholders shall have furnished to you such further certificates and documents as you shall reasonably request (including certificates of officers of the Company, the Selling Shareholders or officers of the Selling Shareholders (when the Selling Shareholder is not a natural person) as to the accuracy of the representations and warranties of the Company and the Selling Shareholders herein, as to the performance by the Company and the Selling Shareholders of its their respective obligations hereunder and as to the other conditions concurrent and precedent to the obligations of the Underwriters hereunder. (k) You shall have received on the Closing Date and on any later date on which Option Shares are to be purchased, as the case may be, the following opinion of Testa, Hurwitz & Thibeault, LLP, special securities counsel to the Company, dated the Closing Date or such later date on which Option Shares are to be purchased addressed to the Underwriters and with reproduced copies or signed counterparts thereof for each of the Underwriters, to the effect that: (i) The Registration Statement has become effective under the Act and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Act; (ii) The Registration Statement and the Prospectus, and each amendment or supplement thereto (other than the financial statements (including supporting schedules) and financial data derived therefrom as to which such counsel need express no opinion), as of the effective date of the Registration Statement, complied as to form in all material respects with the requirements of the Act and the applicable Rules and Regulations; and each of the Incorporated Documents (other than the financial statements (including supporting schedules) and the financial data derived therefrom as to which such counsel need express no opinion) complied when filed pursuant to the Exchange Act as to form in all material respects with the requirements of the Act and the Rules and Regulations and the Exchange Act and the applicable rules and regulations of the Commission thereunder; (iii) To such counsel's knowledge, there are no agreements, contracts, leases or documents to which the Company is a party of a character required to be described or referred to in the Registration Statement or Prospectus or any Incorporated Document or to be filed as an exhibit to the Registration Statement or any Incorporated Document which are not described or referred to therein or filed as required; (iv) To such counsel's knowledge, there are no legal or governmental proceedings pending or threatened against the Company or any of its -32- 33 subsidiaries of a character required to be disclosed in the Registration Statement or the Prospectus or any Incorporated Document by the Act or the Rules and Regulations or by the Exchange Act or the applicable rules and regulations of the Commission thereunder, other than those described therein; (v) The Firm Shares or the Option Shares, as the case may be, to be issued by the Company pursuant to the terms of this Agreement have been duly authorized and, upon issuance and delivery against payment therefor in accordance with the terms hereof, will be duly and validly issued and fully paid and nonassessable, and will not have been issued in violation of or subject to any preemptive right, co-sale right, registration right, right of first refusal or other similar right. (vi) The information in the Prospectus under the caption "Certain Federal Income Tax Considerations", to the extent that it constitutes matters or law or legal conclusions, has been reviewed by such counsel and is a fair summary of such matters and conclusions. In addition, such counsel shall state that such counsel has participated in conferences with officials and other representatives of the Company, the Representatives, Underwriters' Counsel and the independent certified public accountants of the Company, at which such conferences the contents of the Registration Statement and Prospectus and related matters were discussed, and although they have not verified the accuracy or completeness of the statements contained in the Registration Statement or the Prospectus, nothing has come to the attention of such counsel which leads them to believe that, at the time the Registration Statement became effective and at all times subsequent thereto up to and on the Closing Date and on any later date on which Option Shares are to be purchased, the Registration Statement and any amendment or supplement thereto and any Incorporated Document, when such documents became effective or were filed with the Commission (other than the financial statements including supporting schedules and other financial and statistical information derived therefrom, as to which such counsel need express no comment) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or at the Closing Date or any later date on which the Option Shares are to be purchased, as the case may be, the Registration Statement, the Prospectus and any amendment or supplement thereto and any Incorporated Document (except as aforesaid) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel shall also state that the conditions for the use of Form S-3 set forth in the General Instructions thereto have been satisfied. -33- 34 Counsel rendering the foregoing opinion may rely as to questions of law not involving the laws of the United States or the Commonwealth of Massachusetts upon opinions of local counsel, and as to questions of fact upon representations or certificates of officers of the Company, the Selling Shareholders or officers of the Selling Shareholders (when the Selling Shareholder is not a natural person), and of government officials, in which case their opinion is to state that they are so relying and that they have no knowledge of any material misstatement or inaccuracy in any such opinion, representation or certificate. Copies of any opinion, representation or certificate so relied upon shall be delivered to you, as Representatives of the Underwriters, and to Underwriters' Counsel. All such opinions, certificates, letters and documents will be in compliance with the provisions hereof only if they are reasonably satisfactory to Underwriters' Counsel. The Company and the Selling Shareholders will furnish you with such number of conformed copies of such opinions, certificates, letters and documents as you shall reasonably request. 7. Option Shares. ------------- (a) On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company and the Selling Shareholders hereby grant to the several Underwriters, for the purpose of covering over-allotments in connection with the distribution and sale of the Firm Shares only, a nontransferable option to purchase, the respective number of Company Option Shares and Selling Shareholder Shares set forth opposite the names of the Company and the Selling Shareholders in Schedule B hereto, at the purchase price per share for the Firm Shares set forth in Section 3 hereof. Such option may be exercised by the Representatives on behalf of the several Underwriters on one (1) or more occasions in whole or in part during the period of thirty (30) days after the date on which the Firm Shares are initially offered to the public, by giving written notice to the Company. The number of Option Shares to be purchased by each Underwriter upon the exercise of such option shall be the same proportion of the total number of Option Shares to be purchased by the several Underwriters pursuant to the exercise of such option as the number of Firm Shares purchased by such Underwriter (set forth in Schedule A hereto) bears to the total number of Firm Shares purchased by the several Underwriters (set forth in Schedule A hereto), adjusted by the Representatives in such manner as to avoid fractional shares. The Underwriters shall purchase all Selling Shareholder Shares before purchasing any Company Option Shares. The certificates in negotiable form for the Selling Shareholder Shares have been placed in custody (for delivery under this Agreement) under the Custody Agreement. Each Selling Shareholder agrees that the certificates for the Selling Shareholder Shares of such Selling Shareholder so held in custody are subject -34- 35 to the interests of the Underwriters hereunder, that the arrangements made by such Selling Shareholder for such custody, including the Power of Attorney is to that extent irrevocable and that the obligations of such Selling Shareholder hereunder shall not be terminated by the act of such Selling Shareholder or by operation of law, whether by the death or incapacity of such Selling Shareholder or the occurrence of any other event, except as specifically provided herein or in the Custody Agreement. If any Selling Shareholder should die or be incapacitated, or if any other such event should occur, before the delivery of the certificates for the Selling Shareholder Shares hereunder, the Selling Shareholder Shares to be sold by such Selling Shareholder shall, except as specifically provided herein or in the Custody Agreement, be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such death, incapacity or other event had not occurred, regardless of whether the Custodian shall have received notice of such death or other event. Delivery of definitive certificates for the Option Shares to be purchased by the several Underwriters pursuant to the exercise of the option granted by this Section 7 shall be made against payment of the purchase price therefor by the several Underwriters by certified or official bank check or checks drawn in next-day funds, payable to the order of the Company with regard to the Company Option Shares being purchased, and to the order of either Attorney for the respective accounts of the Selling Shareholders with regard to the Selling Shareholder Shares (and the Company and the Selling Shareholders agree not to deposit any such check in the bank on which it is drawn, and not to take any other action with the purpose or effect of receiving immediately available funds, until the business day following the date of its delivery to the Company and the Selling Shareholders). In the event of any breach of the foregoing, the Company and the Selling Shareholders shall reimburse the Underwriters for the interest lost and any other expenses borne by them by reason of such breach. Such delivery and payment shall take place at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts 02110 or at such other place as may be agreed upon among the Representatives and the Company (i) on the Closing Date, if written notice of the exercise of such option is received by the Company at least two (2) full business days prior to the Closing Date, or (ii) on a date which shall not be later than the third (3rd) full business day following the date the Company receives written notice of the exercise of such option, if such notice is received by the Company less than two (2) full business days prior to the Closing Date. The certificates for the Option Shares to be so delivered will be made available to you at such office or such other location including, without limitation, in New York City, as you may reasonably request for checking at least one (1) full business day prior to the date of payment and delivery and will be in such names and denominations as you may request, such request to be made at least two (2) full business days prior to such date of payment and delivery. If the Representatives so elect, delivery of the Option Shares may be made by credit -35- 36 through full fast transfer to the accounts at The Depository Trust Company designated by the Representatives. It is understood that you, individually, and not as the Representatives of the several Underwriters, may (but shall not be obligated to) make payment of the purchase price on behalf of any Underwriter or Underwriters whose check or checks shall not have been received by you prior to the date of payment and delivery for the Option Shares to be purchased by such Underwriter or Underwriters. Any such payment by you shall not relieve any such Underwriter or Underwriters of any of its or their obligations hereunder. (b) Upon exercise of any option provided for in Section 7(a) hereof, the obligations of the several Underwriters to purchase such Option Shares will be subject (as of the date hereof and as of the date of payment and delivery for such Option Shares) to the accuracy of and compliance with the representations, warranties and agreements of the Company and the Selling Shareholders herein, to the accuracy of the statements of the Company, the Selling Shareholders and officers of the Company made pursuant to the provisions hereof, to the performance by the Company and the Selling Shareholders of their respective obligations hereunder, to the conditions set forth in Section 6 hereof, and to the condition that all proceedings taken at or prior to the payment date in connection with the sale and transfer of such Option Shares shall be satisfactory in form and substance to you and to Underwriters' Counsel, and you shall have been furnished with all such documents, certificates and opinions as you may request in order to evidence the accuracy and completeness of any of the representations, warranties or statements, the performance of any of the covenants or agreements of the Company and the Selling Shareholders or the satisfaction of any of the conditions herein contained. 8. Indemnification and Contribution. -------------------------------- (a) The Company agrees to indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject (including, without limitation, in its capacity as an Underwriter or as a "qualified independent underwriter" within the meaning of Section 2720 of the Conduct Rules of the NASD), under the Act, the Exchange Act or otherwise, specifically including, but not limited to, losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon (i) any breach of any representation, warranty, agreement or covenant of the Company herein contained, (ii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendment or supplement thereto, including any Incorporated Document, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any untrue statement or alleged untrue statement of any material fact contained in any Preliminary Prospectus or the -36- 37 Prospectus or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each Underwriter for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, such Preliminary Prospectus or the Prospectus, or any such amendment or supplement thereto, in reliance upon, and in conformity with, written information relating to any Underwriter furnished to the Company by such Underwriter, directly or through you, specifically for use in the preparation thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this Section 8(a) with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any losses, claims, damages, liabilities or actions based upon any untrue statement or alleged untrue statement of material fact or omission or alleged omission to state therein a material fact purchased Shares, if a copy of the Prospectus in which such untrue statement or alleged untrue statement or omission or alleged omission was corrected had not been sent or given to such person within the time required by the Act and the Rules and Regulations, unless such failure is the result of noncompliance by the Company with Section 4(d) hereof. The indemnity agreement in this Section 8(a) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act. This indemnity agreement shall be in addition to any liabilities which the Company may otherwise have. (b) Each Selling Shareholder, severally and not jointly, agrees to indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject (including, without limitation, in its capacity as an Underwriter or as a "qualified independent underwriter" within the meaning of Section 2720 of the Conduct Rules of the NASD) under the Act, the Exchange Act or otherwise, specifically including, but not limited to, losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon (i) any breach of any representation, warranty, agreement or covenant of such Selling Shareholder herein contained, (ii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendment or supplement thereto, including any Incorporated Document, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any untrue statement or alleged untrue statement of any material fact contained in any Preliminary Prospectus or the Prospectus or any -37- 38 amendment or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in the case of subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or such Underwriter by such Selling Shareholder, directly or through such Selling Shareholder's representatives, specifically for use in the preparation thereof, and agrees to reimburse each Underwriter for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the indemnity agreement provided in this Section 8(b) with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any losses, claims, damages, liabilities or actions based upon any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state therein a material fact purchased Shares, if a copy of the Prospectus in which such untrue statement or alleged untrue statement or omission or alleged omission was corrected had not been sent or given to such person within the time required by the Act and the Rules and Regulations, unless such failure is the result of noncompliance by the Company with Section 4(d) hereof. The indemnity agreement in this Section 8(b) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act. This indemnity agreement shall be in addition to any liabilities which such Selling Shareholder may otherwise have. (c) Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company and each Selling Shareholder against any losses, claims, damages or liabilities, joint or several, to which the Company or such Selling Shareholder may become subject under the Act, the Exchange Act or otherwise, specifically including, but not limited to, losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon (i) any breach of any representation, warranty, agreement or covenant of such Underwriter herein contained, (ii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendment or supplement thereto, including any Incorporated Document, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any untrue statement or alleged untrue statement of any material fact contained in any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in the case of subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the -38- 39 extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter, directly or through you, specifically for use in the preparation thereof, and agrees to reimburse the Company and each such Selling Shareholder for any legal or other expenses reasonably incurred by the Company and each such Selling Shareholder in connection with investigating or defending any such loss, claim, damage, liability or action. The indemnity agreement in this Section 8(c) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each officer of the Company who signed the Registration Statement and each director of the Company, each Selling Shareholder and each person, if any, who controls the Company or any Selling Shareholder within the meaning of the Act or the Exchange Act. This indemnity agreement shall be in addition to any liabilities which each Underwriter may otherwise have. (d) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notified the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of the indemnifying party's election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with appropriate local counsel) approved by the indemnifying party representing all the indemnified parties under -39- 40 Section 8(a), 8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. In no event shall any indemnifying party be liable in respect of any amounts paid in settlement of any action unless the indemnifying party shall have approved the terms of such settlement; PROVIDED that such consent shall not be unreasonably withheld. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnification could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on all claims that are the subject matter of such proceeding. (e) In order to provide for just and equitable contribution in any action in which a claim for indemnification is made pursuant to this Section 8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 8 provides for indemnification in such case, all the parties hereto shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that, except as set forth in Section 8(f) hereof, the Underwriters severally and not jointly are responsible pro rata for the portion represented by the percentage that the underwriting discount bears to the initial public offering price, and the Company and the Selling Shareholders are responsible for the remaining portion, PROVIDED, HOWEVER, that (i) no Underwriter shall be required to contribute any amount in excess of the amount by which the underwriting discount applicable to the Shares purchased by such Underwriter exceeds the amount of damages which such Underwriter has otherwise required to pay and (ii) no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The contribution agreement in this Section 8(e) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls any Underwriter, the Company or any Selling Shareholder within the meaning of the Act or the Exchange Act and each officer of the Company who signed the Registration Statement and each director of the Company. (f) The liability of each Selling Shareholder under the representations, warranties and agreements contained herein and under the indemnity agreements contained in the provisions of this Section 8 shall be limited to an amount equal to the initial public offering price of the Selling Shareholder Shares sold by such Selling Shareholder to the Underwriters minus the amount of the -40- 41 underwriting discount paid thereon to the Underwriters by such Selling Shareholder. The Company and such Selling Shareholders may agree, as among themselves and without limiting the rights of the Underwriters under this Agreement, as to the respective amounts of such liability for which they each shall be responsible. (g) The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 8, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 8 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement and Prospectus as required by the Act and the Exchange Act. 9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties, covenants and agreements of the Company, the Selling Shareholders and the Underwriters herein or in certificates delivered pursuant hereto, and the indemnity and contribution agreements contained in Section 8 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter within the meaning of the Act or the Exchange Act, or by or on behalf of the Company or any Selling Shareholder, or any of their officers, directors or controlling persons within the meaning of the Act or the Exchange Act, and shall survive the delivery of the Shares to the several Underwriters hereunder or termination of this Agreement. 10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall fail to take up and pay for the number of Firm Shares agreed by such Underwriter or Underwriters to be purchased hereunder upon tender of such Firm Shares in accordance with the terms hereof, and if the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters so agreed but failed to purchase does not exceed 10% of the Firm Shares, the remaining Underwriters shall be obligated, severally in proportion to their respective commitments hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter or Underwriters. If any Underwriter or Underwriters so defaults and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining Underwriters shall have the right, but shall not be obligated, to take up and pay for (in such proportions as may be agreed upon among them) the Firm Shares which the defaulting Underwriter or Underwriters so agreed but failed to purchase. If such remaining Underwriters do not, at the Closing Date, take up and pay for the Firm Shares which the defaulting Underwriter or Underwriters so agreed but failed to purchase, the Closing Date shall be postponed for twenty-four (24) hours to allow the -41- 42 several Underwriters the privilege of substituting within twenty-four (24) hours (including non-business hours) another underwriter or underwriters (which may include any nondefaulting Underwriter) satisfactory to the Company. If no such underwriter or underwriters shall have been substituted as aforesaid by such postponed Closing Date, the Closing Date may, at the option of the Company, be postponed for a further twenty-four (24) hours, if necessary, to allow the Company the privilege of finding another underwriter or underwriters, satisfactory to you, to purchase the Firm Shares which the defaulting Underwriter or Underwriters so agreed but failed to purchase. If it shall be arranged for the remaining Underwriters or substituted underwriter or underwriters to take up the Firm Shares of the defaulting Underwriter or Underwriters as provided in this Section 10, (i) the Company shall have the right to postpone the time of delivery for a period of not more than seven (7) full business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees promptly to file any amendments to the Registration Statement, supplements to the Prospectus or other such documents which may thereby be made necessary, and (ii) the respective number of Firm Shares to be purchased by the remaining Underwriters and substituted underwriter or underwriters shall be taken as the basis of their underwriting obligation. If the remaining Underwriters shall not take up and pay for all such Firm Shares so agreed to be purchased by the defaulting Underwriter or Underwriters or substitute another underwriter or underwriters as aforesaid and the Company shall not find or shall not elect to seek another underwriter or underwriters for such Firm Shares as aforesaid, then this Agreement shall terminate. In the event of any termination of this Agreement pursuant to the preceding paragraph of this Section 10, neither the Company nor any Selling Shareholder shall be liable to any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall have failed, otherwise than for some reason permitted under this Agreement, to purchase the number of Firm Shares agreed by such Underwriter to be purchased hereunder, which Underwriter shall remain liable to the Company, the Selling Shareholders and the other Underwriters for damages, if any, resulting from such default) be liable to the Company or any Selling Shareholder (except to the extent provided in Sections 5 and 8 hereof). The term "Underwriter" in this Agreement shall include any person substituted for an Underwriter under this Section 10. 11. Effective Date of this Agreement and Termination. ------------------------------------------------ (a) This Agreement shall become effective at the earlier of (i) 6:30 A.M., San Francisco time, on the first full business day following the effective date of the Registration Statement, or (ii) the time of the initial public offering of any of the -42- 43 Shares by the Underwriters after the Registration Statement becomes effective. The time of the initial public offering shall mean the time of the release by you, for publication, of the first newspaper advertisement relating to the Shares, or the time at which the Shares are first generally offered by the Underwriters to the public by letter, telephone, telegram or telecopy, whichever shall first occur. By giving notice as set forth in Section 12 before the time this Agreement becomes effective, you, as Representatives of the several Underwriters, or the Company, may prevent this Agreement from becoming effective without liability of any party to any other party, except as provided in Sections 4(i), 5 and 8 hereof. (b) You, as Representatives of the several Underwriters, shall have the right to terminate this Agreement by giving notice as hereinafter specified at any time on or prior to the Closing Date or on or prior to any later date on which Option Shares are to be purchased, as the case may be, (i) if the Company or any Selling Shareholder shall have failed, refused or been unable to perform any agreement on its part to be performed, or because any other condition of the Underwriters' obligations hereunder required to be fulfilled is not fulfilled, including, without limitation, any change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise from that set forth in the Registration Statement or Prospectus, which, in your sole judgment, is material and adverse, or (ii) if additional material governmental restrictions, not in force and effect on the date hereof, shall have been imposed upon trading in securities generally or minimum or maximum prices shall have been generally established on the New York Stock Exchange or on the American Stock Exchange or in the over the counter market by the NASD, or trading in securities generally shall have been suspended on either such exchange or in the over the counter market by the NASD, or if a banking moratorium shall have been declared by federal, New York or California authorities, or (iii) if the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as to interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured, or (iv) if there shall have been a material adverse change in the general political or economic conditions or financial markets as in your reasonable judgment makes it inadvisable or impracticable to proceed with the offering, sale and delivery of the Shares, or (v) if there shall have been an outbreak or escalation of hostilities or of any other insurrection or armed conflict or the declaration by the United States of a national emergency which, in the reasonable opinion of the Representatives, makes it impracticable or inadvisable to proceed with the public offering of the Shares as contemplated by the Prospectus. In the event of termination pursuant to subparagraph (i) above, the Company shall remain obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 8 hereof. Any termination pursuant to any of subparagraphs (ii) through (v) above shall be without liability of any party to any other party except as provided in Sections 5 and 8 hereof. -43- 44 If you elect to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Section 11, you shall promptly notify the Company by telephone, telecopy or telegram, in each case confirmed by letter. If the Company shall elect to prevent this Agreement from becoming effective, the Company shall promptly notify you by telephone, telecopy or telegram, in each case, confirmed by letter. 12. NOTICES. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to you shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555 California Street, Suite 2600, San Francisco, California 94104, telecopier number (415) 781-0278, Attention: General Counsel; if sent to the Company, such notice shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to Hadco Corporation, 12A Manor Parkway, Salem, New Hampshire 03079, telecopier number (603) 893-0025, Attention: Andrew E. Lietz, Chief Executive Officer; if sent to one or more of the Selling Shareholders, such notice shall be sent mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to Andrew E. Lietz and Timothy Losik, as Attorneys-in-Fact for the Selling Shareholders, at Hadco Corporation, 12A Manor Parkway, Salem, New Hampshire 03079, telecopier number (603) 893-0025. 13. PARTIES. This Agreement shall inure to the benefit of and be binding upon the several Underwriters and the Company and the Selling Shareholders and their respective executors, administrators, successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person or entity, other than the parties hereto and their respective executors, administrators, successors and assigns, and the controlling persons within the meaning of the Act or the Exchange Act, officers and directors referred to in Section 8 hereof, any legal or equitable right, remedy or claim in respect of this Agreement or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and their respective executors, administrators, successors and assigns and said controlling persons and said officers and directors, and for the benefit of no other person or entity. No purchaser of any of the Shares from any Underwriter shall be construed a successor or assign by reason merely of such purchase. In all dealings with the Company and the Selling Shareholders under this Agreement, you shall act on behalf of each of the several Underwriters, and the Company and the Selling Shareholders shall be entitled to act and rely upon any statement, request, notice or agreement made or given by you jointly or by Robertson, Stephens & Company LLC on behalf of you. -44- 45 14. APPLICABLE LAW. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. 15. COUNTERPARTS. This Agreement may be signed in several counterparts, each of which will constitute an original. If the foregoing correctly sets forth the understanding among the Company, the Selling Shareholders and the several Underwriters, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among the Company, the Selling Shareholders and the several Underwriters. Very truly yours, HADCO CORPORATION By: ---------------------------------- SELLING SHAREHOLDERS By: ---------------------------------- Attorney-in-Fact for the Selling Shareholders named in Schedule B hereto -45- 46 Accepted as of the date first above written: ROBERTSON, STEPHENS & COMPANY LLC MERRILL LYNCH & CO. ADAMS, HARKNESS & HILL, INC. On their behalf and on behalf of each of the several Underwriters named in Schedule A hereto. By ROBERTSON, STEPHENS & COMPANY LLC By ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C. By -------------------------------------- Authorized Signatory -46- 47 SCHEDULE A
Number of Firm Underwriters Shares To Be ------------ Purchased -------------- Robertson, Stephens & Company LLC....................... Merrill Lynch, Pierce, Fenner & Smith Incorporated...................................... Adams, Harkness & Hill, Inc............................. ---------- TOTAL............................................... $2,000,000
-47- 48 SCHEDULE B
Number of Selling Name of Selling Shareholder Shareholder Shares To --------------------------- Be Sold --------------------- -------- Total.................................. 202,600 Company Option Shares...................... 97,400 Total Option Shares ....................... 300,000
-48- EX-1.2 3 FORM OF NOTE UNDERWRITERS AGREEMENT 1 Exhibit 1.2 $100,000,000(1) HADCO CORPORATION __% CONVERTIBLE SUBORDINATED NOTES DUE 2004 UNDERWRITING AGREEMENT _____________, 1997 ROBERTSON, STEPHENS & COMPANY LLC MERRILL LYNCH & CO. As Representatives of the several Underwriters c/o Robertson, Stephens & Company LLC 555 California Street, Suite 2600 San Francisco, California 94104 Ladies/Gentlemen: Hadco Corporation, a Massachusetts corporation (the "Company"), addresses you as the Representatives of each of the persons, firms and corporations listed in Schedule A hereto (herein collectively called the "Underwriters") and hereby confirms its agreement with the several Underwriters as follows: 1. Description of Notes. The Company proposes to issue and sell to the several Underwriters an aggregate of 100,000,000 principal amount of __% Convertible Subordinated Notes due 2004 (the "Firm Notes"). The Company also proposes to grant to the Underwriters an option to purchase up to an aggregate of an additional $15,000,000 principal amount of __% Convertible Subordinated Notes due 2004 (the "Option Notes"), as provided in Section 7 hereof. As used in this Agreement, the term "Notes" shall include the Firm Notes and the Option Notes. The Notes are to be issued under an Indenture to be dated as of ________, 1997 (the "Indenture"), by and between the Company and State Street Bank and Trust Company, as trustee (the "Trustee"), pursuant to which the Notes will be convertible at the option of the holders into the Company's Common Stock, par value $0.05 per share (the "Common Stock"). The Notes and the shares of Common Stock into which the Notes are convertible are herein collectively called the "Securities." - -------- (1) Plus an option to purchase up to an aggregate of an additional $15,000,000 principal amount of ___% Convertible Subordinated Notes due 2004 from the Company to cover over-allotments, if any. 1 2 2. Representations, Warranties and Agreements of the Company. The Company represents and warrants to and agrees with each Underwriter that: (a) A registration statement on Form S-3 (File No. 333-21977) with respect to the Securities, including a prospectus subject to completion, has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the applicable rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") under the Act and has been filed with the Commission; such amendments to such registration statement, such amended prospectuses subject to completion and such abbreviated registration statements pursuant to Rule 462(b) of the Rules and Regulations as may have been required prior to the date hereof have been similarly prepared and filed with the Commission; and the Company will file such additional amendments to such registration statement, such amended prospectuses subject to completion and such abbreviated registration statements as may hereafter be required. Copies of such registration statement and amendments, of each related prospectus subject to completion (the "Preliminary Prospectuses"), including all documents incorporated by reference therein, and of any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you. The Company and the transactions contemplated by this Agreement meet the requirements for using Form S-3 under the Act. If the registration statement relating to the Securities has been declared effective under the Act by the Commission, the Company will prepare and promptly file with the Commission the information omitted from the registration statement pursuant to Rule 430A(a) pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or, if Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall agree to the utilization of Rule 434 of the Rules and Regulations, the information required to be included in any term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations pursuant to subparagraph (7) of Rule 424(b) of the Rules and Regulations or as part of a post-effective amendment to the registration statement (including a final form of prospectus). If the registration statement relating to the Securities has not been declared effective under the Act by the Commission, the Company will prepare and promptly file an amendment to the registration statement, including a final form of prospectus, or, if Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall agree to the utilization of Rule 434 of the Rules and Regulations, the information required to be included in any term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations. The term "Registration Statement" as used in this Agreement shall mean such registration statement, including financial statements, schedules and exhibits (other than in the Statement of Eligibility and Qualification of the Trustee on Form T-1), in the form in which it became or becomes, as the case may be, effective (including, if the Company omitted information from the registration statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of the Rules and Regulations, the information deemed to be a part of the registration statement at the time it became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment thereto or the filing of any abbreviated registration statement pursuant to Rule 2 3 462(b) of the Rules and Regulations relating thereto after the effective date of such registration statement, shall also mean (from and after the effectiveness of such amendment or the filing of such abbreviated registration statement) such registration statement as so amended, together with any such abbreviated registration statement. The term "Prospectus" as used in this Agreement shall mean the prospectus relating to the Securities as included in such Registration Statement at the time it becomes effective (including, if the Company omitted information from the Registration Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information deemed to be a part of the Registration Statement at the time it became effective pursuant to Rule 430A(b) of the Rules and Regulations or, if an abbreviated registration statement is filed pursuant to Rule 462(b) of the Rules and Regulations, at the time such abbreviated registration statement becomes effective); provided, however, that if in reliance on Rule 434 of the Rules and Regulations and with the consent of Robertson, Stephens & Company LLC, on behalf of the several Underwriters, the Company shall have provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that a confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to completion" (as defined in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters by the Company and circulated by the Underwriters to all prospective purchasers of the Securities (including the information deemed to be a part of the Registration Statement at the time it became effective pursuant to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Securities that differs from the prospectus referred to in the immediately preceding sentence (whether or not such revised prospectus is required to be filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use. If in reliance on Rule 434 of the Rules and Regulations and with the consent of Robertson, Stephens & Company LLC, on behalf of the several Underwriters, the Company shall have provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that a confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the Prospectus and the term sheet, together, will not be materially different from the prospectus in the Registration Statement. Any reference to the Registration Statement or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of the Registration Statement or the Prospectus, as the case may be, and any reference to any amendment or supplement to the Registration Statement or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which, upon filing, are incorporated by reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used in this Agreement, the term "Incorporated Documents" means the documents which at the time are incorporated by reference in the Registration Statement, the Prospectus or any amendment or supplement thereto. (b) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus or instituted proceedings for that purpose, and each such 3 4 Preliminary Prospectus has conformed in all material respects to the requirements of the Act and the Rules and Regulations and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and at the time the Registration Statement became or becomes, as the case may be, effective and at all times subsequent thereto up to and on the Closing Date (hereinafter defined) and on any later date on which Option Notes are to be purchased, (i) the Registration Statement and the Prospectus, and any amendments or supplements thereto, contained and will contain all material information required to be included therein by the Act and the Rules and Regulations and will in all material respects conform to the requirements of the Act and the Rules and Regulations, (ii) the Registration Statement, and any amendments or supplements thereto, did not and will not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (iii) the Prospectus, and any amendments or supplements thereto, did not and will not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that none of the representations and warranties contained in this subparagraph (b) shall apply to information contained in or omitted from the Registration Statement or Prospectus, or any amendment or supplement thereto, in reliance upon, and in conformity with, written information relating to any Underwriter furnished to the Company by such Underwriter specifically for use in the preparation thereof. The Incorporated Documents heretofore filed, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder; any further Incorporated Documents so filed will, when they are filed, conform in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder; no such document when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and no such further amendment will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Indenture complies as to form in all material respects with the requirements of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the rules and regulations thereunder, and, on the effective date of the Registration Statement, will be duly qualified under the Trust Indenture Act. (c) Each of the Company and its subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation with full power and authority (corporate and other) to own, lease and operate its properties and conduct its business as described in the Prospectus; the Company owns all of the outstanding capital stock of its subsidiaries free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest (other than any appraisal rights resulting 4 5 from the Company's recent acquisition of Zycon Corporation); each of the Company and its subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing would not have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise; no proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification; each of the Company and its subsidiaries is in possession of and operating in compliance with all authorizations, licenses, certificates, consents, orders and permits from state, federal and other regulatory authorities which are material to the conduct of its business, all of which are valid and in full force and effect; neither the Company nor any of its subsidiaries is in violation of its respective charter or bylaws or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material bond, debenture, note or other evidence of indebtedness, or in any material lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of its subsidiaries or their respective properties may be bound; and neither the Company nor any of its subsidiaries is in material violation of any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or over their respective properties of which it has knowledge. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than Hadco Foreign Sales Corporation, Zycon Corporation, Zycon Acquisition Corporation and Zycon Corporation SDN.BHV. (d) The Company has full legal right, power and authority to enter into this Agreement and perform the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding agreement on the part of the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; the performance of this Agreement, the Indenture and the Notes and the consummation of the transactions herein or therein contemplated will not result in a material breach or violation of any of the terms and provisions of, or constitute a default under, (i) any bond, debenture, note or other evidence of indebtedness, or under any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of its subsidiaries or their respective properties may be bound (except for such agreement or instrument for which a waiver or consent has been obtained), (ii) the charter or bylaws of the Company or any of its subsidiaries, or (iii) any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or over their 5 6 respective properties. No consent, approval, authorization or order of or qualification with any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or over their respective properties is required for the execution and delivery of this Agreement, the Indenture or the Notes, and the consummation by the Company or any of its subsidiaries of the transactions herein or therein contemplated, except such as may be required under the Act, the Exchange Act (if applicable), or under state or other securities or Blue Sky laws, or under the rules and regulations of the National Association of Securities Dealers, Inc. ("NASD") with respect to the clearance of the underwriting arrangements, or under the Trust Indenture Act, all of which requirements have been satisfied in all material respects. (e) Except as set forth in the Registration Statement and Prospectus and any Incorporated Document, there is not any pending or, to the best of the Company's knowledge, threatened action, suit, claim or proceeding against the Company, any of its subsidiaries or any of their respective officers or any of their respective properties, assets or rights before any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or over their respective officers or properties or otherwise which (i) might result in any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise or might materially and adversely affect their properties, assets or rights, (ii) might prevent consummation of the transactions contemplated hereby or (iii) is required to be disclosed in the Registration Statement or Prospectus and is not so disclosed. There are no agreements, contracts, leases or documents of the Company or any of its subsidiaries of a character required to be described or referred to in the Registration Statement or Prospectus or any Incorporated Document or to be filed as an exhibit to the Registration Statement or any Incorporated Document by the Act or the Rules and Regulations or by the Exchange Act or the rules and regulations of the Commission thereunder which have not been accurately described in all material respects in the Registration Statement or Prospectus or any Incorporated Document or filed as exhibits to the Registration Statement or any Incorporated Document. (f) All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and the authorized and outstanding capital stock of the Company is as set forth in the Prospectus under the caption "Capitalization" and conforms in all material respects to the statements relating thereto contained in the Registration Statement and the Prospectus and any Incorporated Document (and such statements correctly state the substance of the instruments defining the capitalization of the Company); the shares of Common Stock issuable upon conversion of the Notes have been duly authorized and reserved for issuance upon conversion of the Notes and, when issued and delivered by the Company upon such conversion, will be duly and validly issued and fully paid and nonassessable; and no preemptive right, co-sale right, registration right, right of first refusal or other similar right of shareholders exists with 6 7 respect to any of such shares of Common Stock or the issuance and sale thereof. No further approval or authorization of any shareholder, the Board of Directors of the Company or others is required for the issuance and sale or transfer of the Securities except as may be required under the Act, the Exchange Act, under state or other securities or Blue Sky laws or rules and regulations of the NASD. All issued and outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued and are fully paid and nonassessable, and were not issued in violation of or subject to any preemptive right, or other rights to subscribe for or purchase shares. Except as disclosed in the Prospectus and the financial statements of the Company, and the related notes thereto, included or incorporated by reference in the Prospectus, neither the Company nor any subsidiary has outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted and exercised thereunder, set forth or incorporated by reference in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. (g) The Company has all legal right, power and authority to enter into the Indenture and the Notes and to perform its obligations thereunder. The Indenture has been duly authorized by all necessary corporate action on the part of the Company and, when executed and delivered by the Company in accordance with its terms (assuming due authorization, execution and delivery thereof by the Trustee), will be a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent that a waiver of rights under any usury laws may be unenforceable and except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws, now or hereafter in effect, relating to or affecting creditors' rights and remedies generally, or by general equitable principles. The Notes have been duly authorized by all necessary corporate action on the part of the Company and on the Closing Date, the Indenture and the Notes will have been duly executed by the Company and will conform in all material respects to the descriptions thereof in the Prospectus. When the Notes are issued, executed and authenticated in accordance with the Indenture and paid for in accordance with the terms of this Agreement, the Notes will be legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Indenture, except to the extent that a waiver of rights under any usury laws may be unenforceable and except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, relating to or affecting creditors' rights and remedies generally, or by general equitable principles. (h) Arthur Andersen LLP, which has examined (i) the consolidated financial statements of the Company, together with the related schedules and notes, as of October 26, 1996 and for each of the years in the three (3) years ended October 26, 1996 and (ii) the consolidated financial statements of Zycon Corporation ("Zycon"), together with the related 7 8 schedules and notes as of December 31, 1996 and for the year ended December 31, 1996 filed with the Commission as a part of or incorporated by reference into the Registration Statement, which are included or incorporated by reference in the Prospectus, and KPMG Peat Marwick LLP, which has examined the consolidated financial statements of Zycon together with the related schedules and notes, as of December 31, 1995 and for each of the years in the two (2) years ended December 31, 1995 filed with the Commission as part of or incorporated by reference into the Registration Statement, which are included or incorporated by reference in the Report of our independent accountants within the meaning of the Act and the Rules and Regulations, are independent accountants within the meaning of the Act and the Rules and Regulations; the audited consolidated financial statements of the Company and Zycon, together with the related schedules and notes, and the unaudited consolidated financial information, forming part of the Registration Statement and Prospectus, fairly present the financial position and the results of operations of the Company and its subsidiaries and Zycon and its subsidiaries at the respective dates and for the respective periods to which they apply; and all audited consolidated financial statements of the Company and Zycon, together with the related schedules and notes, and the unaudited consolidated financial information, filed with the Commission as part of or incorporated by reference into the Registration Statement, have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved except as may be otherwise stated therein. The selected and summary financial and statistical data included or incorporated by reference in the Registration Statement present fairly the information shown therein and have been compiled on a basis consistent with the audited financial statements presented therein. No other financial statements or schedules are required to be included or incorporated by reference in the Registration Statement. (i) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been (i) any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise, (ii) any transaction that is material to the Company and its subsidiaries considered as one enterprise, except transactions entered into in the ordinary course of business, (iii) any obligation, direct or contingent, that is material to the Company and its subsidiaries considered as one enterprise, incurred by the Company or its subsidiaries, except obligations incurred in the ordinary course of business, (iv) any change in the capital stock or outstanding indebtedness of the Company or any of its subsidiaries that is material to the Company and its subsidiaries considered as one enterprise, (v) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its subsidiaries, or (vi) any loss or damage (whether or not insured) to the property of the Company or any of its subsidiaries which has been sustained or will have been sustained which has a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. (j) Except as set forth in the Registration Statement and Prospectus and any Incorporated Document, (i) each of the Company and its subsidiaries has good and 8 9 marketable title to all properties and assets described in the Registration Statement and Prospectus and any Incorporated Document as owned by it, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest, other than such as would not have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise, (ii) the agreements to which the Company or any of its subsidiaries is a party described in the Registration Statement and Prospectus and any Incorporated Document are valid agreements, enforceable by the Company and its subsidiaries (as applicable), except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles and, to the best of the Company's knowledge, the other contracting party or parties thereto are not in material breach or material default under any of such agreements, and (iii) each of the Company and its subsidiaries has valid and enforceable leases for all properties described in the Registration Statement and Prospectus and any Incorporated Document as leased by it, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. Except as set forth in the Registration Statement and Prospectus and any Incorporated Document, the Company owns or leases all such properties as are necessary to its operations as now conducted or as proposed to be conducted. (k) The Company and its subsidiaries have timely filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes shown thereon as due, and there is no tax deficiency that has been or, to the best of the Company's knowledge, might be asserted against the Company or any of its subsidiaries that might have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise; and all tax liabilities are adequately provided for on the books of the Company and its subsidiaries. (l) The Company and its subsidiaries maintain insurance with insurers of recognized financial responsibility of the types and in the amounts generally deemed adequate for their respective businesses and consistent with insurance coverage maintained by similar companies in similar businesses, including, but not limited to, insurance covering real and personal property owned or leased by the Company or its subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect; neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for; and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. 9 10 (m) To the best of Company's knowledge, no labor disturbance by the employees of the Company or any of its subsidiaries exists or is imminent; and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, subassemblers, value added resellers, subcontractors, original equipment manufacturers, authorized dealers or international distributors that might be expected to result in a material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. No collective bargaining agreement exists with any of the Company's employees and, to the best of the Company's knowledge, no such agreement is imminent. (n) Each of the Company and its subsidiaries owns or possesses adequate rights to use all patents, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names and copyrights which are necessary to conduct its businesses as described in the Registration Statement and Prospectus and any Incorporated Document; the expiration of any patents, patent rights, trade secrets, trademarks, service marks, trade names or copyrights would not have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise; the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of the Company by others with respect to any patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights; and the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of others with respect to any patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, might have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. (o) The Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on The Nasdaq National Market, and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from The Nasdaq National Market, nor has the Company received any notification that the Commission or the NASD is contemplating terminating such registration or listing. (p) The Company has been advised concerning the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder, and has in the past conducted, and intends in the future to conduct, its affairs in such a manner as to ensure that it will not become an "investment company" or a company "controlled" by an "investment company" within the meaning of the 1940 Act and such rules and regulations. (q) The Company has not distributed and will not distribute prior to the later of (i) the Closing Date, or any date on which Option Notes are to be purchased, as the case may be, and (ii) completion of the distribution of the Securities, any offering material in connection 10 11 with the offering and sale of the Securities other than any Preliminary Prospectuses, the Prospectus, the Registration Statement and other materials, if any, permitted by the Act. (r) Neither the Company nor any of its subsidiaries has at any time during the last five (5) years (i) made any unlawful contribution to any candidate for foreign office or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. (s) The Company has not taken and will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Securities to facilitate the sale or resale of the Notes. (t) Each officer and director of the Company and each of the beneficial owners of shares of Common Stock identified on Schedule B (the "Selling Shareholders") attached to that certain Underwriting Agreement, dated as of ________, 1997, among the Company, Robertson, Stephens & Company LLC, Merrill Lynch & Co. and Adams, Harkness & Hill, Inc., has agreed in writing that such person will not, directly or indirectly, without prior written consent of Robertson, Stephens & Company LLC, offer, sell, contract to sell, grant any option to purchase, pledge or otherwise dispose of or transfer (collectively, a "Disposition") any shares of Common Stock or any securities convertible into or exchangeable for, or any rights to purchase or acquire, shares of Common Stock held by such officer, director or Selling Shareholder, acquired by such officer, director or Selling Shareholder after the date of the Prospectus or which may be deemed to be beneficially owned by such officer, director or Selling Shareholder pursuant to the Rules and Regulations promulgated under the Act (the "Lock-up Shares") other than pursuant to this Agreement, for a period ending 90 days after the date that the Registration Statement is declared effective (the "Lock-up Period"). The foregoing restriction has been expressly agreed to preclude the holder of Lockup Shares from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Lock-up Shares during the Lockup Period, even if such Lock-up Shares would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Lock-up Shares or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from Lock-up Shares. Notwithstanding the foregoing, the holder may transfer any or all of the Lock-up Shares (i) as a bona fide gift or gifts, provided the donee or donees thereof agrees in writing as a condition precedent to such gift or gifts to be bound by this restriction, or (ii) as a distribution to partners or shareholders of the holder, provided that the distributees thereof agree in writing to be bound by this restriction. The transferor shall notify Robertson, Stephens & Company LLC in writing prior to the transfer, and there shall be no further transfer of such Lock-up Shares except in accordance with this restriction. Furthermore, such person has also agreed and 11 12 consented to the entry of stop transfer instructions with the Company's transfer agent against the transfer of the Lock-up Shares held by such person except in compliance with this restriction. The Company has provided to counsel for the Underwriters true, accurate and complete copies of all of the agreements pursuant to which its officers, directors and shareholders have agreed to such or similar restrictions (the "Lock-up Agreements") presently in effect or effected hereby. The Company hereby represents and warrants that it will not release any of its officers, directors or other shareholders from any Lock-up Agreements currently existing or hereafter effected without the prior written consent of Robertson, Stephens & Company LLC. (u) Except as set forth in the Registration Statement and Prospectus and any Incorporated Document, (i) the Company is in compliance with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of health or the environment in effect as of the date hereof ("Environmental Laws") which are applicable to its business, (ii) the Company has received no notice from any governmental authority or third party of an asserted claim under Environmental Laws, which claim is required to be disclosed in the Registration Statement and the Prospectus and any Incorporated Document, (iii) the Company will not be required to make future material capital expenditures to comply with Environmental Laws and (iv) no property which is owned, leased or occupied by the Company has been designated as a Superfund site pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated site under applicable state or local law. (v) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (w) There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company to or for the benefit of any of the executive officers or directors of the Company or any of the members of the families of any of them, except as disclosed in the Registration Statement and the Prospectus and any Incorporated Document. (x) The Company has complied with all provisions of Section 517.075, Florida Statutes relating to doing business with the Government of Cuba or with any person or affiliate located in Cuba. 12 13 3. Purchase, Sale and Delivery of Firm Notes. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of ___% of the principal amount thereof, Firm Notes in the respective principal amount as hereinafter set forth. The obligation of each Underwriter to the Company shall be to purchase from the Company that number of Firm Notes which is set forth opposite the name of such Underwriter in Schedule A hereto (subject to adjustment as provided in Section 10). Delivery of the Firm Notes to be purchased by the Underwriters pursuant to this Section 3 shall be made against receipt of a wire transfer reference number issued by the Federal Reserve System evidencing payment of the purchase price therefor by the several Underwriters by wire transfer of immediately available funds, to an account specified in writing by the Company, at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, MA 02110 (or at such other place as may be agreed upon among the Representatives and the Company), at 7:00 A.M., San Francisco time (a) on the third (3rd) full business day following the first day that Firm Notes are traded, (b) if this Agreement is executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th) full business day following the day that this Agreement is executed and delivered or (c) at such other time and date not later than seven (7) full business days following the first day that Firm Notes are traded as the Representatives and the Company may determine (or at such time and date to which payment and delivery shall have been postponed pursuant to Section 10 hereof), such time and date of payment and delivery being herein called the "Closing Date;" provided, however, that if the Company has not made available to the Representatives copies of the Prospectus within the time provided in Section 4(d) hereof, the Representatives may, in their sole discretion, postpone the Closing Date until no later than two (2) full business days following delivery of copies of the Prospectus to the Representatives. The Firm Notes to be so delivered will be made available to you at such office or such other location including, without limitation, in New York City, as you may reasonably request for checking at least one (1) full business day prior to the Closing Date and will be in such names and denominations as you may request, such request to be made at least two (2) full business days prior to the Closing Date. If the Representatives so elect, delivery of the Firm Notes may be made by credit through full fast transfer to the accounts at The Depository Trust Company designated by the Representatives. It is understood that you, individually, and not as the Representatives of the several Underwriters, may (but shall not be obligated to) make payment of the purchase price on behalf of any Underwriter or Underwriters whose check or checks shall not have been received by you prior to the Closing Date for the Firm Notes to be purchased by such Underwriter or Underwriters. Any such payment by you shall not relieve any such Underwriter or Underwriters of any of its or their obligations hereunder. After the Registration Statement becomes effective, the several Underwriters intend to make a public offering (as such term is described in Section 11 hereof) of the Firm Notes as set forth in the Prospectus. After the public offering, the several Underwriters may, in their discretion, vary the public offering price. 13 14 The information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), on the inside front cover concerning stabilization by the Underwriters, and in the penultimate paragraph under the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus constitutes the only information furnished by the Underwriters to the Company for inclusion in any Preliminary Prospectus, the Prospectus or the Registration Statement or any Incorporated Document, and you, on behalf of the respective Underwriters, represent and warrant to the Company that the statements made therein do not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 4. Further Agreements of the Company. The Company agrees with the several Underwriters that: (a) The Company will use its best efforts to cause the Registration Statement and any amendment thereof, if not effective at the time and date that this Agreement is executed and delivered by the parties hereto, to become effective as promptly as possible; the Company will use its best efforts to cause any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations as may be required subsequent to the date the Registration Statement is declared effective to become effective as promptly as possible; the Company will notify you, promptly after it shall receive notice thereof, of the time when the Registration Statement, any subsequent amendment to the Registration Statement or any abbreviated registration statement has become effective or any supplement to the Prospectus has been filed; if the Company omitted information from the Registration Statement at the time it was originally declared effective in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will provide evidence satisfactory to you that the Prospectus contains such information and has been filed, within the time period prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part of a post-effective amendment to such Registration Statement as originally declared effective which is declared effective by the Commission or as part of an abbreviated registration statement filed pursuant to Rule 462(b) which is declared effective by the Commission; if the Company files a term sheet pursuant to Rule 434 of the Rules and Regulations, the Company will provide evidence satisfactory to you that the Prospectus and term sheet meeting the requirements of Rule 434(b) or (c), as applicable, of the Rules and Regulations, have been filed, within the time period prescribed, with the Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of the final form of Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, it will provide evidence satisfactory to you that the Prospectus contains such information and has been filed with the Commission within the time period prescribed; it will notify you promptly of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; promptly upon your request, it will prepare and file with the Commission any amendments or supplements to the Registration Statement or Prospectus which, in the opinion of counsel for the several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in connection with the 14 15 distribution of the Notes by the Underwriters; it will promptly prepare and file with the Commission, and promptly notify you of the filing of, any amendments or supplements to the Registration Statement or Prospectus which may be necessary to correct any statements or omissions, if, at any time when a prospectus relating to the Notes is required to be delivered under the Act, any event shall have occurred as a result of which the Prospectus or any other prospectus relating to the Notes as then in effect would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; in case any Underwriter is required to deliver a prospectus nine (9) months or more after the effective date of the Registration Statement in connection with the sale of the Notes, it will prepare promptly upon request, but at the expense of such Underwriter, such amendment or amendments to the Registration Statement and such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Act; and it will file no amendment or supplement to the Registration Statement or Prospectus or the Incorporated Documents, or, prior to the end of the period of time in which a prospectus relating to the Notes is required to be delivered under the Act, file any document which upon filing becomes an Incorporated Document, which shall not previously have been submitted to you a reasonable time prior to the proposed filing thereof or to which you shall reasonably object in writing, subject, however, to compliance with the Act and the Rules and Regulations, the Exchange Act and the rules and regulations of the Commission thereunder and the provisions of this Agreement. (b) The Company will advise you, promptly after it shall receive notice or obtain knowledge, of the issuance of any stop order by the Commission suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. (c) The Company will use its best efforts to qualify the Notes for offering and sale under the securities laws of such jurisdictions as you may designate and to continue such qualifications in effect for so long as may be required for purposes of the distribution of the Notes, except that the Company shall not be required in connection therewith or as a condition thereof to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction in which it is not otherwise required to be so qualified or to so execute a general consent to service of process. In each jurisdiction in which the Notes shall have been qualified as above provided, the Company will make and file such statements and reports in each year as are or may be required by the laws of such jurisdiction. (d) The Company will furnish to you, as soon as available, and, in the case of the Prospectus and any term sheet or abbreviated term sheet under Rule 434, in no event later than the first (1st) full business day following the first day that Notes are traded, copies of the Registration Statement (three of which will be signed and which will include all exhibits), each Preliminary Prospectus, the Prospectus and any amendments or supplements to such documents, including any prospectus prepared to permit compliance with Section 10(a)(3) of 15 16 the Act, and the Incorporated Documents (three of which will include all exhibits,) all in such quantities as you may from time to time reasonably request. Notwithstanding the foregoing, if Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall agree to the utilization of Rule 434 of the Rules and Regulations, the Company shall provide to you copies of a Preliminary Prospectus updated in all respects through the date specified by you in such quantities as you may from time to time reasonably request. (e) The Company will make generally available to its securityholders as soon as practicable, but in any event not later than the forty-fifth (45th) day following the end of the fiscal quarter first occurring after the first anniversary of the effective date of the Registration Statement, an earnings statement (which will be in reasonable detail but need not be audited) complying with the provisions of Section 11(a) of the Act and covering a twelve (12) month period beginning after the effective date of the Registration Statement. (f) During a period of five (5) years after the date hereof, the Company will furnish to its shareholders as soon as practicable after the end of each respective period, annual reports (including financial statements audited by independent certified public accountants) and unaudited quarterly reports of operations for each of the first three quarters of the fiscal year, and will furnish to you and the other several Underwriters hereunder, upon request (i) concurrently with furnishing such reports to its shareholders, statements of operations of the Company for each of the first three (3) quarters in the form furnished to the Company's shareholders, (ii) concurrently with furnishing to its shareholders, a balance sheet of the Company as of the end of such fiscal year, together with statements of operations, of shareholders' equity, and of cash flows of the Company for such fiscal year, accompanied by a copy of the certificate or report thereon of independent certified public accountants, (iii) as soon as they are available, copies of all reports (financial or other) mailed to shareholders, (iv) as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, any securities exchange or the NASD, (v) every material press release and every material news item or article in respect of the Company or its affairs which was generally released to shareholders or prepared by the Company or any of its subsidiaries, and (vi) any additional information of a public nature concerning the Company or its subsidiaries, or its business which you may reasonably request. During such five (5) year period, if the Company shall have active subsidiaries, the foregoing financial statements shall be on a consolidated basis to the extent that the accounts of the Company and its subsidiaries are consolidated, and shall be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. (g) The Company will apply the net proceeds from the sale of the Notes being sold by it in the manner set forth under the caption "Use of Proceeds" in the Prospectus. (h) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar (which may be the same entity as the transfer agent) for its Common Stock. 16 17 (i) If the transactions contemplated hereby are not consummated by reason of any failure, refusal or inability on the part of the Company to perform any agreement on its part to be performed hereunder or to fulfill any condition of the Underwriters' obligations hereunder, or if the Company shall terminate this Agreement pursuant to Section 11(a) hereof, or if the Underwriters shall terminate this Agreement pursuant to Section 11(b)(i), the Company will reimburse the several Underwriters for all reasonable out-of-pocket expenses (including reasonable fees and disbursements of Underwriters' Counsel) incurred by the Underwriters in investigating or preparing to market or marketing the Notes. (j) If at any time during the ninety (90) day period after the Registration Statement becomes effective, any rumor, publication or event relating to or affecting the Company shall occur as a result of which in your opinion the market price of the Common Stock has been or is likely to be materially affected (regardless of whether such rumor, publication or event necessitates a supplement to or amendment of the Prospectus), the Company will, after written notice from you advising the Company to the effect set forth above, forthwith prepare, consult with you concerning the substance of and disseminate a press release or other public statement, reasonably satisfactory to you, responding to or commenting on such rumor, publication or event. (k) During the Lock-up Period, the Company will not, without the prior written consent of Robertson Stephens & Company LLC, effect the Disposition of, directly or indirectly, any Lock-up Shares other than the issuance of shares of Common Stock upon conversion of the Notes, the sale of certain shares of Common Stock by the Company contemplated by the Registration Statement and the Prospectus and the Company's issuance of options or Common Stock under the Company's presently authorized December 1985 Option Plan, December 1986 Option Plan, December 1987 Option Plan, September 1990 Plan, December 1991 Director Option Plan and November 1995 Stock Option Plan (collectively, the "Option Plans"). 5. Expenses. (a) The Company agrees with each Underwriter that: (i) The Company will pay and bear all costs and expenses in connection with the preparation, printing and filing of the Registration Statement (including financial statements, schedules and exhibits), Preliminary Prospectuses and the Prospectus and the Incorporated Documents and any amendments or supplements thereto; the photocopying of this Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power of Attorney, and any instruments related to any of the foregoing; the issuance and delivery of the Notes hereunder to the several Underwriters, including transfer taxes, if any, the cost of printing and engraving the Notes and Trustees' fees, note registrar's fees and similar fees; the fees and disbursements of counsel for the Company; all fees and other 17 18 charges of the Company's independent certified public accountants; the cost of furnishing to the several Underwriters copies of the Registration Statement (including appropriate exhibits), Preliminary Prospectus and the Prospectus and the Incorporated Documents, and any amendments or supplements to any of the foregoing; NASD filing fees and the cost of qualifying the Notes under the laws of such jurisdictions as you may designate (including filing fees and fees and disbursements of Underwriters' Counsel in connection with such NASD filings and Blue Sky qualifications); and all other expenses directly incurred by the Company in connection with the performance of its obligations hereunder. (ii) In addition to its other obligations under Section 8(a) hereof, the Company agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding described in Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Underwriters shall promptly return such payment to the Company together with interest, compounded daily, determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) listed from time to time in The Wall Street Journal which represents the base rate on corporate loans posted by a substantial majority of the nation's thirty (30) largest banks (the "Prime Rate"). Any such interim reimbursement payments which are not made to the Underwriters within thirty (30) days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. (b) In addition to their other obligations under Section 8(b) hereof, the Underwriters severally and not jointly agree that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding described in Section 8(b) hereof, they will reimburse the Company on a monthly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Underwriters' obligation to reimburse the Company for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Company shall promptly return such payment to the Underwriters together with interest, compounded daily, determined on the basis of the Prime Rate. Any such interim reimbursement payments which are not made to the Company within thirty (30) days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. 18 19 (c) It is agreed that any controversy arising out of the operation of the interim reimbursement arrangements set forth in Sections 5(a)(ii) and 5(b) hereof, including the amounts of any requested reimbursement payments, the method of determining such amounts and the basis on which such amounts shall be apportioned among the reimbursing parties, shall be settled by arbitration conducted under the provisions of the Constitution and Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD. Any such arbitration must be commenced by service of a written demand for arbitration or a written notice of intention to arbitrate, therein electing the arbitration tribunal. In the event the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to said demand or notice is authorized to do so. Any such arbitration will be limited to the operation of the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b) hereof and will not resolve the ultimate propriety or enforceability of the obligation to indemnify for expenses which is created by the provisions of Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses which is created by the provisions of Section 8(d) hereof. 6. Conditions of Underwriters' Obligations. The obligations of the several Underwriters to purchase and pay for the Notes as provided herein shall be subject to the accuracy, as of the date hereof and the Closing Date and any later date on which Option Notes are to be purchased, as the case may be, of the representations and warranties of the Company herein, to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 2:00 P.M., San Francisco time, on the date following the date of this Agreement, or such later date as shall be consented to in writing by you; and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been initiated or, to the knowledge of the Company or any Underwriter, threatened by the Commission, and any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or any Incorporated Document or otherwise) shall have been complied with to the satisfaction of Underwriters' Counsel. (b) All corporate proceedings and other legal matters in connection with this Agreement, the Indenture, the form of Registration Statement and the Prospectus, and the registration, authorization, issue, sale and delivery of the Notes, shall have been reasonably satisfactory to Underwriters' Counsel, and such counsel shall have been furnished with such papers and information as they may reasonably have requested to enable them to pass upon the matters referred to in this Section. (c) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date, or any later date on which Option Notes are to be purchased, as the case may be, 19 20 (i) there shall not have been any change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise from that set forth in the Registration Statement or Prospectus, which, in your sole judgment, is material and adverse and that makes it, in your sole judgment, impracticable or inadvisable to proceed with the public offering of the Notes as contemplated by the Prospectus; and (ii) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Act. (d) You shall have received on the Closing Date and on any later date on which Option Notes are to be purchased, as the case may be, the following opinion of Berlin, Hamilton & Damon LLP, general counsel for the Company, dated the Closing Date or such later date on which Option Notes are to be purchased addressed to the Underwriters and with reproduced copies or signed counterparts thereof for each of the Underwriters, to the effect that: (i) The Company and each subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation; (ii) The Company and each subsidiary has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus; (iii) The Company and each subsidiary is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction, if any, in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing would not have a material adverse effect on the condition (financial or otherwise), earnings, operations or business of the Company and its subsidiaries considered as one enterprise. To such counsel's knowledge, the Company does not own or control, directly or indirectly, any corporation, association or other entity other than Hadco Foreign Sales Corporation, Zycon Corporation, Zycon Acquisition Corporation and Zycon Corporation SDN.BHV. (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the caption "Capitalization" as of the dates stated therein, the issued and outstanding shares of capital stock of the Company have been duly and validly issued and are fully paid and nonassessable, and, to such counsel's 20 21 knowledge, will not have been issued in violation of or subject to any preemptive right, co-sale right, registration right, right of first refusal or other similar right; (v) All issued and outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued and are fully paid and nonassessable, and, to such counsel's knowledge, have not been issued in violation of or subject to any preemptive right, co-sale right, registration right, right of first refusal or other similar right and are owned by the Company free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest; (vi) The shares of Common Stock issuable upon conversion of the Notes have been duly authorized and reserved for issuance upon conversion of the Notes and will be, when issued and delivered upon conversion, validly issued and fully paid and nonassessable, and not subject to any preemptive or other similar right; (vii) The Company has the corporate power and authority to enter into this Agreement and to issue, sell and deliver to the Underwriters the Notes to be issued and sold by it hereunder and to issue the Common Stock upon conversion of the Notes; (viii) This Agreement has been duly authorized by all necessary corporate action on the part of the Company and has been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by you, is a valid and binding agreement of the Company. (ix) The information in the Prospectus under the caption "Description of Capital Stock," to the extent that it constitutes matters of law or legal conclusions, has been reviewed by such counsel and is a fair summary of such matters and conclusions; and the forms of certificates evidencing the Common Stock comply with Massachusetts law; (x) The description in the Registration Statement and the Prospectus of the charter and bylaws of the Company and of statutes are accurate and fairly present the information required to be presented by the Act and the applicable Rules and Regulations; (xi) The performance of this Agreement, the Indenture and the Notes and the consummation of the transactions herein contemplated (other than performance of the Company's indemnification obligations hereunder, concerning which no opinion need be expressed) will not (a) result in any violation of the Company's charter or 21 22 bylaws or (b) to such counsel's knowledge, result in a material breach or violation of any of the terms and provisions of, or constitute a default under, any bond, debenture, note or other evidence of indebtedness, or any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument known to such counsel (other than the Bank Credit Agreement, dated as of January 8, 1997, by and among the Company, the lenders from time to time that are party thereto and The First National Bank of Boston, as agent (the "Bank Credit Agreement"), to which such counsel need not opine) to which the Company is a party or by which its properties are bound, or any applicable statute, rule or regulation known to such counsel or, to such counsel's knowledge, any order, writ or decree of any court, government or governmental agency or body having jurisdiction over the Company or any of its subsidiaries, or over any of their properties or operations; (xii) No consent, approval, authorization or order of or qualification with any court, government or governmental agency or body having jurisdiction over the Company or any of its subsidiaries, or over any of their properties or operations is necessary in connection with the consummation by the Company of the transactions herein contemplated, except such as have been obtained under the Act, the Exchange Act or such as may be required under state or other securities or Blue Sky laws in connection with the purchase and the distribution of the Notes by the Underwriters; (xiii) To such counsel's knowledge, except as set forth in the Registration Statement and Prospectus and any Incorporated Document, no holders of Common Stock or other securities of the Company have registration rights with respect to securities of the Company and, except as set forth in the Registration Statement and Prospectus, all holders of securities of the Company having rights known to such counsel to registration of such shares of Common Stock or other securities, because of the filing of the Registration Statement by the Company have, with respect to the offering contemplated thereby, waived such rights or such rights have expired by reason of lapse of time following notification of the Company's intent to file the Registration Statement. Counsel rendering the foregoing opinion may rely as to questions of law not involving the laws of the United States or the Commonwealth of Massachusetts upon opinions of local counsel and with regard to New York law can assume that the laws of the State of New York are identical to the laws of the Commonwealth of Massachusetts, and as to questions of fact upon representations or certificates of officers of the Company and of government officials, in which case their opinion is to state that they are so relying and that they have no knowledge of any material misstatement or inaccuracy in any such opinion, representation or certificate. Copies of any opinion, representation or certificate so relied upon shall be delivered to you, as Representatives of the Underwriters, and to Underwriters' Counsel. 22 23 (e) You shall have received on the Closing Date and on any later date on which Option Notes are to be purchased, as the case may be, (i) an opinion of Hale and Dorr LLP, in form and substance satisfactory to you, with respect to the sufficiency of all such corporate proceedings and other legal matters relating to this Agreement and the transactions contemplated hereby as you may reasonably require, and (ii) an opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, in the form and substance satisfactory to you, with respect to the validity of the Notes, and the Company shall have furnished to each such counsel such documents as they may have requested for the purpose of enabling them to pass upon such matters. (f) You shall have received on the Closing Date and on any later date on which Option Notes are to be purchased, as the case may be, a letter from Arthur Andersen LLP and KPMG Peat Marwick LLP addressed to the Underwriters, dated the Closing Date or such later date on which Option Notes are to be purchased, as the case may be, confirming, in each case, that they are independent certified public accountants with respect to Zycon and the Company within the meaning of the Act and the applicable published Rules and Regulations and based upon the procedures described in each such letter delivered to you concurrently with the execution of this Agreement (each such letter being herein called the "Original Letter"), but carried out to a date not more than five (5) business days prior to the Closing Date or such later date on which Option Notes are to be purchased, as the case may be, (i) confirming, to the extent true, that the statements and conclusions set forth in the Original Letter are accurate as of the Closing Date or such later date on which Option Notes are to be purchased, as the case may be, and (ii) setting forth any revisions and additions to the statements and conclusions set forth in the Original Letter which are necessary to reflect any changes in the facts described in the Original Letter since the date of such letter, or to reflect the availability of more recent financial statements, data or information. The letter shall not disclose any change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise from that set forth in the Registration Statement or Prospectus, which, in your sole judgment, is material and adverse and that makes it, in your sole judgment, impracticable or inadvisable to proceed with the public offering of the Notes as contemplated by the Prospectus. The Original Letter from Arthur Andersen LLP shall be addressed to or for the use of the Underwriters in form and substance satisfactory to the Underwriters and shall (i) represent, to the extent true, that they are independent certified public accountants with respect to Zycon and the Company within the meaning of the Act and the applicable published Rules and Regulations, (ii) set forth their opinion with respect to their examination of the consolidated balance sheet of the Company as of October 26, 1996 and related consolidated statements of operations, shareholders' equity, and cash flows for the twelve (12) months ended October 26, 1996, (iii) set forth in their opinion with respect to their examination of the consolidated balance sheet of Zycon as of December 31, 1996 and related consolidated statement of operations of shareholders' equity and cash flow for the twelve (12) months ended December 31, 1996, (iv) state that Arthur Andersen LLP has performed the procedures set out in Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim financial information and providing the report of Arthur Andersen LLP as described in SAS 71 on the financial 23 24 statements for the quarter ended January 25, 1997 (the "Quarterly Financial Statements"), (v) state that in the course of such review, nothing came to their attention that leads them to believe that any material modifications need to be made to any of the Quarterly Financial Statements in order for them to be in compliance with generally accepted accounting principles consistently applied across the periods presented, and (vi) address other matters agreed upon by Arthur Andersen LLP and you. The Original Letter from KPMG Peat Marwick LLP shall be addressed to or for the use of the underwriters in for and substance satisfactory to the underwriters and shall (i) represent to the extent true, that they are independent certified public accounts with respect to Zycon and the Company within the meaning of the Act and applicable published Rules and Regulations and (ii) set forth in their opinion with respect to their examination of the consolidated balance sheet of Zycon at December 31, 1995 and related consolidated statements of operations of shareholders' equity and cash flow for the twelve (12) months ended December 31, 1995. In addition, you shall have received from Arthur Andersen LLP a letter addressed to the Company and made available to you for the use of the Underwriters stating that their review of the Company's system of internal accounting controls, to the extent they deemed necessary in establishing the scope of their examination of the Company's consolidated financial statements as of October 26, 1996, did not disclose any weaknesses in internal controls that they considered to be material weaknesses. (g) You shall have received on the Closing Date and on any later date on which Option Notes are to be purchased, as the case may be, a certificate of the Company, dated the Closing Date or such later date on which Option Notes are to be purchased, as the case may be, signed by the Chief Executive Officer and Chief Financial Officer of the Company, to the effect that, and you shall be satisfied that: (i) The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Date or any later date on which Option Notes are to be purchased, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date or any later date on which Option Notes are to be purchased, as the case may be; (ii) No stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Act; (iii) When the Registration Statement became effective and at all times subsequent thereto up to the delivery of such certificate, the Registration Statement and the Prospectus, and any amendments or supplements thereto and the Incorporated Documents, when such Incorporated Documents became effective or were filed with the Commission, contained all material information required to be included therein by the Act and the Rules and Regulations or the Exchange Act and the applicable rules and regulations of the Commission thereunder, as the case may be, and in all material 24 25 respects conformed to the requirements of the Act and the Rules and Regulations or the Exchange Act and the applicable rules and regulations of the Commission thereunder, as the case may be, the Registration Statement, and any amendment or supplement thereto, did not and does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, the Prospectus, and any amendment or supplement thereto, did not and does not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and, since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been so set forth; and (iv) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been (a) any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise, (b) any transaction that is material to the Company and its subsidiaries considered as one enterprise, except transactions entered into in the ordinary course of business, (c) any obligation, direct or contingent, that is material to the Company and its subsidiaries considered as one enterprise, incurred by the Company or its subsidiaries, except obligations incurred in the ordinary course of business, (d) any change in the capital stock or outstanding indebtedness of the Company or any of its subsidiaries that is material to the Company and its subsidiaries considered as one enterprise, (e) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its subsidiaries, or (f) any loss or damage (whether or not insured) to the property of the Company or any of its subsidiaries which has been sustained or will have been sustained which has a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. (h) The Company shall have obtained and delivered to you an agreement from each officer and director of the Company and each Selling Shareholder in writing prior to the date hereof that such person will not, during the Lock-up Period, effect the Disposition of any Lock-up Shares now owned or hereafter acquired directly by such person or with respect to which such person has or hereafter acquires the power of disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee or donees thereof agree in writing to be bound by this restriction, (ii) as a distribution to partners or shareholders of such person, provided that the distributees thereof agree in writing to be bound by the terms of this restriction, or (iii) with the prior written consent of Robertson, Stephens & Company LLC. The foregoing restriction shall have been expressly agreed to preclude the holder of the Lock-up Shares from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Lock-up Shares during the Lock-up Period, even if such Lock-up Shares would be disposed of by someone other than the such holder. Such 25 26 prohibited hedging or other transactions would including, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Lock-up Shares or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from Lock-up Shares. Furthermore, such person will have also agreed and consented to the entry of stop transfer instructions with the Company's transfer agent against the transfer of the Lock-up Shares held by such person except in compliance with this restriction. (i) You shall have received on the Closing Date and on any later date on which Option Notes are to be purchased, as the case may be, the following opinion of Testa, Hurwitz & Thibeault, LLP, special securities counsel to the Company, dated the Closing Date or such later date on which Option Notes are to be purchased addressed to the Underwriters and with reproduced copies or signed counterparts thereof for each of the Underwriters, to the effect that: (i) The Company has full legal right, power and authority to enter into the Indenture and the Notes and to perform its obligations thereunder; (ii) The Indenture has been duly authorized by all necessary corporate action on the part of the Company and has been duly executed and delivered by the Company; (iii) The Indenture, assuming due authorization, execution and delivery by the Trustee, is a legal, valid and binding agreement of the Company, enforceable in accordance with its terms, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws, now or hereafter in effect, relating to or affecting creditors' rights and remedies generally, or by general equitable principles; (iv) The Notes have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued, executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, will constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Indenture, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws, now or hereafter in effect, relating to or affecting creditors' rights generally or by general equitable principles (provided that such counsel need not opine as to the enforceability of the waiver of rights or defenses contained in Section 5.8 of the Indenture); (v) The Indenture complies as to form in all material respects with the Trust Indenture Act and the rules and regulations thereunder and, on the effective date of the Registration Statement, will be duly qualified under the Trust Indenture Act; 26 27 (vi) The terms and provisions of the Notes and the Indenture conform in all material respects to the descriptions thereof contained in the Registration Statement and Prospectus; (vii) The performance of the Indenture and the Notes and the consummation of the transactions therein contemplated (other than performance of the Company's indemnification obligations hereunder, concerning which no opinion need be expressed) will not to such counsel's knowledge, result in a material breach or violation of any of the terms and provisions of, or constitute a default under the Bank Credit Agreement; (viii) The Registration Statement has become effective under the Act and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Act; (ix) The Registration Statement and the Prospectus, and each amendment or supplement thereto (other than the financial statements (including supporting schedules) and financial data derived therefrom as to which such counsel need express no opinion), as of the effective date of the Registration Statement, complied as to form in all material respects with the requirements of the Act and the applicable Rules and Regulations; and each of the Incorporated Documents (other than the financial statements (including supporting schedules) and the financial data derived therefrom as to which such counsel need express no opinion) complied when filed pursuant to the Exchange Act as to form in all material respects with the requirements of the Act and the Rules and Regulations and the Exchange Act and the applicable rules and regulations of the Commission thereunder; (x) To such counsel's knowledge, there are no agreements, contracts, leases or documents to which the Company is a party of a character required to be described or referred to in the Registration Statement or Prospectus or any Incorporated Document or to be filed as an exhibit to the Registration Statement or any Incorporated Document which are not described or referred to therein or filed as required; (xi) To such counsel's knowledge, there are no legal or governmental proceedings pending or threatened against the Company or any of its subsidiaries of a character required to be disclosed in the Registration Statement or the Prospectus or any Incorporated Document by the Act or the Rules and Regulations or by the Exchange Act or the applicable rules and regulations of the Commission thereunder, other than those described therein; (xii) The information in the Prospectus under the caption "Description of Notes" and "Certain Federal Income Tax Considerations", to the extent that it 27 28 constitutes matters or law or legal conclusions, has been reviewed by such counsel and is a fair summary of such matters and conclusions. In addition, such counsel shall state that such counsel has participated in conferences with officials and other representatives of the Company, the Representatives, Underwriters' Counsel and the independent certified public accountants of the Company, at which such conferences of the Registration Statement and Prospectus and related matters were discussed and although they have not been verified the accuracy or completeness of the statements contained in the Registration Statement or the Prospectus, nothing has come to the attention of such counsel which leads them to believe that, at the time the Registration Statement became effective and at all times subsequent thereto up to and on the Closing Date and on any later day on which the Option Notes are to be purchased, the Registration Statement and any amendment or supplement thereto and any Incorporated Document, when such documents became effective or were filed with the Commission (other than the financial statements including supporting schedules and other financial and statistical information derived therefrom, as to which such counsel need express no comment) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or at the Closing Date or any later date on which the Option Notes are to be purchased, as the case may be, the Registration Statement, the Prospectus and any amendment or supplement thereto and any Incorporated Document (except as aforesaid) contained any untrue statement of material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel shall also state that the conditions for the use of Form S-3 set forth in the General Instructions thereto have been satisfied. Counsel rendering the foregoing opinion may rely as to questions of law not involving the laws of the United States or the Commonwealth of Massachusetts upon opinions of local counsel, and as to questions of fact upon representations or certificates of officers of the Company and of government officials, in which case their opinion is to state that they are so relying and that they have no knowledge or any material misstatement or inaccuracy in any such opinion, representation or certificate. Copies of any opinion, representation or certificate so relied upon shall be delivered to you, as Representatives of the Underwriters, and to Underwriters' Counsel. All such opinions, certificates, letters and documents will be in compliance with the provisions hereof only if they are reasonably satisfactory to Underwriter's Counsel. The Company will furnish you with such number of conformed copies of such opinions, certificates, letters and documents as you shall reasonably request. (j) The Company shall have furnished to you such further certificates and documents as you shall reasonably request (including certificates of officers of the Company 28 29 as to the accuracy of the representations and warranties of the Company herein, as to the performance by the Company of its their respective obligations hereunder and as to the other conditions concurrent and precedent to the obligations of the Underwriters hereunder. All such opinions, certificates, letters and documents will be in compliance with the provisions hereof only if they are reasonably satisfactory to Underwriters' Counsel. The Company and the Selling Shareholders will furnish you with such number of conformed copies of such opinions, certificates, letters and documents as you shall reasonably request. 7. Option Notes. (a) On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company hereby grants to the several Underwriters, for the purpose of covering over-allotments in connection with the distribution and sale of the Firm Notes only, a nontransferable option to purchase, at the purchase price per Note for the Firm Notes set forth in Section 3 hereof, $15,000,000 aggregate principal amount of Option Notes. Such option may be exercised by the Representatives on behalf of the several Underwriters on one (1) or more occasions in whole or in part during the period of thirty (30) days after the date on which the Firm Notes are initially offered to the public, by giving written notice to the Company. The principal amount of Option Notes to be purchased by each Underwriter upon the exercise of such option shall be the same proportion of the total principal amount of Option Notes to be purchased by the several Underwriters pursuant to the exercise of such option as the principal amount of Firm Notes purchased by such Underwriter (set forth in Schedule A hereto) bears to the total principal amount of Firm Notes purchased by the several Underwriters (set forth in Schedule A hereto), adjusted by the Representatives in such manner as to avoid Notes of less than $1,000 in principal amount. Delivery of the Option Notes to be purchased by the several Underwriters pursuant to the exercise of the option granted by this Section 7 shall be made against payment of the purchase price therefor by the several Underwriters by wire transfer of same-day funds paid to an account designated by the Company. Such delivery and payment shall take place at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts 02110 or at such other place as may be agreed upon among the Representatives and the Company (i) on the Closing Date, if written notice of the exercise of such option is received by the Company at least two (2) full business days prior to the Closing Date, or (ii) on a date which shall not be later than the third (3rd) full business day following the date the Company receives written notice of the exercise of such option, if such notice is received by the Company less than two (2) full business days prior to the Closing Date. The Option Notes to be so delivered will be made available to you at such office or such other location including, without limitation, in New York City, as you may reasonably request for checking at least one (1) full business day prior to the date of payment 29 30 and delivery and will be in such names and denominations as you may request, such request to be made at least two (2) full business days prior to such date of payment and delivery. If the Representatives so elect, delivery of the Option Notes may be made by credit through full fast transfer to the accounts at The Depository Trust Company designated by the Representatives. It is understood that you, individually, and not as the Representatives of the several Underwriters, may (but shall not be obligated to) make payment of the purchase price on behalf of any Underwriter or Underwriters whose check or checks shall not have been received by you prior to the date of payment and delivery for the Option Notes to be purchased by such Underwriter or Underwriters. Any such payment by you shall not relieve any such Underwriter or Underwriters of any of its or their obligations hereunder. (b) Upon exercise of any option provided for in Section 7(a) hereof, the obligations of the several Underwriters to purchase such Option Notes will be subject (as of the date hereof and as of the date of payment and delivery for such Option Notes) to the accuracy of and compliance with the representations, warranties and agreements of the Company herein, to the accuracy of the statements of the Company, and officers of the Company made pursuant to the provisions hereof, to the performance by the Company obligations hereunder, to the conditions set forth in Section 6 hereof, and to the condition that all proceedings taken at or prior to the payment date in connection with the sale and transfer of such Option Notes shall be satisfactory in form and substance to you and to Underwriters' Counsel, and you shall have been furnished with all such documents, certificates and opinions as you may request in order to evidence the accuracy and completeness of any of the representations, warranties or statements, the performance of any of the covenants or agreements of the Company or the satisfaction of any of the conditions herein contained. 8. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject (including, without limitation, in its capacity as an Underwriter or as a "qualified independent underwriter" within the meaning of Section 2720 of the Conduct Rules of the NASD), under the Act, the Exchange Act or otherwise, specifically including, but not limited to, losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon (i) any breach of any representation, warranty, agreement or covenant of the Company herein contained, (ii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendment or supplement thereto, including any Incorporated Document, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any untrue statement or alleged untrue statement of any material fact contained in any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each 30 31 Underwriter for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, such Preliminary Prospectus or the Prospectus, or any such amendment or supplement thereto, in reliance upon, and in conformity with, written information relating to any Underwriter furnished to the Company by such Underwriter, directly or through you, specifically for use in the preparation thereof and, provided further, that the indemnity agreement provided in this Section 8(a) with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any losses, claims, damages, liabilities or actions based upon any untrue statement or alleged untrue statement of material fact or omission or alleged omission to state therein a material fact purchased Notes, if a copy of the Prospectus in which such untrue statement or alleged untrue statement or omission or alleged omission was corrected had not been sent or given to such person within the time required by the Act and the Rules and Regulations, unless such failure is the result of noncompliance by the Company with Section 4(d) hereof. The indemnity agreement in this Section 8(a) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act. This indemnity agreement shall be in addition to any liabilities which the Company may otherwise have. (b) Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company against any losses, claims, damages or liabilities, joint or several, to which the Company may become subject under the Act, the Exchange Act or otherwise, specifically including, but not limited to, losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon (i) any breach of any representation, warranty, agreement or covenant of such Underwriter herein contained, (ii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendment or supplement thereto, including any Incorporated Document, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any untrue statement or alleged untrue statement of any material fact contained in any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in the case of subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter, directly or through you, specifically for use in the preparation thereof, and agrees to reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action. 31 32 The indemnity agreement in this Section 8(b) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each officer of the Company who signed the Registration Statement and each director of the Company and each person, if any, who controls the Company within the meaning of the Act or the Exchange Act. This indemnity agreement shall be in addition to any liabilities which each Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notified the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of the indemnifying party's election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with appropriate local counsel) approved by the indemnifying party representing all the indemnified parties under Section 8(a) or 8(b) hereof who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. In no event shall any indemnifying party be liable in respect of any amounts paid in settlement of any action unless the indemnifying party shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnification could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on all claims that are the subject matter of such proceeding. 32 33 (d) In order to provide for just and equitable contribution in any action in which a claim for indemnification is made pursuant to this Section 8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 8 provides for indemnification in such case, all the parties hereto shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Underwriters severally and not jointly are responsible pro rata for the portion represented by the percentage that the underwriting discount bears to the initial public offering price, and the Company is responsible for the remaining portion, provided, however, that (i) no Underwriter shall be required to contribute any amount in excess of the amount by which the underwriting discount applicable to the Notes purchased by such Underwriter exceeds the amount of damages which such Underwriter has otherwise required to pay and (ii) no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The contribution agreement in this Section 8(d) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls any Underwriter, the Company within the meaning of the Act or the Exchange Act and each officer of the Company who signed the Registration Statement and each director of the Company. (e) The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 8, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 8 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement and Prospectus as required by the Act and the Exchange Act. 9. Representations, Warranties, Covenants and Agreements to Survive Delivery. All representations, warranties, covenants and agreements of the Company and the Underwriters herein or in certificates delivered pursuant hereto, and the indemnity and contribution agreements contained in Section 8 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter within the meaning of the Act or the Exchange Act, or by or on behalf of the Company or any of its officers, directors or controlling persons within the meaning of the Act or the Exchange Act, and shall survive the delivery of the Notes to the several Underwriters hereunder or termination of this Agreement. 10. Substitution of Underwriters. If any Underwriter or Underwriters shall fail to take up and pay for the principal amount of Firm Notes agreed by such Underwriter or Underwriters to be purchased hereunder upon tender of such Firm Notes in accordance with the terms hereof, and if the aggregate principal amount of Firm Notes which such defaulting Underwriter or Underwriters so agreed but failed to purchase does not exceed 10% of the Firm Notes, the remaining Underwriters 33 34 shall be obligated, severally in proportion to their respective commitments hereunder, to take up and pay for the Firm Notes of such defaulting Underwriter or Underwriters. If any Underwriter or Underwriters so defaults and the aggregate principal amount of Firm Notes which such defaulting Underwriter or Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm Notes, the remaining Underwriters shall have the right, but shall not be obligated, to take up and pay for (in such proportions as may be agreed upon among them) the Firm Notes which the defaulting Underwriter or Underwriters so agreed but failed to purchase. If such remaining Underwriters do not, at the Closing Date, take up and pay for the Firm Notes which the defaulting Underwriter or Underwriters so agreed but failed to purchase, the Closing Date shall be postponed for twenty-four (24) hours to allow the several Underwriters the privilege of substituting within twenty-four (24) hours (including non-business hours) another underwriter or underwriters (which may include any nondefaulting Underwriter) satisfactory to the Company. If no such underwriter or underwriters shall have been substituted as aforesaid by such postponed Closing Date, the Closing Date may, at the option of the Company, be postponed for a further twenty-four (24) hours, if necessary, to allow the Company the privilege of finding another underwriter or underwriters, satisfactory to you, to purchase the Firm Notes which the defaulting Underwriter or Underwriters so agreed but failed to purchase. If it shall be arranged for the remaining Underwriters or substituted underwriter or underwriters to take up the Firm Notes of the defaulting Underwriter or Underwriters as provided in this Section 10, (i) the Company shall have the right to postpone the time of delivery for a period of not more than seven (7) full business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees promptly to file any amendments to the Registration Statement, supplements to the Prospectus or other such documents which may thereby be made necessary, and (ii) the respective principal amount of Firm Notes to be purchased by the remaining Underwriters and substituted underwriter or underwriters shall be taken as the basis of their underwriting obligation. If the remaining Underwriters shall not take up and pay for all such Firm Notes so agreed to be purchased by the defaulting Underwriter or Underwriters or substitute another underwriter or underwriters as aforesaid and the Company shall not find or shall not elect to seek another underwriter or underwriters for such Firm Notes as aforesaid, then this Agreement shall terminate. In the event of any termination of this Agreement pursuant to the preceding paragraph of this Section 10, the Company shall not be liable to any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall have failed, otherwise than for some reason permitted under this Agreement, to purchase the principal amount of Firm Notes agreed by such Underwriter to be purchased hereunder, which Underwriter shall remain liable to the Company and the other Underwriters for damages, if any, resulting from such default) be liable to the Company (except to the extent provided in Sections 5 and 8 hereof). The term "Underwriter" in this Agreement shall include any person substituted for an Underwriter under this Section 10. 34 35 11. Effective Date of this Agreement and Termination. (a) This Agreement shall become effective at the earlier of (i) 6:30 A.M., San Francisco time, on the first full business day following the effective date of the Registration Statement, or (ii) the time of the initial public offering of any of the Notes by the Underwriters after the Registration Statement becomes effective. The time of the initial public offering shall mean the time of the release by you, for publication, of the first newspaper advertisement relating to the Notes, or the time at which the Notes are first generally offered by the Underwriters to the public by letter, telephone, telegram or telecopy, whichever shall first occur. By giving notice as set forth in Section 12 before the time this Agreement becomes effective, you, as Representatives of the several Underwriters, or the Company, may prevent this Agreement from becoming effective without liability of any party to any other party, except as provided in Sections 4(i), 5 and 8 hereof. (b) You, as Representatives of the several Underwriters, shall have the right to terminate this Agreement by giving notice as hereinafter specified at any time on or prior to the Closing Date or on or prior to any later date on which Option Notes are to be purchased, as the case may be, (i) if the Company shall have failed, refused or been unable to perform any agreement on its part to be performed, or because any other condition of the Underwriters' obligations hereunder required to be fulfilled is not fulfilled, including, without limitation, any change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise from that set forth in the Registration Statement or Prospectus, which, in your sole judgment, is material and adverse, or (ii) if additional material governmental restrictions, not in force and effect on the date hereof, shall have been imposed upon trading in securities generally or minimum or maximum prices shall have been generally established on the New York Stock Exchange or on the American Stock Exchange or in the over the counter market by the NASD, or trading in securities generally shall have been suspended on either such exchange or in the over the counter market by the NASD, or if a banking moratorium shall have been declared by federal, New York or California authorities, or (iii) if the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as to interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured, or (iv) if there shall have been a material adverse change in the general political or economic conditions or financial markets as in your reasonable judgment makes it inadvisable or impracticable to proceed with the offering, sale and delivery of the Notes, or (v) if there shall have been an outbreak or escalation of hostilities or of any other insurrection or armed conflict or the declaration by the United States of a national emergency which, in the reasonable opinion of the Representatives, makes it impracticable or inadvisable to proceed with the public offering of the Notes as contemplated by the Prospectus. In the event of termination pursuant to subparagraph (i) above, the Company shall remain obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 8 hereof. Any termination pursuant to any of subparagraphs (ii) through (v) above shall be without liability of any party to any other party except as provided in Sections 5 and 8 hereof. If you elect to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Section 11, you shall promptly notify the Company by telephone, 35 36 telecopy or telegram, in each case confirmed by letter. If the Company shall elect to prevent this Agreement from becoming effective, the Company shall promptly notify you by telephone, telecopy or telegram, in each case, confirmed by letter. 12. Notices. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to you shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555 California Street, Suite 2600, San Francisco, California 94104, telecopier number (415) 781-0278, Attention: General Counsel; if sent to the Company, such notice shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to Hadco Corporation, 12A Manor Parkway, Salem, New Hampshire 03079, telecopier number (603) 893-0025, Attention: Andrew E. Lietz, Chief Executive Officer. 13. Parties. This Agreement shall inure to the benefit of and be binding upon the several Underwriters and the Company and their respective executors, administrators, successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person or entity, other than the parties hereto and their respective executors, administrators, successors and assigns, and the controlling persons within the meaning of the Act or the Exchange Act, officers and directors referred to in Section 8 hereof, any legal or equitable right, remedy or claim in respect of this Agreement or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and their respective executors, administrators, successors and assigns and said controlling persons and said officers and directors, and for the benefit of no other person or entity. No purchaser of any of the Notes from any Underwriter shall be construed a successor or assign by reason merely of such purchase. In all dealings with the Company under this Agreement, you shall act on behalf of each of the several Underwriters, and the Company shall be entitled to act and rely upon any statement, request, notice or agreement made or given by you jointly or by Robertson, Stephens & Company LLC on behalf of you. 14. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. 15. Counterparts. This Agreement may be signed in several counterparts, each of which will constitute an original. 36 37 If the foregoing correctly sets forth the understanding among the Company and the several Underwriters, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among the Company and the several Underwriters. Very truly yours, HADCO CORPORATION By: _______________________________ Accepted as of the date first above written: ROBERTSON, STEPHENS & COMPANY LLC MERRILL LYNCH & CO. On their behalf and on behalf of each of the several Underwriters named in Schedule A hereto. By ROBERTSON, STEPHENS & COMPANY LLC By ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C. By: _______________________________ Authorized Signatory 37 38 SCHEDULE A PRINCIPAL AMOUNT OF FIRM NOTES TO BE UNDERWRITERS PURCHASED - --------------------------------------------------- -------------------------- Robertson, Stephens & Company LLC................. Merrill Lynch, Pierce, Fenner & Smith Incorporated -------------- TOTAL....................................... $100,000,000 EX-4 4 FORM OF INDENTURE 1 EXHIBIT 4 HADCO CORPORATION AND STATE STREET BANK AND TRUST COMPANY TRUSTEE INDENTURE DATED AS OF _______________, 1997 __% CONVERTIBLE SUBORDINATED NOTES DUE 2004 2 TABLE OF CONTENTS PAGE ---- ARTICLE I DEFINITIONS.......................................................1 Section 1.1 Definitions................................................1 ARTICLE II ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES...............................................................8 Section 2.1 Designation, Amount and Issue of Notes.....................8 Section 2.2 Form of Notes..............................................8 Section 2.3 Date and Denomination of Notes; Payments of Interest.......8 Section 2.4 Execution of Notes........................................10 Section 2.5 Exchange and Registration of Transfer of Notes............10 Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes................11 Section 2.7 Temporary Notes...........................................12 Section 2.8 Cancellation of Notes Paid, Etc...........................13 ARTICLE III REDEMPTION OF NOTES............................................13 Section 3.1 Redemption Prices.........................................13 Section 3.2 Notice of Redemption; Selection of Notes..................13 Section 3.3 Payment of Notes Called for Redemption....................15 Section 3.4 Conversion Arrangement on Call for Redemption.............16 ARTICLE IV SUBORDINATION OF NOTES..........................................16 Section 4.1 Agreement of Subordination................................16 Section 4.2 Payments to Noteholders...................................17 Section 4.3 Subrogation of Notes......................................19 Section 4.4 Authorization by Noteholders..............................20 Section 4.5 Notice to Trustee.........................................21 Section 4.6 Trustee's Relation to Senior Indebtedness.................22 Section 4.7 No Impairment of Subordination............................22 Section 4.8 Certain Conversions Deemed Payment........................22 ARTICLE V PARTICULAR COVENANTS OF THE COMPANY..............................23 Section 5.1 Payment of Principal, Premium and Interest................23 Section 5.2 Maintenance of Office or Agency...........................23 Section 5.3 Appointments to Fill Vacancies in Trustee's Office........24 Section 5.4 Provisions as to Paying Agent.............................24 Section 5.5 Existence.................................................25 Section 5.6 Maintenance of Properties.................................25 Section 5.7 Payment of Taxes and Other Claims.........................25 Section 5.8 Stay, Extension and Usury Laws............................25 Section 5.9 Statement by Officers as to Default.......................26 -i- 3 TABLE OF CONTENTS (CONTINUED) PAGE ---- Section 5.10 Further Instruments and Acts..............................26 ARTICLE VI NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE ...............................................................26 Section 6.1 Noteholders' Lists........................................26 Section 6.2 Preservation and Disclosure of Lists......................27 Section 6.3 Reports by Trustee........................................27 Section 6.4 Reports by Company........................................27 ARTICLE VII DEFAULTS AND REMEDIES...........................................28 Section 7.1 Events of Default.........................................28 Section 7.2 Payments of Notes on Default; Suit Therefor...............30 Section 7.3 Application of Monies Collected by Trustee................32 Section 7.4 Proceedings by Noteholder.................................32 Section 7.5 Proceedings by Trustee....................................33 Section 7.6 Remedies Cumulative and Continuing........................33 Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders................................34 Section 7.8 Notice of Defaults........................................34 Section 7.9 Undertaking to Pay Costs..................................34 Section 7.10 Delay or Omission Not Waiver..............................35 ARTICLE VIII CONCERNING THE TRUSTEE.........................................35 Section 8.1 Duties and Responsibilities of Trustee....................35 Section 8.2 Reliance on Documents, Opinions, Etc......................36 Section 8.3 No Responsibility for Recitals, Etc.......................37 Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes............................... 37 Section 8.5 Monies to Be Held in Trust................................38 Section 8.6 Compensation and Expenses of Trustee......................38 Section 8.7 Officers' Certificate as Evidence.........................38 Section 8.8 Conflicting Interests of Trustee..........................38 Section 8.9 Eligibility of Trustee....................................39 Section 8.10 Resignation or Removal of Trustee.........................39 Section 8.11 Acceptance by Successor Trustee...........................40 Section 8.12 Succession by Merger, Etc.................................41 Section 8.13 Limitation on Rights of Trustee as Creditor...............41 ARTICLE IX CONCERNING THE NOTEHOLDERS.......................................41 Section 9.1 Action by Noteholders.....................................41 -ii- 4 TABLE OF CONTENTS (CONTINUED) PAGE ---- Section 9.2 Proof of Execution by Noteholders.........................42 Section 9.3 Who Are Deemed Absolute Owners............................42 Section 9.4 Company-Owned Notes Disregarded...........................42 Section 9.5 Revocation of Consents; Future Holders Bound..............43 ARTICLE X NOTEHOLDERS' MEETINGS.............................................43 Section 10.1 Purpose of Meetings.......................................43 Section 10.2 Call of Meetings by Trustee...............................43 Section 10.3 Call of Meetings by Company or Noteholders................44 Section 10.4 Qualifications for Voting.................................44 Section 10.5 Regulations...............................................44 Section 10.6 Voting....................................................45 Section 10.7 No Delay of Rights by Meeting.............................45 ARTICLE XI SUPPLEMENTAL INDENTURES..........................................45 Section 11.1 Supplemental Indentures Without Consent of Noteholders....45 Section 11.2 Supplemental Indentures With Consent of Noteholders.......47 Section 11.3 Effect of Supplemental Indentures.........................47 Section 11.4 Notation on Notes.........................................48 Section 11.5 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee.........................................48 ARTICLE XII MERGER, SALE OR CONSOLIDATION...................................48 Section 12.1 Limitation on Merger, Sale or Consolidation...............48 Section 12.2 Successor Corporation to Be Substituted...................49 ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE........................49 Section 13.1 Discharge of Indenture....................................49 Section 13.2 Deposited Monies to Be Held in Trust by Trustee...........50 Section 13.3 Paying Agent to Repay Monies Held.........................50 Section 13.4 Return of Unclaimed Monies................................50 Section 13.5 Reinstatement.............................................51 ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS..............................................................51 Section 14.1 Indenture and Notes Solely Corporate Obligations..........51 ARTICLE XV CONVERSION OF NOTES..............................................51 Section 15.1 Right to Convert..........................................51 -iii- 5 TABLE OF CONTENTS (CONTINUED) PAGE ---- Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends...................52 Section 15.3 Cash Payments in Lieu of Fractional Shares................53 Section 15.4 Conversion Price..........................................53 Section 15.5 Adjustment of Conversion Price............................53 Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale............................................63 Section 15.7 Taxes on Shares Issued....................................65 Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock...................................65 Section 15.9 Responsibility of Trustee.................................65 Section 15.10 Notice to Holders Prior to Certain Actions................66 ARTICLE XVI REPURCHASE UPON A DESIGNATED EVENT...............................67 Section 16.1 Repurchase Right..........................................67 Section 16.2 Notices; Method of Exercising Repurchase Right, Etc.......67 Section 16.3 Certain Definitions.......................................69 ARTICLE XVII MISCELLANEOUS PROVISIONS........................................71 Section 17.1 Provisions Binding on Company's Successors................71 Section 17.2 Official Acts by Successor Corporation....................71 Section 17.3 Addresses for Notices, Etc................................71 Section 17.4 Governing Law.............................................72 Section 17.5 Evidence of Compliance with Conditions Precedent; Certificates to Trustee.................................. 72 Section 17.6 Legal Holidays............................................72 Section 17.7 No Security Interest Created..............................72 Section 17.8 Trust Indenture Act.......................................73 Section 17.9 Benefits of Indenture.....................................73 Section 17.10 Table of Contents, Headings, Etc..........................73 Section 17.11 Authenticating Agent......................................73 Section 17.12 Execution in Counterparts.................................74 -iv- 6 INDENTURE dated as of _______________, 1997 between Hadco Corporation, a Massachusetts corporation (hereinafter sometimes called the "Company", as more fully set forth in Section 1.1), and State Street Bank and Trust Company, a Massachusetts trust company (hereinafter sometimes called the "Trustee", as more fully set forth in Section 1.1). W I T N E S S E T H: WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issue of its __% Convertible Subordinated Notes due 2004 (hereinafter sometimes called the "Notes"), in an aggregate principal amount not to exceed $115,000,000 and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; and WHEREAS, the Notes, the certificate of authentication to be borne by the Notes, a form of assignment, a form of option to elect repayment upon a Designated Event, a form of conversion notice and a form of assignment to be borne by the Notes are to be substantially in the forms hereinafter provided for; and WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee or a duly authorized authenticating agent, as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute these presents a valid agreement according to its terms, have been done and performed, and the execution of this Indenture and the issue hereunder of the Notes have in all respects been duly authorized. NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and delivered, and in consideration of the premises and of the purchase and acceptance of the Notes by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Notes (except as otherwise provided below), as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. The terms defined in this Section 1.1 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1. All other terms used in this Indenture, which are defined in the Trust Indenture Act or which are by reference therein defined in the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires) shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of the execution of this Indenture. The words "herein," "hereof," "hereunder," and words of similar import refer to this Indenture as a whole 7 and not to any particular Article, Section or other Subdivision of this Indenture. The terms defined in this Indenture include the plural as well as the singular. Affiliate: The term "Affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control," when used with respect to any specified person means the power to direct or cause the direction of the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Bank Credit Agreement: The term "Bank Credit Agreement" means that certain Revolving Credit Agreement, dated as of January 8, 1997, by and among the Company, the lenders from time to time that are party thereto (the "Banks"), and The First National Bank of Boston, as agent for the Banks, as in effect on the date of this Indenture and as such agreement may be modified from time to time, and any credit agreement, loan agreement, note purchase agreement, indenture or other agreement, document or instrument refinancing, re-funding or otherwise replacing such agreement. Bank Credit Documents: The term "Bank Credit Documents" has the same meaning herein as the term "Loan Documents" has in the Bank Credit Agreement. Board of Directors: The term "Board of Directors" means the Board of Directors of the Company or a committee of such Board duly authorized to act for it hereunder. Board Resolution: The term "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, or duly authorized committee thereof (to the extent permitted by applicable law), and to be in full force and effect on the date of such certification. Business Day: The term "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which the banking institutions in The City of New York or the city in which the Corporate Trust Office is located are authorized or obligated by law or executive order to close or be closed. Commission: The term "Commission" means the Securities and Exchange Commission. Common Stock: The term "Common Stock" means any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. Subject to the provisions of Section 15.6, however, shares issuable on conversion of Notes shall include only shares of the class designated as common stock of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided that if at any 2 8 time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. Company: The term "Company" means Hadco Corporation, a Massachusetts corporation, and subject to the provisions of Article XII, shall include its successors and assigns. Corporate Trust Office: The term "Corporate Trust Office," or other similar term, means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office is, at the date as of which this Indenture is dated, located at 2 International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department (Hadco Corporation __% Convertible Subordinated Notes due 2004). Default: The term "default" means any event that is, or after notice or passage of time, or both, would be, an Event of Default. Designated Senior Indebtedness: The term "Designated Senior Indebtedness" means all Senior Indebtedness under the Bank Credit Documents and all other Senior Indebtedness with respect to which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such indebtedness shall be "Designated Senior Indebtedness" for purposes of this Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). Exchange Act: The term "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Event of Default: The term "Event of Default" means any event specified in Section 7.1(a), (b), (c), (d), (e), (f), (g), (h) or (i), continued for the period of time, if any, and after the giving of notice, if any, therein designated. Indebtedness: The term "Indebtedness" shall have the meaning specified in Section 7.1(f). Indenture: The term "Indenture" means this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented. Note or Notes: The terms "Note" or "Notes" means any Note or Notes, as the case may be, authenticated and delivered under this Indenture. Noteholder or holder: The terms "Noteholder" or "holder" as applied to any Note, or other similar terms (but excluding the term "beneficial holder"), means any person in whose name at the time a particular Note is registered on the Note register. 3 9 Officers' Certificate: The term "Officers' Certificate", when used with respect to the Company, means a certificate signed by the Chief Executive Officer, President, or any Vice President (whether or not designated by a number or numbers or word added before or after the title "Vice President") and by the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company, which is delivered to the Trustee. Each such certificate shall include the statements provided for in Section 17.5 if and to the extent required by the provisions of such Section. Opinion of Counsel: The term "Opinion of Counsel" means an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or other counsel acceptable to the Trustee, which is delivered to the Trustee. Each such opinion shall include the statements provided for in Section 17.5 if and to the extent required by the provisions of such Section. outstanding: The term "outstanding," when used with reference to Notes, means, subject to the provisions of Section 9.4, as of any particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except (a) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Notes, or portions thereof, for the payment or redemption of which monies in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); provided that if such Notes are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Section 3.2 or provision satisfactory to the Trustee shall have been made for giving such notice; provided further that if any Notes are not redeemed on a redemption date then such Notes shall be deemed outstanding until all principal of and premium, if any, and accrued interest on such Notes has been paid in full in accordance with the terms of this Indenture; (c) Notes in lieu of which, or in substitution for which, other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.6 unless proof satisfactory to the Trustee is presented that any such Notes are held by bona fide holders in due course; and (d) Notes converted into Common Stock pursuant to Article XV, Notes deemed not outstanding pursuant to Section 3.2 and Notes repurchased pursuant to Article XVI. person: The term "person" means a corporation, an association, a partnership, an individual, a joint venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or a political subdivision thereof. Predecessor Note: The term "Predecessor Note" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for 4 10 the purposes of this definition, any Note authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the lost, destroyed or stolen Note that it replaces. Responsible Officer: The term "Responsible Officer", when used with respect to the Trustee, means an officer of the Trustee assigned to the Corporate Trust Office of the Trustee, and any other officer of the Trustee to whom such matter is referred to because of his knowledge of and familiarity with the particular subject. Rights: The term "Rights" shall mean "Rights" as such term is defined in the Rights Agreement. Rights Agreement: The term "Rights Agreement" means that certain Rights Agreement, dated as of August 22, 1995 between the Company and the Rights Agent (as such term is defined therein), as amended from time to time. Securities Act: The term "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Senior Indebtedness: The term "Senior Indebtedness" means the principal of, premium, if any, interest on (including any interest accruing after the filing of a petition by or against the Company under any bankruptcy law, whether or not allowed as a claim after such filing in any proceeding under such bankruptcy law) and any other payment due pursuant to, any of the following, whether outstanding on the date of this Indenture or thereafter incurred or created: (a) All indebtedness of the Company for money borrowed or evidenced by notes, debentures, bonds, similar instruments or other debt securities (including, but not limited to, purchase money mortgages and any such other indebtedness that is convertible or exchangeable for securities of the Company); (b) All indebtedness of the Company due and owing with respect to letters of credit, banker's acceptances or similar credit transactions (including, but not limited to, reimbursement obligations with respect thereto); (c) All indebtedness or other obligations of the Company due and owing with respect to interest rate and currency swap agreements, cap, floor, collar and option agreements, currency spot and forward contracts and other similar agreements and arrangements; (d) All indebtedness consisting of commitment or standby fees due and payable to lending institutions with respect to credit facilities or letters of credit, banker's acceptances or similar credit transactions; 5 11 (e) All obligations of the Company for payment of money under leases required or permitted to be capitalized under generally accepted accounting principles; (f) All indebtedness or obligations of others of the kinds described in any of the preceding clauses (a), (b), (c), (d) or (e) assumed by or guaranteed in any manner by the Company or in effect guaranteed (directly or indirectly) by the Company through an agreement to purchase, contingent or otherwise, and all obligations of the Company under any such guarantee or other arrangements; and (g) All renewals, extensions, refundings, deferrals, amendments or modifications of indebtedness of the kinds described in any of the preceding clauses (a), (b), (c), (d), (e) or (f); unless in the case of any particular indebtedness, obligation, renewal, extension, deferral, refunding, amendment, modification or supplement, the instrument or other document creating or evidencing the same or the assumption or guarantee of the same expressly provides that such indebtedness, obligation, renewal, extension, refunding, deferral, amendment or modification or supplement is subordinate to, or is not superior to, or is pari passu with, the Notes; provided that Senior Indebtedness shall not include (i) any indebtedness of any kind of the Company to any Subsidiary of the Company, a majority of the voting stock of which is owned, directly or indirectly, by the Company, (ii) indebtedness for trade payables or constituting the deferred purchase price of inventory, material or services incurred in the ordinary course of business or (iii) the Notes. Significant Subsidiary: The term "Significant Subsidiary" means, with respect to any person, a Subsidiary of such person that would constitute a significant subsidiary, as such term is defined under Rule 1-02 of Regulation S-X of the Commission. Subsidiary: The term "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. Trust Indenture Act: The term "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as it was in force at the date of execution of this Indenture, except as provided in Sections 11.3 and 15.6; provided, however, that in the event the Trust Indenture Act of 1939 is amended after the date hereof, the term "Trust Indenture Act" shall mean, to the extent required by such amendment, the Trust Indenture Act of 1939 as so amended. Trustee: The term "Trustee" means State Street Bank and Trust Company, and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee hereunder. 6 12 In addition to the foregoing defined terms (except as herein otherwise expressly provided or unless the context otherwise requires), the following terms shall have the respective meanings specified in the following Sections and any other terms defined herein shall have the meanings assigned thereto: Term Section ---- ------- beneficial owner 16.3 Change in Control 16.3 Closing Price 15.5(h) Company Notice 16.2 Continuing Director 16.3 Conversion Price 15.4 Current Market Price 15.5(h) Defaulted Interest 2.3 Designated Event 16.3 "ex" date 15.5(h) Expiration Time 15.5(f) fair market value 15.5(h) junior securities 4.8 non-electing share 15.6 Note register 2.5 Note registrar 2.5 Offer Expiration Time 15.5(g) Payment Blockage Notice 4.2 person or group 16.3 Purchased Common Shares 15.5(g) Purchased Shares 15.5(f) record date 2.3 Record Date 15.5(h) Removal Notice 8.10(b) repurchase date 16.1 Repurchase Price 16.1 Securities 15.5(d) Subordinated Indebtedness 4.1 Termination of Trading 16.3 Trading Day 15.5(h) Trigger Event 15.5(d) Voting Stock 16.3 7 13 ARTICLE II ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES Section 2.1 Designation, Amount and Issue of Notes. The Notes shall be designated as "__% Convertible Subordinated Notes due 2004". Notes not to exceed the aggregate principal amount of $100,000,000 (or $115,000,000 if the over-allotment option set forth in Section 7 of the Underwriting Agreement for the Notes dated _______________, 1997 (as amended from time to time by the parties thereto) by and between the Company and the several underwriters named therein is exercised in full) (except as provided in Sections 2.5, 2.6, 3.3, 15.2 and 16.2) upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes upon the written order of the Company, signed by its (a) Chief Executive Officer, President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and (b) Treasurer or Assistant Treasurer or its Secretary or any Assistant Secretary, without any further action by the Company hereunder. Section 2.2 Form of Notes. The Notes and the Trustee's certificate of authentication to be borne by such Notes shall be substantially in the form set forth in Exhibit A, which is incorporated in and made a part of this Indenture. Any of the Notes may have such letters, numbers or other marks of identification and such notations, legends and endorsements as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Notes may be listed or designated for issuance, or to conform to usage. The terms and provisions contained in the form of Note attached as Exhibit A hereto shall constitute, and are hereby expressly made, a part of this Indenture and to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.3 Date and Denomination of Notes; Payments of Interest. The Notes shall be issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. Every Note shall be dated the date of its authentication, shall bear interest from the applicable date and accrued interest shall be payable semiannually on each ________ and ________, commencing ________, 1997 as specified on the face of the form of Note, attached as Exhibit A hereto. The person in whose name any Note (or its Predecessor Note) is registered at the close of business on any record date with respect to any interest payment date (including any Note that is 8 14 converted after the record date and on or before the interest payment date) shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such Note upon any transfer, exchange or conversion subsequent to the record date and prior to such interest payment date; provided that any Note surrendered for conversion during the period from a record date to the close of business on the Business Day prior to next succeeding interest payment date, to the extent provided in Section 15.2, shall be accompanied by a payment equal to the interest otherwise payable on such next succeeding interest payment date; provided further that in the event of any redemption or repurchase of any Note after a record date and prior to the close of business on the Business Day prior to next succeeding interest payment date, interest shall not be paid to the person in whose name the Note is registered on the close of business on such record date, but instead shall be payable to the holder of such Note surrendering such Note for redemption or repurchase, as the case may be, as required by Section 3.3 hereof and Article XVI hereof, respectively. Interest may, at the option of the Company, be paid by check mailed to the address of such person on the registry kept for such purposes; provided that, with respect to any holder of Notes with an aggregate principal amount equal to or in excess of $2,000,000, at the request of such holder in writing to the Company, interest on such holder's Notes shall be paid by wire transfer in immediately available funds in accordance with the wire transfer instruction supplied by such holder to the Trustee and paying agent (if different from Trustee). The term "record date" with respect to any interest payment date shall mean the __________ immediately preceding each __________ interest payment date and the __________ immediately preceding each __________ interest payment date. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any said __________ or __________ (herein called "Defaulted Interest") shall forthwith cease to be payable to the Noteholder on the relevant record date by virtue of his having been such Noteholder; and such Defaulted Interest shall be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest to be paid on each Note and the date of the payment (which shall be not less than twenty-five (25) days after the receipt by the Trustee of such notice, unless the Trustee shall consent to an earlier date), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall be not more than fifteen (15) days and not less than ten (10) days prior to the date of the proposed payment and not less than ten (10) days (or such 9 15 shorter period to which the Trustee consents) after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first-class postage prepaid, to each Noteholder at his address as it appears in the Note register, not less than ten (10) days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been so mailed, such Defaulted Interest shall be paid to the persons in whose names the Notes (or their respective Predecessor Notes) were registered at the close of business on such special record date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Notes may be listed or designated for issuance, and upon such notice as may be required by such exchange or automated quotation system, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Section 2.4 Execution of Notes. The Notes shall be signed in the name and on behalf of the Company by the signature of its Chief Executive Officer, its President, or any of its Vice Presidents (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and attested by the signature of its Secretary or any of its Assistant Secretaries. The signature of any of these officers on the Notes may be manual or facsimile and may be printed, engraved or otherwise reproduced on the Notes. Only such Notes as shall bear thereon a certificate of authentication substantially in the form set forth on the form of Note attached as Exhibit A hereto, manually executed by the Trustee (or an authenticating agent appointed by the Trustee as provided by Section 17.11), shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee (or such an authenticating agent) upon any Note executed by the Company shall be conclusive evidence and the only evidence that the Note so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company who shall have signed any of the Notes shall cease to be such officer before the Notes so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Notes nevertheless may be authenticated and delivered or disposed of as though the person who signed such Notes had not ceased to be such officer of the Company; and any Note may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Note, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer. Section 2.5 Exchange and Registration of Transfer of Notes. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 5.2 being herein sometimes collectively referred to as the "Note register") in which, subject to such reasonable 10 16 regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. Such Note register shall be in written form or in any form capable of being converted into written form within a reasonable period of time. The Trustee is hereby appointed "Note registrar" for the purpose of registering Notes and transfers of Notes as herein provided. The Company may appoint one or more co-registrars in accordance with Section 5.2. Upon surrender for registration of transfer of any Note to the Note registrar or any co-registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.5, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount. Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at any such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Noteholder making the exchange is entitled to receive, bearing registration numbers not contemporaneously outstanding. All Notes presented or surrendered for registration of transfer or for exchange shall (if so required by the Company, the Trustee, the Note registrar or any co-registrar) be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee and duly executed by the Noteholder thereof or his attorney duly authorized in writing. No service charge shall be charged to the Noteholder for any exchange or registration of transfer of Notes, but the Company may require payment of a sum sufficient to cover any tax, assessments or other governmental charges that may be imposed in connection therewith. None of the Company, the Trustee, the Note registrar or any co-registrar shall be required to exchange or register a transfer of (a) any Notes for a period of fifteen (15) days next preceding any selection of Notes to be redeemed or (b) any Notes called for redemption or, if a portion of any Note is selected or called for redemption, such portion thereof selected or called for redemption or (c) any Notes surrendered for conversion or, if a portion of any Note is surrendered for conversion, such portion thereof surrendered for conversion or (d) any Notes surrendered for repurchase pursuant to Article XVI or, if a portion of any Note is surrendered for repurchase pursuant to Article XVI, such portion thereof surrendered for repurchase pursuant to Article XVI. All Notes issued upon any transfer or exchange of Notes in accordance with this Indenture shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture as the Notes surrendered upon such registration of transfer or exchange. Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute, and upon its request the Trustee or an authenticating agent appointed by the Trustee shall authenticate and deliver, 11 17 a new Note, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Note, or in lieu of and in substitution for the Note so destroyed, lost or stolen. In every case the applicant for a substituted Note shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and such other documents as may reasonably be required by the Trustee and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company, to the Trustee and, if applicable, to such authenticating agent evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. The Trustee or such authenticating agent may authenticate any such substituted Note and deliver the same upon the receipt of such security or indemnity as the Trustee, the Company and, if applicable, such authenticating agent may require. Upon the issuance of any substituted Note, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Note which has matured or is about to mature or has been called for redemption or submitted for repurchase or is about to be converted into Common Stock shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Note, pay or authorize the payment of or convert or authorize the conversion of the same (without surrender thereof except in the case of a mutilated Note), as the case may be, if the applicant for such payment or conversion shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in case of destruction, loss or theft, evidence satisfactory to the Company, the Trustee and, if applicable, any paying agent or conversion agent of the destruction, loss or theft of such Note and of the ownership thereof. Every substitute Note issued pursuant to the provisions of this Section 2.6 by virtue of the fact that any Note is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of (but shall be subject to all the limitations set forth in) this Indenture equally and proportionately with any and all other Notes duly issued hereunder. To the extent permitted by law, all Notes shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment or conversion of mutilated, destroyed, lost or stolen Notes and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment or conversion of negotiable instruments or other securities without their surrender. Section 2.7 Temporary Notes. Pending the preparation of definitive Notes, the Company may execute and the Trustee or an authenticating agent appointed by the Trustee shall, upon written request of the Company, authenticate and deliver temporary Notes (printed, typewritten or lithographed). Temporary Notes shall be issuable in any authorized denomination, and substantially in the form of the definitive Notes but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Company. Every such temporary Note shall be executed by the Company and authenticated by the Trustee or such authenticating agent 12 18 upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Notes. Without unreasonable delay the Company will execute and deliver to the Trustee or such authenticating agent definitive Notes and thereupon any or all temporary Notes may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 5.2 and the Trustee or such authenticating agent shall authenticate and deliver in exchange for such temporary Notes an equal aggregate principal amount of definitive Notes. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as definitive Notes authenticated and delivered hereunder. Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for the purpose of payment, redemption, repurchase, conversion, exchange or registration of transfer, shall, if surrendered to the Company or any paying agent or any Note registrar or any conversion agent, be surrendered to the Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be promptly canceled by it, and no Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall destroy canceled Notes in accordance with its existing retention and destruction policies and practices. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes unless and until the same are delivered to the Trustee for cancellation. ARTICLE III REDEMPTION OF NOTES Section 3.1 Redemption Prices. The Notes may not be redeemed at the option of the Company prior to __________, 2000. At any time on or after that date, the Company may, at its option, redeem all, or from time to time any part of, the Notes on any date prior to maturity, upon notice as set forth in Section 3.2, and at the optional redemption prices set forth in the form of Note attached as Exhibit A hereto, together with accrued interest, if any, to, but excluding, the date fixed for redemption. Section 3.2 Notice of Redemption; Selection of Notes. In case the Company shall desire to exercise the right to redeem all or, as the case may be, any part of the Notes pursuant to Section 3.1, the Company shall fix a date for redemption and the Company, or at the request of the Company the Trustee in the name of the Company (such request to be received by the Trustee at least ten (10) Business Days prior to the date the Trustee is requested to give notice as described below unless a shorter period is agreed to by the Trustee), shall mail or cause to be mailed a notice of such redemption at least twenty (20) and not more than sixty (60) days prior to the date fixed for redemption in a form to be prepared by and at the expense of the Company to the holders of Notes so to be redeemed as a whole or in part at their last addresses as the same appear on the Note register (provided that if the Company shall give such notice, it shall also give such notice, and notice of the Notes to be redeemed, to the Trustee). Such mailing shall be by first-class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or 13 19 not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Note designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Note. Each such notice of redemption shall specify the aggregate principal amount of Notes to be redeemed, the date fixed for redemption, the redemption price at which Notes are to be redeemed, the name and address of the paying agent and the conversion agent (if different from the Trustee), the place or places of payment, that payment will be made upon presentation and surrender of such Notes, that interest accrued to, but excluding, the date fixed for redemption will be paid as specified in said notice, and that, unless the Company defaults in making the redemption payment, on and after said date interest thereon or on the portion thereof to be redeemed will cease to accrue. Such notice shall also state the then-applicable Conversion Price and that the right to convert such Notes or portions thereof into Common Stock will expire at the close of business on the Business Day next preceding the date fixed for redemption (unless the Company fails to redeem such Notes on such date, in which case the right to convert shall terminate on the date such default is cured and such Note is redeemed). If fewer than all the Notes are to be redeemed, the notice of redemption shall identify the Notes to be redeemed. In case any Note is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof will be issued. On or prior to the redemption date specified in the notice of redemption given as provided in this Section, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 5.4) an amount of money sufficient to redeem on the redemption date all the Notes (or portions thereof) so called for redemption (other than those theretofore surrendered for conversion into Common Stock) at the appropriate redemption price, together with accrued interest to, but excluding, the date fixed for redemption, provided that if such payment is made on the redemption date it must be received by the Trustee or paying agent, as the case may be, by 10:00 a.m. New York City time, on such date. If any Note called for redemption is converted pursuant hereto, any money deposited with the Trustee or any paying agent or so segregated and held in trust for the redemption of such Note shall be paid to the Company upon its request, or, if then held by the Company shall be discharged from such trust. If fewer than all the Notes are to be redeemed, the Company will give the Trustee written notice in the form of an Officers' Certificate not fewer than forty-five (45) days (or such shorter period of time as may be acceptable to the Trustee) prior to the redemption date as to the aggregate principal amount of Notes to be redeemed. If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes or portions thereof to be redeemed (in principal amounts of $1,000 or integral multiples thereof), by lot or, in its sole discretion, on a pro rata basis, with such adjustments up to $1,000 as are required in order to retain the minimum denominations of the Notes. If any Note selected for partial redemption is converted in part after such selection, the converted portion of such Note shall be deemed (so far as may be) to be the portion to be selected for redemption. The Notes (or portions thereof) so selected shall be deemed duly selected for redemption for all purposes hereof, notwithstanding that any such 14 20 Note is converted as a whole or in part before the mailing of the notice of redemption. Notes may be redeemed in part only in denominations of $1,000 or any integral multiple thereof. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Upon any redemption of less than all Notes, the Company and the Trustee shall treat as outstanding any Notes surrendered for conversion during the period of fifteen (15) days next preceding the mailing of a notice of redemption and shall treat as not outstanding any Note authenticated and delivered during such period in exchange for the unconverted portion of any Note converted in part during such period. Section 3.3 Payment of Notes Called for Redemption. If notice of redemption has been given as above provided, the Notes or portion of Notes with respect to which such notice has been given shall, unless such Notes or portions thereof have been delivered to the Trustee for cancellation or converted into Common Stock pursuant to the terms hereof, become due and payable on the date and at the place or places stated in such notice at the applicable redemption price, together with interest accrued to, but excluding, the date fixed for redemption. On and after said date (unless the Company shall default in the payment of such Notes at the redemption price, together with interest accrued to said date) interest on the Notes or portion of Notes so called for redemption shall cease to accrue and such Notes shall cease, except as provided in Sections 8.5 and 13.4 to be entitled to any benefit or security under this Indenture, and the holders thereof shall have no right in respect of such Notes except the right to receive the redemption price thereof and unpaid interest to, but excluding, the date fixed for redemption. On and after the close of business on the Trading Day next preceding the date fixed for redemption (unless the Company shall default in the payment of such Notes at the redemption price, together with accrued interest to the date fixed for redemption) the Notes or portion of the Notes called for redemption shall also cease to be convertible into Common Stock. On presentation and surrender of such Notes at a place of payment in said notice specified, the said Notes or the specified portions thereof to be redeemed shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to, but excluding, the date fixed for redemption; provided that, if the applicable redemption date is an interest payment date, the semi-annual payment of interest becoming due on such date shall be payable to the holders of such Notes registered as such on the relevant record date subject to the terms and provisions of Section 2.3 hereof. Upon presentation of any Note redeemed in part only, the Company shall execute and the Trustee shall authenticate and deliver to the holder thereof, at the expense of the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Notes so presented. Notwithstanding the foregoing, the Trustee shall not pay the redemption price of any Notes or mail any notice of optional redemption during the continuance of a default in payment of interest or premium, if any, on the Notes or of any Event of Default of which, in the case of any Event of Default other than under Section 7.1(a), (b) or (d), a Responsible Officer of the Trustee has knowledge. If any Note called for redemption shall not be so paid upon surrender thereof for 15 21 redemption, the principal and premium, if any, shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate borne by the Note and such Note shall remain convertible into Common Stock until the principal and premium, if any, shall have been paid or duly provided for. Section 3.4 Conversion Arrangement on Call for Redemption. In connection with any redemption of Notes, the Company may arrange for the purchase and conversion of any Notes by an agreement with one or more investment bankers or other purchasers to purchase such Notes by paying to the Trustee in trust for the Noteholders, on or before the date fixed for redemption, an amount not less than the applicable redemption price, together with interest accrued to, but excluding, the date fixed for redemption, of such Notes. Notwithstanding anything to the contrary contained in this Article III, the obligation of the Company to pay the redemption price of such Notes, together with interest accrued to, but excluding, the date fixed for redemption, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, a copy of which will be filed with the Trustee prior to the date fixed for redemption, any Notes not duly surrendered for conversion by the holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such holders and (notwithstanding anything to the contrary contained in Article XV) surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the date fixed for redemption (and the right to convert any such Notes shall be deemed to have been extended through such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it in the same manner as it would monies deposited with it by the Company for the redemption of Notes. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Notes shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Notes between the Company and such purchasers to which the Trustee has not consented in writing, including the costs and expenses incurred by the Trustee in the defense or investigation of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture. ARTICLE IV SUBORDINATION OF NOTES Section 4.1 Agreement of Subordination. The Company covenants and agrees, and each holder of Notes issued hereunder by its acceptance thereof likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article IV; and each person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions. 16 22 The payment of the principal of, premium, if any, and interest on all Notes (including, but not limited to, the redemption price or repurchase price with respect to the Notes to be redeemed or repurchased, as provided in this Indenture) issued hereunder and all other payments to Noteholders required hereunder (the "Subordinated Indebtedness") shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full in cash or in such other form of payment as may be acceptable to the holders of all Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article IV shall prevent the occurrence of any default or Event of Default hereunder. Section 4.2 Payments to Noteholders. No payment shall be made with respect to Subordinated Indebtedness, except payments made pursuant to Article XIII from monies deposited with the Trustee pursuant thereto prior to the happening of the events specified in either of the following clauses (i) or (ii), if: (i) a default in the payment of principal of or, premium, if any, interest or other payment due on any Designated Senior Indebtedness occurs and is continuing (or, in the case of Designated Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument evidencing such Designated Senior Indebtedness), provided that the foregoing shall apply to the Trustee only if the Trustee has actual knowledge (as determined in accordance with Section 4.5) of the occurrence and/or continuation of such default; or (ii) a default, other than a payment default, on any Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and the Trustee and the Company receive a notice of the default (a "Payment Blockage Notice") from a holder (or a trustee on behalf of such holder) of Designated Senior Indebtedness or its representative or agent. If the Trustee and the Company receive any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless (A) at least 365 days shall have elapsed since the first day of effectiveness of the immediately prior Payment Blockage Notice, and (B) either (x) all scheduled payments of the principal of and premium, if any, and interest on the Notes that have come due have been paid in full in cash or (y) the Trustee or the Noteholders shall not have instituted proceedings to enforce the Noteholders' right to receive such payments. No default (whether or not such nonpayment default is on the same issue of Designated Senior Indebtedness) that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee and the Company shall be, or be made, the basis for a subsequent Payment Blockage Notice. If the Trustee and the Company receive a Payment Blockage Notice pursuant to clause (ii) above that is ineffective pursuant to this paragraph, the Trustee shall so notify the sender of such ineffective Payment Blockage Notice and continue to make payments pursuant to this Indenture. 17 23 The Company may and shall resume payments on and distributions in respect of the Notes upon the earlier of: (1) the date upon which the default referred to in clause (i) or (ii) above, as applicable, is cured or waived, provided that the foregoing shall apply to the Trustee only if the Trustee has actual knowledge (as determined in accordance with Section 4.5) of such cure or waiver, or (2) in the case of a default referred to in clause (ii) above, 179 days pass after the Payment Blockage Notice is received unless the maturity of such Designated Senior Indebtedness has been accelerated, unless this Article IV otherwise prohibits the payment or distribution at the time of such payment or distribution. In the event of the acceleration of the Notes because of an Event of Default, the Company may not make any payment or distribution to the Trustee or any holder of Notes in respect of the amounts payable with respect to the Notes and may not acquire or purchase from the Trustee or any holder of Notes any Notes until all Senior Indebtedness has been paid in full or such acceleration is rescinded in accordance with the terms of this Indenture. Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in cash or such other form of payment acceptable to the holders thereof before any payment is made on account of Subordinated Indebtedness (except payments made pursuant to Article XIII from monies deposited with the Trustee pursuant thereto prior to the happening of such dissolution, winding-up, liquidation or reorganization or bankruptcy, insolvency, receivership or other such proceedings); and upon any such dissolution or winding-up or liquidation or reorganization or bankruptcy, insolvency, receivership or other such proceedings, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Notes or the Trustee under this Indenture would be entitled, except for the provisions of this Article IV, shall (except as aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the holders of the Notes or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, or as otherwise required by law or a court order) or their respective representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full in cash or such other form of payment acceptable to the holders of such Senior Indebtedness after giving effect to any concurrent payment or distribution 18 24 to or for the holders of Senior Indebtedness, before any payment or distribution is made to the holders of the Notes or to the Trustee under this Indenture. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing, shall be received by the Trustee under this Indenture or by any holders of the Notes before all Senior Indebtedness is paid in full in cash or such other form of payment acceptable to the holders of such Senior Indebtedness or provision is made for such payment in accordance with its terms, such payment or distribution shall be held by the recipient or recipients for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash or such other form of payment acceptable to the holders of such Senior Indebtedness in accordance with its terms, after giving effect to any concurrent payment or distribution (or provision therefor) to or for the holders of such Senior Indebtedness; provided that the foregoing shall apply to the Trustee only if the Trustee has actual knowledge (as determined in accordance with Section 4.5) that such payment or distribution is prohibited by this Indenture. For purposes of this Article IV, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated (at least to the extent provided in this Article IV with respect to the Notes) to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the new corporation, if any, resulting from such reorganization or adjustment, and (ii) the rights of the holders of Senior Indebtedness (other than leases which are not assumed by the Company or by the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article XII shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 4.2 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article XII. Nothing in this Section 4.2 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject to the further provisions of Section 4.5. Section 4.3 Subrogation of Notes. Subject to the payment in full of all Senior Indebtedness, the rights of the holders of the Notes shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article IV (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to other indebtedness of the Company to substantially the same extent 19 25 as the Notes are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the holders of the Notes or the Trustee would be entitled except for the provisions of this Article IV, and no payment over pursuant to the provisions of this Article IV, to or for the benefit of the holders of Senior Indebtedness by holders of the Notes or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness, and the holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Indebtedness; and no payments or distributions of cash, property or securities to or for the benefit of the holders of the Notes pursuant to the subrogation provisions of this Article IV, which would otherwise have been paid to the holders of Senior Indebtedness shall be deemed to be a payment by the Company to or for the account of the Notes. It is understood that the provisions of this Article IV are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand. Nothing contained in this Article IV or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Notes the principal of (and premium, if any) and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Notes and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article IV of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article IV, the Trustee, subject to the provisions of Section 8.1, and the holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article IV. Section 4.4 Authorization by Noteholders. Each holder of a Note by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article IV and appoints the Trustee his attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 20 26 days before the expiration of the time to file such claim, the holders of any Senior Indebtedness or their respective representative or representatives are hereby authorized to file an appropriate claim for and on behalf of the holders of the Notes. Section 4.5 Notice to Trustee. The Company shall give prompt written notice in the form of an Officers' Certificate to a Responsible Officer of the Trustee and to any paying agent of any fact known to the Company which would prohibit the making of any payment of monies to or by the Trustee or any paying agent in respect of the Notes pursuant to the provisions of this Article IV. Notwithstanding the provisions of this Article IV or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any Senior Indebtedness (including Designated Senior Indebtedness) or of any default or event of default (or cure or waiver of any default or event of default) with respect to any Senior Indebtedness (including Designated Senior Indebtedness) or of any other facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Notes pursuant to the provisions of this Article IV, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office of the Trustee from the Company (in the form of an Officers' Certificate) or from a holder or holders of Senior Indebtedness or Designated Senior Indebtedness or from any trustee thereof who shall have been certified by the Company or otherwise established to the reasonable satisfaction of the Trustee to be such holder or trustee; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 8.1, shall be entitled in all respects to assume that no such facts exist; provided that if on a date at least two (2) Business Days prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, or premium, if any, or interest on any Note), the Trustee shall not have received with respect to such monies the notice provided for in this Section 4.5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Notwithstanding anything to the contrary hereinbefore set forth, nothing shall prevent any payment by the Trustee to the Noteholders of monies deposited with it pursuant to Section 13.1. The Trustee, subject to the provisions of Section 8.1, shall be entitled to rely on the delivery to it of a written notice by a person representing himself to be a holder of Senior Indebtedness or Designated Senior Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of Senior Indebtedness or Designated Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article IV, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article IV, and if such evidence is not furnished the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment. In the event that the 21 27 Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Designated Senior Indebtedness to deliver a Payment Blockage Notice pursuant to this Article IV, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Designated Senior Indebtedness held by such person and any other facts pertinent to determining the right of such person to deliver a Payment Blockage Notice, and if such evidence is not furnished the Trustee may defer taking action with respect to a Payment Blockage Notice pending judicial determination as to the right of such person to give such notice. Section 4.6 Trustee's Relation to Senior Indebtedness. The Trustee and any agent of the Company or the Trustee in its individual capacity shall be entitled to all the rights set forth in this Article IV in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder. Nothing in this Article IV shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.6. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article IV, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall not be personally liable to any holder of Senior Indebtedness if it shall pay over or deliver to holders of Notes, the Company or any other person money or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article IV or otherwise. Section 4.7 No Impairment of Subordination. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Section 4.8 Certain Conversions Deemed Payment. For the purposes of this Article only, (1) the issuance and delivery of junior securities upon conversion of Notes in accordance with Article XV shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest on Notes or on account of the purchase or other acquisition of Notes, and (2) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion of a Note shall be deemed to constitute payment on account of the principal of such Note. For the purposes of this Section, the term "junior securities" means (a) shares of any stock of any class of the Company and (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Notes are so subordinated as provided in this Article and the weighted average maturity of which is no earlier than the maturity of the Notes. Nothing contained in this Article or elsewhere in this Indenture or in the 22 28 Notes is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Notes, the right, which is absolute and unconditional, of the Holder of any Note to convert such Note in accordance with Article XV. ARTICLE V PARTICULAR COVENANTS OF THE COMPANY Section 5.1 Payment of Principal, Premium and Interest. The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of and premium, if any, and interest on each of the Notes at the places, at the respective times and in the manner provided herein and in the Notes. Each installment of interest on the Notes due on any semi-annual interest payment date may be paid by mailing checks for the interest payable to or upon the written order of the holders of Notes entitled thereto as they shall appear on the registry books of the Company; provided that, with respect to any holder of Notes with an aggregate principal amount equal to or in excess of $2,000,000, at the request of such holder in writing to the Company, interest on such holder's Notes shall be paid by wire transfer in immediately available funds in accordance with the wire transfer instruction supplied by such holder to the Trustee and paying agent (if different from the Trustee). The Company hereby designates the Trustee as paying agent, Note registrar and conversion agent. Section 5.2 Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where the Notes may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion, redemption or repurchase and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee or at such other office as may be designated by the Trustee in the Borough of Manhattan, the City of New York. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee and the holders of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Corporate Trust Office and the office or agency of the Trustee in the Borough of Manhattan, The City of New York of State Street Bank and Trust Company, N.A., an Affiliate of the Trustee, located at 61 Broadway, Concourse Level, Corporate 23 29 Trust Window, New York, NY 10006 as one such office or agency of the Company for the purpose of payment, conversion and registration. So long as the Trustee is the Note registrar, the Trustee agrees to mail, or cause to be mailed, the notice set forth in Section 8.10(a). Section 5.3 Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so that there shall at all times be a Trustee hereunder. Section 5.4 Provisions as to Paying Agent. (a) If the Company shall appoint a paying agent other than the Trustee or if the Trustee shall appoint such a paying agent, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 5.4: (1) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest on the Notes (whether such sums have been paid to it by the Company or by any other obligor on the Notes) in trust for the benefit of the holders of the Notes; (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of and premium, if any, or interest on the Notes when the same shall be due and payable; and (3) that at any time during the continuance of an Event of Default, upon request of the Trustee, it will forthwith pay to the Trustee all sums so held in trust. The Company shall, on or before each due date of the principal of, premium, if any, or interest on the Notes, deposit with the paying agent a sum sufficient to pay such principal, premium, if any, or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of any failure to take such action, provided that if such deposit is made on the due date, such deposit must be received by the paying agent by 10:00 a.m., New York City time, on such date. (b) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of, premium, if any, or interest on the Notes, set aside, segregate and hold in trust for the benefit of the holders of the Notes a sum sufficient to pay such principal, premium, if any, or interest so becoming due and will notify the Trustee of any failure to take such action and of any failure by the Company (or any other obligor under the Notes) to make any payment of the principal of, premium, if any, or interest on the Notes when the same shall become due and payable. 24 30 (c) Anything in this Section 5.4 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Company or any paying agent hereunder as required by this Section 5.4, such sums to be held by the Trustee upon the trusts herein contained and upon such payment by the Company or any paying agent to the Trustee, the Company or such paying agent shall be released from all further liability with respect to such sums. (d) Anything in this Section 5.4 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 5.4 is subject to Sections 13.3 and 13.4. Section 5.5 Existence. Subject to Article XII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and rights (charter and statutory); provided, however, that the Company shall not be required to preserve any such right if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not adverse in any material respect to the holders. Section 5.6 Maintenance of Properties. The Company will cause all material properties owned, leased or licensed in the conduct of its business or the business of any Significant Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business and not adverse in any material respect to the holders. Section 5.7 Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all material taxes, assessments and governmental charges levied or imposed upon the Company or upon the income, profits or property of the Company and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. Section 5.8 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and the Company (to the extent it may 25 31 lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. Section 5.9 Statement by Officers as to Default. The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. The Company will deliver to the Trustee, forthwith upon becoming aware of any default in the performance or observance of any covenant, agreement or condition contained in this Indenture, or any Event of Default, an Officers' Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto. As of the date of this Indenture, the Company's fiscal year ends on the last Saturday of October. Any notice required to be given under this Section 5.9 shall be delivered to the Trustee at its Corporate Trust Office. Section 5.10 Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. ARTICLE VI NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 6.1 Noteholders' Lists. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee, semi-annually, not more than fifteen (15) days after each __________and __________ in each year beginning with __________ , 1997, and at such other times as the Trustee may request in writing, within thirty (30) days after receipt by the Company of any such request (or such lesser time as the Trustee may reasonably request in order to enable it to timely provide any notice to be provided by it hereunder), a list in such form as the Trustee may reasonably require of the names and addresses of the holders of Notes as of a date not more than fifteen (15) days (or such other date as the Trustee may reasonably request in order to so provide any such notices) prior to the time such information is furnished, except that no such list need be furnished so long as the Trustee is acting as Note registrar. 26 32 Section 6.2 Preservation and Disclosure of Lists. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Notes contained in the most recent list furnished to it as provided in Section 6.1 or maintained by the Trustee in its capacity as Note registrar, if so acting. The Trustee may destroy any list furnished to it as provided in Section 6.1 upon receipt of a new list so furnished. (b) The rights of Noteholders to communicate with other holders of Notes with respect to their rights under this Indenture or under the Notes and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Noteholder, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information regardless of the source which such information was derived as to names and addresses of holders of Notes made pursuant to the Trust Indenture Act. Section 6.3 Reports by Trustee. (a) Within sixty (60) days after May 15 of each year commencing with the year 1997, the Trustee shall transmit to holders of Notes such reports dated as of May 15 of the year in which such reports are made concerning the Trustee and its actions under this Indenture as may be required pursuant to Section 313 of the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of such reports shall, at the time of such transmission to holders of Notes, be filed by the Trustee with each stock exchange and automated quotation system upon which the Notes are listed and with the Company, in each case as may be required by the Trust Indenture Act. The Company will notify the Trustee when the Notes are listed on any stock exchange or automated quotation system and when any such listing is discontinued. Section 6.4 Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to holders of Notes, such information, documents and other reports and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within fifteen (15) days after the same is so required to be filed with the Commission. 27 33 ARTICLE VII DEFAULTS AND REMEDIES Section 7.1 Events of Default. In case one or more of the following Events of Default (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing: (a) default in the payment of the principal of, or premium, if any, on any of the Notes as and when the same shall become due and payable either at maturity or in connection with any redemption pursuant to Article III or repurchase pursuant to Article XVI, by declaration or otherwise, whether or not such payment is prohibited by the provisions of Article IV; or (b) default in the payment of any installment of interest on any of the Notes as and when the same shall become due and payable, and continuance of such default for a period of thirty (30) days, whether or not such payment is prohibited by the provisions of Article IV; or (c) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company in the Notes or in this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section specifically dealt with) and the default continues for a period of forty-five (45) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee, or to the Company and a Responsible Officer of the Trustee by the holders of at least 25% in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4; or (d) a default in the payment of the Repurchase Price in respect of any Note on the repurchase date therefor in accordance with the provisions of Article XVI, whether or not such payment is prohibited by the provisions of Article IV; or (e) failure on the part of the Company to provide notice of a Designated Event in accordance with the provisions of Article XVI; or (f) failure by the Company or any Significant Subsidiary to make any payment at maturity, including any applicable grace period, in respect of indebtedness, which term as used herein means obligations (other than the Notes or non-recourse obligations) of, or guaranteed or assumed by, the Company, or any Significant Subsidiary, for borrowed money or evidenced by bonds, debentures, notes or other similar instruments ("Indebtedness") in an amount in excess of $10,000,000 or the equivalent thereof in any other currency or composite currency and such failure shall have continued for thirty (30) days after written notice thereof 28 34 shall have been given to the Company by the Trustee or to the Company and a Responsible Officer of the Trustee by the holders of at least 25% in aggregate principal amount of the outstanding Notes at the time outstanding determined in accordance with Section 9.4; or (g) a default by the Company or any Significant Subsidiary with respect to any Indebtedness, which default results in the acceleration of Indebtedness in an amount in excess of $10,000,000 or the equivalent thereof in any other currency or composite currency without such Indebtedness having been discharged or such acceleration having been cured, waived, rescinded or annulled for a period of thirty (30) days after written notice thereof shall have been given to the Company by the Trustee or to the Company and a Responsible Officer of the Trustee by the holders of at least 25% in aggregate principal amount of the outstanding Notes at the time outstanding determined in accordance with Section 9.4; or (h) the Company or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or (i) an involuntary case or other proceeding shall be commenced against the Company or any Significant Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) consecutive days; then, and in each and every such case (other than an Event of Default specified in Section 7.1(h) or (i) with respect to the Company), unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding hereunder determined in accordance with Section 9.4, by notice in writing to the Company (and to the Trustee if given by Noteholders), may declare the principal of and premium, if any, on all the Notes and the interest accrued thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Notes contained to the contrary notwithstanding. If an Event of Default specified in Section 7.1(h) or (i) with respect to the Company occurs and is continuing, the principal of, and premium, if any, on all the Notes and the interest accrued thereon shall be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of Notes. This provision, however, is subject to the condition that if, at any time after the principal of the Notes shall have been so declared due and payable, and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided, 29 35 the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all Notes and the principal of and premium, if any, on any and all Notes which shall have become due otherwise than by acceleration (with interest on overdue installments of interest (to the extent that payment of such interest is enforceable under applicable law) and on such principal and premium, if any, at the rate borne by the Notes, to the date of such payment or deposit) and amounts due to the Trustee pursuant to Section 8.6, and if any and all defaults under this Indenture, other than the nonpayment of principal of and premium, if any, and accrued interest on Notes which shall have become due by acceleration, shall have been cured or waived pursuant to Section 7.7, then and in every such case the holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company and to the Trustee, may waive all defaults or Events of Default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or Event of Default, or shall impair any right consequent thereon. The Company shall notify a Responsible Officer of the Trustee, promptly upon becoming aware thereof, of any Event of Default. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such waiver or rescission and annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the holders of Notes, and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the holders of Notes, and the Trustee shall continue as though no such proceeding had been instituted. Section 7.2 Payments of Notes on Default; Suit Therefor. The Company covenants that (a) in case default shall be made in the payment by the Company of any installment of interest upon any of the Notes as and when the same shall become due and payable, and such default shall have continued for a period of thirty (30) days, or (b) in case default shall be made in the payment of the principal of or premium, if any, on any of the Notes as and when the same shall have become due and payable, whether at maturity of the Notes or in connection with any redemption or repurchase, by declaration under this Indenture or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Notes, the whole amount that then shall have become due and payable on all such Notes for principal and premium, if any, or interest, or both, as the case may be, with interest upon the overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) upon the overdue installments of interest at the rate borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. Until such demand by the Trustee, the Company may pay the principal of and premium, if any, and interest on the Notes to the registered holders, whether or not the Notes are overdue. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may 30 36 prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on the Notes and collect in the manner provided by law out of the property of the Company or any other obligor on the Notes wherever situated the monies adjudged or decreed to be payable. In the case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Notes under Title 11 of the United States Code, or any other applicable law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or such other obligor, the property of the Company or such other obliger, or in the case of any other judicial proceedings relative to the Company or such other obligor upon the Notes, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 7.2, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Notes, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Noteholders allowed in such judicial proceedings relative to the Company or any other obligor on the Notes, its or their creditors, or its or their property, and to collect and receive any monies or other property payable or deliverable on any such claims, and to distribute the same after the deduction of any amounts due the Trustee under Section 8.6; and any receiver, assignee or trustee in bankruptcy or reorganization, liquidator, custodian or similar official is hereby authorized by each of the Noteholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due it for reasonable compensation, expenses, advances and disbursements, including counsel fees incurred by it up to the date of such distribution. To the extent that such payment of reasonable compensation, expenses, advances and disbursements out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, monies, securities and other property which the holders of the Notes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or adopt on behalf of any Noteholder any plan of reorganization or arrangement affecting the Notes or the rights of any Noteholder, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceeding, provided, however, that the Trustee may, on behalf of the Noteholders, vote for the election of a trustee in bankruptcy or similar official and may be a member of the creditor's committee established with respect to such bankruptcy. 31 37 All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Trustee without the possession of any of the Notes, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the holders of the Notes. In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Notes, and it shall not be necessary to make any holders of the Notes parties to any such proceedings. Section 7.3 Application of Monies Collected by Trustee. Any monies collected by the Trustee pursuant to this Article VII shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such monies, upon presentation of the several Notes, and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid: First: To the payment of all amounts due the Trustee under Section 8.6; Second: Subject to the provisions of Article IV, in case the principal of the outstanding Notes shall not have become due and be unpaid, to the payment of interest on the Notes in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the rate borne by the Notes, such payments to be made ratably to the persons entitled thereto; Third: Subject to the provisions of Article IV, in case the principal of the outstanding Notes shall have become due, by declaration or otherwise, and be unpaid, to the payment of the whole amount then owing and unpaid upon the Notes for principal and premium, if any, and interest, with interest on the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest at the rate borne by the Notes; and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Notes, then to the payment of such principal and premium, if any, and interest without preference or priority of principal and premium, if any, over interest, or of interest over principal and premium, if any, or of any installment of interest over any other installment of interest, or of any Note over any other Note, ratably to the aggregate of such principal and premium, if any, and accrued and unpaid interest; and Fourth: Subject to the provisions of Article IV, to the payment of the remainder, if any, to the Company or any other person lawfully entitled thereto. Section 7.4 Proceedings by Noteholder. No holder of any Note shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action or proceeding 32 38 in equity or at law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or other similar official, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than 25% in aggregate principal amount of the Notes then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 7.7; it being understood and intended, and being expressly covenanted by the taker and holder of every Note with every other taker and holder and the Trustee, that no one or more holders of Notes shall have any right in any manner whatever by virtue of or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other holder of Notes, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Notes (except as otherwise provided herein). For the protection and enforcement of this Section 7.4, each and every Noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provision of this Indenture and any provision of any Note, the right of any holder of any Note to receive payment of the principal of and premium, if any, and interest on such Note, on or after the respective due dates expressed in such Note, or to institute suit for the enforcement of any such payment on or after such respective dates against the Company shall not be impaired or affected without the consent of such holder. Anything in this Indenture or the Notes to the contrary notwithstanding, the holder of any Note, without the consent of either the Trustee or the holder of any other Note, on his own behalf and for his own benefit, may enforce, and may institute and maintain any proceeding suitable to enforce, his rights of conversion as provided herein. Section 7.5 Proceedings by Trustee. In case of an Event of Default the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 7.6 Remedies Cumulative and Continuing. Except as provided in the last paragraph of Section 2.6, all powers and remedies given by this Article VII to the Trustee or to the Noteholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and 33 39 agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Notes to exercise any right or power accruing upon any default or Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or any acquiescence therein; and, subject to the provisions of Section 7.4, every power and remedy given by this Article VII or by law to the Trustee or to the Noteholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by Noteholders. Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders. The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, however, that (a) such direction shall not be in conflict with any rule of law or with this Indenture, and (b) the Trustee may, but shall have no obligation to, take any other action deemed proper by the Trustee which is not inconsistent with such direction. The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 may on behalf of the holders of all of the Notes waive any past default or Event of Default hereunder and its consequences except (i) a default in the payment of interest or premium, if any, on, or the principal of, the Notes, (ii) a failure by the Company to convert any Notes into Common Stock or (iii) a default in respect of a covenant or provisions hereof which under Article XI cannot be modified or amended without the consent of the holders of all Notes then outstanding. Upon any such waiver the Company, the Trustee and the holders of the Notes shall be restored to their former positions and rights hereunder; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 7.7, said default or Event of Default shall for all purposes of the Notes and this Indenture be deemed to have been cured and to be not continuing; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 7.8 Notice of Defaults. The Trustee shall, within ninety (90) days after the occurrence of a default, mail to all Noteholders, as the names and addresses of such holders appear upon the Note register, notice of all defaults known to a Responsible Officer, unless such defaults shall have been cured or waived before the giving of such notice; and provided that, except in the case of default in the payment of the principal of, or premium, if any, or interest on any of the Notes, or in the payment of any redemption or repurchase obligation, the Trustee shall be protected in withholding such notice if and so long as a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the best interest of the Noteholders. Section 7.9 Undertaking to Pay Costs. All parties to this Indenture agree, and each holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may, in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its 34 40 discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided that the provisions of this Section 7.9 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Noteholder, or group of Noteholders, holding in the aggregate more than 10% in principal amount of the Notes at the time outstanding determined in accordance with Section 9.4, or to any suit instituted by any Noteholder for the enforcement of the payment of the principal of or premium, if any, or interest on any Note on or after the due date expressed in such Note or to any suit for the enforcement of the right to convert any Note in accordance with the provisions of Article XV or to require the Company to repurchase any Note in accordance with Article XVI. Section 7.10 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the holders of Notes may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the holders of Notes, as the case may be. ARTICLE VIII CONCERNING THE TRUSTEE Section 8.1 Duties and Responsibilities of Trustee. The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that (a) prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred: (1) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture and the Trust Indenture Act, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture and the Trust Indenture Act against the Trustee; and 35 41 (2) in the absence of bad faith and willful misconduct on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (c) the Trustee shall not be liable to any Noteholder with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Notes at the time outstanding determined as provided in Section 9.4 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (d) whether or not therein provided, every provision of this Indenture relating to the conduct or affecting the liability of, or affording protection to, the Trustee shall be subject to the provisions of this Section. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Section 8.2 Reliance on Documents, Opinions, Etc. Except as otherwise provided in Section 8.1: (a) the Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, note, coupon or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company; 36 42 (c) the Trustee may consult with counsel and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Noteholders pursuant to the provisions of this Indenture, unless such Noteholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; (e) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity from the Noteholders against such expenses or liability as a condition to so proceeding; the reasonable expenses of every such examination shall be paid by the Company or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the Company upon demand; and (f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder. Section 8.3 No Responsibility for Recitals, Etc. The recitals contained herein and in the Notes (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of any Notes or the proceeds of any Notes authenticated and delivered by the Trustee in conformity with the provisions of this Indenture. Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes. The Trustee, any paying agent, any conversion agent or Note registrar, in its individual or any other capacity, may become the owner or pledgee of Notes with the same rights it would have if it were not Trustee, paying agent, conversion agent or Note registrar. 37 43 Section 8.5 Monies to Be Held in Trust. Subject to the provisions of Section 13.4, all monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder. Section 8.6 Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for all services rendered by it hereunder in any capacity (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances reasonably incurred or made by the Trustee in the administration of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee in any capacity under this Indenture and its agents and any authenticating agent for, and to hold them harmless against, any loss, liability or expense incurred without negligence, willful misconduct, recklessness or bad faith on the part of the Trustee or such agent or authenticating agent, as the case may be, and arising out of or in connection with the acceptance or administration of this trust or in any other capacity hereunder, including the costs and expenses of defending themselves against any claim of liability in the premises. The obligations of the Company under this Section 8.6 to compensate or indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall be secured by a lien upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Notes. The obligation of the Company under this Section shall survive the satisfaction and discharge of this Indenture. When the Trustee and its agents and any authenticating agent incur expenses or render services after an Event of Default specified in Section 7.1(h) or (i) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy, insolvency or similar laws. Section 8.7 Officers' Certificate as Evidence. Except as otherwise provided in Section 8.1, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence, willful misconduct, recklessness and bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such Officers' Certificate, in the absence of negligence, willful misconduct, recklessness and bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof. Section 8.8 Conflicting Interests of Trustee. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate 38 44 such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. Section 8.9 Eligibility of Trustee. There shall at all times be a Trustee hereunder which shall be a person that is qualified pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such person publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 8.10 Resignation or Removal of Trustee. (a) The Trustee may at any time resign by giving written notice of such resignation to the Company and by mailing notice thereof to the holders of Notes at their addresses as they shall appear on the Note register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment sixty (60) days after the mailing of such notice of resignation to the Noteholders, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Noteholder who has been a bona fide holder of a Note or Notes for at least six months may, subject to the provisions of Section 7.9, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur: (1) the Trustee shall fail to comply with Section 8.8 after written request therefor by the Company or by any Noteholder who has been a bona fide holder of a Note or Notes for at least six months, or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 8.9 and shall fail to resign after written request therefor by the Company or by any such Noteholder, or (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, 39 45 then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 7.9, any Noteholder who has been a bona fide holder of a Note or Notes for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Notes at the time outstanding may at any time remove the Trustee and nominate a successor trustee which shall be deemed appointed as successor trustee unless within ten (10) days after notice to the Company of such nomination the Company objects thereto, in which case the Trustee so removed or any Noteholder, upon the terms and conditions and otherwise as in Section 8.10(a) provided, may petition any court of competent jurisdiction for an appointment of a successor trustee. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 8.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.11. Section 8.11 Acceptance by Successor Trustee. Any successor trustee appointed as provided in Section 8.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 8.6, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all property and funds held or collected by such trustee as such, except for funds held in trust for the benefit of holders of particular Notes, to secure any amounts then due it pursuant to the provisions of Section 8.6. No successor trustee shall accept appointment as provided in this Section 8.11 unless at the time of such acceptance such successor trustee shall be qualified under the provisions of Section 8.8 and be eligible under the provisions of Section 8.9. Upon acceptance of appointment by a successor trustee as provided in this Section 8.11, the Company shall mail or cause to be mailed notice of the succession of the former trustee hereunder to the holders of Notes at their addresses as they shall appear on the Note register. If the Company 40 46 fails to mail such notice within ten (10) days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company. Section 8.12 Succession by Merger, Etc. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, including the trust created by this Indenture, shall be the successor to the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that in the case of any corporation succeeding to all or substantially all of the trust business of the Trustee such corporation shall be qualified under the provisions of Section 8.8 and eligible under the provisions of Section 8.9. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture, any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee or authenticating agent appointed by such predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee or an authenticating agent appointed by such successor trustee may authenticate such Notes either in the name of any predecessor trustee hereunder or in the name of the successor trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Notes in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. Section 8.13 Limitation on Rights of Trustee as Creditor. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Notes), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of the claims against the Company (or any such other obligor). ARTICLE IX CONCERNING THE NOTEHOLDERS Section 9.1 Action by Noteholders. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Notes may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action, the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Noteholders in person or by agent or proxy appointed in writing, or (b) by the record of the holders of Notes voting in favor thereof at any meeting of Noteholders duly called and held in accordance with the provisions of Article X, or (c) by a 41 47 combination of such instrument or instruments and any such record of such a meeting of Noteholders. Whenever the Company or the Trustee solicits the taking of any action by the holders of the Notes, the Company or the Trustee may fix in advance of such solicitation, a date as the record date for determining holders entitled to take such action. The record date shall be not more than fifteen (15) days prior to the date of commencement of solicitation of such action. Section 9.2 Proof of Execution by Noteholders. Subject to the provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any instrument by a Noteholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Notes shall be proved by the Note register or by a certificate of the Note registrar. The record of any Noteholders meeting shall be proved in the manner provided in Section 10.6. Section 9.3 Who Are Deemed Absolute Owners. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem the person in whose name such Note shall be registered upon the Note register to be, and may treat him as, the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest on such Note, for conversion of such Note and for all other purposes; and neither the Company nor the Trustee, nor any paying agent, nor any conversion agent nor any Note registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for monies payable upon any such Note. Section 9.4 Company-Owned Notes Disregarded. In determining whether the holders of the requisite aggregate principal amount of Notes have concurred in any direction, consent, waiver or other action under this Indenture, Notes which are owned by the Company or any other obligor on the Notes or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Notes shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent, waiver or other action only Notes which a Responsible Officer knows are so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 9.4 if the pledgee shall establish to the satisfaction of the Trustee the pledgees' right to vote such Notes and that the pledgee is not the Company, any other obligor on the Notes or a person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Notes, if any, known by the Company to be owned or held by or for the account of any of the above described persons; and, subject to Section 8.1, the 42 48 Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Notes not listed therein are outstanding for the purpose of any such determination. Section 9.5 Revocation of Consents; Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 9.1, of the taking of any action by the holders of the percentage in aggregate principal amount of the Notes specified in this Indenture in connection with such action, any holder of a Note which is shown by the evidence to be included in the Notes the holders of which have consented to such action may, by filing written notice with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 9.2, revoke such action so far as it concerns such Note. Except as aforesaid, any such action taken by the holder of any Note shall be conclusive and binding upon such holder and upon all future holders and owners of such Note and of any Notes issued in exchange or substitution therefor, irrespective of whether any notation in regard thereto is made upon such Note or any Note issued in exchange or substitution therefor. ARTICLE X NOTEHOLDERS' MEETINGS Section 10.1 Purpose of Meetings. A meeting of Noteholders may be called at any time and from time to time pursuant to the provisions of this Article X for any of the following purposes: (1) to give any notice to the Company or to the Trustee or to give any directions to the Trustee permitted under this Indenture, or to consent to the waiving of any default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by Noteholders pursuant to any of the provisions of Article VII; (2) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article VIII; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 11.2; (4) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Notes under any other provision of this Indenture or under applicable law; or (5) to take any other action authorized by this Indenture or under applicable law. Section 10.2 Call of Meetings by Trustee. The Trustee may at any time call a meeting of Noteholders to take any action specified in Section 10.1, to be held at such time and at such place in the Borough of Manhattan, The City of New York or in the City of Boston, Massachusetts or any 43 49 other reasonably convenient city in the continental United States, as the Trustee shall determine. Notice of every meeting of the Noteholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting and the establishment of any record date pursuant to Section 9.1, shall be mailed to holders of Notes at their addresses as they shall appear on the Note register. Such notice shall also be mailed to the Company. Such notices shall be mailed not less than twenty (20) nor more than ninety (90) days prior to the date fixed for the meeting. Any meeting of Noteholders shall be valid without notice if the holders of all Notes then outstanding are present in person or by proxy or if notice is waived before or after the meeting by the holders of all Notes outstanding, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 10.3 Call of Meetings by Company or Noteholders. In case at any time the Company, pursuant to a resolution of its Board of Directors, or the holders of at least 10% in aggregate principal amount of the Notes then outstanding, shall have requested the Trustee to call a meeting of Noteholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within twenty (20) days after receipt of such request, then the Company or such Noteholders may determine the time and the place for such meeting and may call such meeting to take any action authorized in Section 10.1, by mailing notice thereof as provided in Section 10.2. Section 10.4 Qualifications for Voting. To be entitled to vote at any meeting of Noteholders a person shall (a) be a holder of one or more Notes on the record date pertaining to such meeting or (b) be a person appointed by an instrument in writing as proxy by a holder of one or more Notes. The only persons who shall be entitled to be present or to speak at any meeting of Noteholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 10.5 Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Noteholders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Noteholders as provided in Section 10.3, in which case the Company or the Noteholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote at the meeting. 44 50 Subject to the provisions of Section 9.4, at any meeting each Noteholder or proxyholder shall be entitled to one vote for each $1,000 principal amount of Notes held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Note challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Notes held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Noteholders. Any meeting of Noteholders duly called pursuant to the provisions of Section 10.2 or 10.3 may be adjourned from time to time by the holders of a majority of the aggregate principal amount of Notes represented at the meeting, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. Section 10.6 Voting. The vote upon any resolution submitted to any meeting of Noteholders shall be by written ballot on which shall be subscribed the signatures of the holders of Notes or of their representatives by proxy and the principal amount of the Notes held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Noteholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 10.2. The record shall show the principal amount of the Notes voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 10.7 No Delay of Rights by Meeting. Nothing in this Article X contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Noteholders or any rights expressly or implied conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes. ARTICLE XI SUPPLEMENTAL INDENTURES Section 11.1 Supplemental Indentures Without Consent of Noteholders. The Company, when authorized by the resolutions of the Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: 45 51 (a) to make provisions with respect to the conversion rights of the holders of Notes pursuant to the requirements of Section 15.6; (b) subject to Article IV, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Notes, any property or assets; (c) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article XII; (d) to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be for the benefit of the holders of Notes, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (e) to provide for the issuance under this Indenture of Notes in coupon form (including Notes registrants as to principal only) and to provide for exchangeability of such Notes with the Notes issued hereunder in fully registered form and to make all appropriate changes for such purpose; (f) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture; provided such action shall not materially adversely affect the interests of the holders of the Notes; (g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes; or (h) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the Trust Indenture Act, or under any similar federal statute hereafter enacted. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any supplemental 46 52 indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 11.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Notes at the time outstanding, notwithstanding any of the provisions of Section 11.2. Section 11.2 Supplemental Indentures With Consent of Noteholders. With the consent (evidenced as provided in Article IX) of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding (determined in accordance with Section 9.4), the Company, when authorized by the resolutions of the Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or any supplemental indenture or of modifying in any manner the rights of the holders of the Notes; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption or repurchase thereof, change or impair the obligation of the Company to repurchase any Note at the option of the holder upon the happening of a Designated Event, or impair or affect the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, or change or impair the right to convert the Notes into Common Stock subject to the terms set forth herein, including Section 15.6, or modify the provisions of this Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders, without the consent of the holder of each Note so affected, or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. Upon the request of the Company, accompanied by a copy of the resolutions of the Board of Directors certified by its Secretary or Assistant Secretary authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Noteholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Noteholders under this Section 11.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 11.3 Effect of Supplemental Indentures. Any supplemental indenture executed pursuant to the provisions of this Article XI shall comply with the Trust Indenture Act, as then in effect. Upon the execution of any supplemental indenture pursuant to the provisions of this Article XI, this Indenture shall be and be deemed to be modified and amended in accordance therewith and 47 53 the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 11.4 Notation on Notes. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article XI may (but need not) bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may (but need not), at the Company's expense, be prepared and executed by the Company, authenticated by the Trustee (or an authenticating agent duly appointed by the Trustee pursuant to Section 17.11) and delivered in exchange for the Notes then outstanding, upon surrender of such Notes then outstanding. Section 11.5 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee. The Trustee, subject to the provisions of Sections 8.1 and 8.2, shall be entitled to receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article XI. ARTICLE XII MERGER, SALE OR CONSOLIDATION Section 12.1 Limitation on Merger, Sale or Consolidation. (a) The Company shall not, directly or indirectly, consolidate with or merge with or into another person or sell, lease, convey or transfer all or substantially all of its assets (computed on a consolidated basis), whether in a single transaction or a series of related transactions, to another person or group of affiliated persons, unless (i) either (A) in the case of a merger or consolidation, the Company is the surviving entity or (B) the resulting, surviving or transferee entity is a corporation organized under the laws of the United States, any state thereof or the District of Columbia and expressly assumes by supplemental indenture all of the obligations of the Company in connection with the Securities and the Indenture; (ii) no Default or Event of Default shall exist or shall occur immediately before or after giving effect on a pro forma basis to such transaction; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, lease, conveyance or transfer and, if a supplemental indenture is required, such supplemental indenture comply with the Indenture and that all conditions precedent relating to such transactions have been satisfied. (b) For purposes of clause (a) of this Section 12.1, the sale, lease, conveyance, assignment, transfer, or other disposition of all or substantially all of the properties and assets of one 48 54 or more Subsidiaries of the Company, which properties and assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Section 12.2 Successor Corporation to Be Substituted. In case of any such consolidation, merger, sale, conveyance or lease and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of Hadco Corporation any or all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause to be authenticated and delivered, any Notes which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Notes which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale or conveyance (but not in the event of such lease), the person named as the "Company" in the first paragraph of this Indenture, or any successor which shall thereafter have become such in the manner prescribed in this Article XII and which shall have transferred its rights and obligations hereunder to another successor in the manner prescribed in this Article XII, may be dissolved, wound up and liquidated at any time thereafter and such person shall be released from its liabilities as obligor and maker of the Notes and from its obligations under this Indenture. In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate. ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE Section 13.1 Discharge of Indenture. When (a) the Company shall deliver to the Trustee for cancellation all Notes theretofore authenticated (other than any Notes which have been destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) and not theretofore canceled, or (b) all the Notes not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements 49 55 satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, net funds sufficient to pay at maturity or if all Notes are scheduled for redemption upon the date fixed for redemption of all of the Notes (other than any Notes which shall have been mutilated, destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, and if in either case the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to (i) remaining rights of registration of transfer, substitution and exchange and conversion of Notes, (ii) rights hereunder of Noteholders to receive payments of principal of and premium, if any, and interest on the Notes and the other rights, duties and obligations of Noteholders, as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee and (iii) the rights, obligations and immunities of the Trustee hereunder), and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel as required by Section 17.5 and at the cost and expense of the Company, shall execute proper instruments furnished to it acknowledging satisfaction of and discharging this Indenture; the Company, however, hereby agrees to reimburse the Trustee for any costs or expenses (including reasonable fees and expenses of counsel to the Trustee) thereafter reasonably and properly incurred by the Trustee and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Notes. Section 13.2 Deposited Monies to Be Held in Trust by Trustee. Subject to Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1 shall be held in trust and applied by it to the payment, notwithstanding the provisions of Article IV, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Notes for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest and premium, if any. All monies deposited by the Company in accordance with Section 4.2 and so held in trust shall not be subject to the subordination provisions of Article IV. Section 13.3 Paying Agent to Repay Monies Held. Upon the satisfaction and discharge of this Indenture, all monies then held by any paying agent of the Notes (other than the Trustee) shall, upon demand of the Company or the Trustee, be repaid to it or paid to the Trustee, and thereupon such paying agent shall be released from all further liability with respect to such monies. Section 13.4 Return of Unclaimed Monies. Subject to the requirements of applicable law, any monies deposited with or paid to the Trustee for payment of the principal of, premium, if any, or interest on Notes and not applied but remaining unclaimed by the holders of Notes for two years after the date upon which the principal of, premium, if any, or interest on such Notes, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee on demand and all liability of the Trustee shall thereupon cease with respect to such monies; and the holder of any of the Notes shall thereafter look only to the Company for any payment which such holder may be entitled to collect unless an applicable abandoned property law designates another person. 50 56 Section 13.5 Reinstatement. If (i) the Trustee or the paying agent is unable to apply any money in accordance with Section 13.2 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application and (ii) the holders of at least a majority in principal amount of the then outstanding Notes so request by written notice to the Trustee, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 13.1 until such time as the Trustee or the paying agent is permitted to apply all such money in accordance with Section 13.2; provided, however, that if the Company makes any payment of interest or premium, if any, on or principal of any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders of such Notes to receive such payment from the money held by the Trustee or paying agent. ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 14.1 Indenture and Notes Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest on any Note, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or Subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. ARTICLE XV CONVERSION OF NOTES Section 15.1 Right to Convert. Subject to and upon compliance with the provisions of this Indenture, the holder of any Note shall have the right, at his option, at any time prior to the close of business on ____________ , 2004 (except that, with respect to any Note or portion of a Note which shall be called for redemption, such conversion right shall terminate, except as provided in the fourth paragraph of Section 15.2, at the close of business on the last Business Day prior to the date fixed for redemption of such Note or portion of a Note unless the Company shall default in payment due upon redemption thereof (in which case the conversion right shall terminate at the close of business on the date such default is cured and such Note is redeemed) to convert the principal amount of any such Note, or any portion of such principal amount which is $1,000 or an integral multiple thereof, 51 57 into that number of fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the principal amount of the Note or portion thereof surrendered for conversion by the Conversion Price in effect at such time, by surrender of the Note so to be converted in whole or in part in the manner provided in Section 15.2. Provisions of this Indenture that apply to conversion of all of a Note also apply to conversion of a portion of a Note. A Note in respect of which a holder has delivered a notice of exercise of the right to require the Company to repurchase such Note upon the occurrence of a Designated Event may be converted only if such notice of exercise is withdrawn by a written notice of withdrawal delivered by the holder to the Company prior to the close of business on the Business Day preceding the date fixed for repurchase in accordance with the terms of Section 16.2(b). A holder of Notes is not entitled to any rights of a holder of Common Stock until such holder has converted his Notes to Common Stock, and only to the extent such Notes are deemed to have been converted to Common Stock under this Article XV. Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege with respect to any Note, the holder of any such Note to be converted in whole or in part shall surrender such Note, duly endorsed, at an office or agency maintained by the Company pursuant to Section 5.2, accompanied by the funds, if any, required by the last paragraph of this Section 15.2, and shall give written notice of conversion in the form provided on the Notes (or such other notice which is acceptable to the Company) to such office or agency that the holder elects to convert such Note or such portion thereof specified in said notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 15.7. Each such Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Note, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or his duly authorized attorney. As promptly as practicable after satisfaction of the requirements for conversion set forth above, the Company shall issue and shall deliver to such holder at the office or agency maintained by the Company for such purpose pursuant to Section 5.2, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Note or portion thereof in accordance with the provisions of this Article and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 15.3 (which payment, if any, shall be paid no later than five Business Days after satisfaction of the requirements for conversion set forth above). In case any Note of a denomination greater than $1,000 shall be surrendered for partial conversion, and subject to Section 2.3, the Company shall execute and the Trustee shall authenticate and deliver to the holder of the Note so surrendered, without charge to him, a new Note or Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note. 52 58 Each conversion shall be deemed to have been effected as to any such Note (or portion thereof) on the date on which the requirements set forth above in this Section 15.2 have been satisfied as to such Note (or portion thereof), and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Note shall be surrendered. Any Note or portion thereof surrendered for conversion during the period from the close of business on the record date for any interest payment date to the close of business on the Business Day next preceding such interest payment date shall (unless such Note or portion thereof being converted shall have been called for redemption during the period from the close of business on the record date for any interest payment date to the close of business on the Business Day next preceding such interest payment date) be accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest otherwise payable on such interest payment date on the principal amount being converted; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Notes; provided further that no such payment shall be required with respect to interest payable on _________, 2000. An amount equal to such payment shall be paid by the Company on such interest payment date to the holder of such Note at the close of business on such record date; provided, however, that if the Company shall default in the payment of interest on such interest payment date, such amount shall be paid to the person who made such required payment. Except as provided above in this Section 15.2, no adjustment shall be made for interest accrued on any Note converted or for dividends on any shares issued upon the conversion of such Note as provided in this Article. Section 15.3 Cash Payments in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Notes. If more than one Note shall be surrendered for conversion at one time by the same holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof to the extent permitted hereby) so surrendered for conversion. If any fractional share of stock otherwise would be issuable upon the conversion of any Note or Notes, the Company shall make an adjustment therefor in cash at the Current Market Price on the last Business Day prior to the date of conversion. Section 15.4 Conversion Price. The conversion price shall be as specified in the form of Note (herein called the "Conversion Price") attached as Exhibit A hereto, subject to adjustment as provided in this Article XV. Section 15.5 Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time by the Company as follows: 53 59 (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the Record Date. If any dividend or distribution of the type described in this Section 15.5(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (c) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within forty-five (45) days after the date fixed for the determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined in Section 15.5(h)) on the Record Date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such Record Date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on the close of business on the Record Date plus the total number of additional shares of Common Stock so offered for subscription or purchase. Such adjustment shall become effective immediately after the opening of business on the day following the Record Date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not issued pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis 54 60 of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 15.5(a) applies) or evidences of its indebtedness, cash or other assets (including securities, but excluding any rights or warrants referred to in Section 15.5(b) and dividends and distributions paid exclusively in cash and excluding any capital stock, evidences of indebtedness, cash or assets distributed upon a merger or consolidation to which Section 15.6 applies) (the foregoing hereinafter in this Section 15.5(d) called the "Securities"), then, in each such case, the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date (as defined in Section 15.5(h)) with respect to such distribution by a fraction of which the numerator shall be the Current Market Price (as defined in Section 15.5(h)) on such date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) on such date of the portion of the Securities so distributed applicable to one share of Common Stock and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following the Record Date; provided, however, that in the event the then fair market value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion of a Note (or any portion thereof) the amount of Securities such holder would have received had such holder converted such Note (or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 15.5(d) by reference to the actual or when issued trading market for any securities comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price pursuant to Section 15.5(h) to the extent possible. In the event the Company amends the Rights Plan, the Rights Plan shall provide that upon conversion of the Notes the holders will receive, in addition to the Common Stock issuable upon such conversion, the Rights issued under the Rights Plan (notwithstanding the 55 61 occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of conversion). In the event the Company implements a replacement or successor stockholder rights plan, such rights plan shall provide that upon conversion of the Notes the holders will receive, in addition to the Common Stock issuable upon such conversion, the rights issued under such rights plan (notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of conversion). Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 15.5(d) (and no adjustment to the Conversion Price under this Section 15.5(d) will be required) until the occurrence of the earliest Trigger Event. If such right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become exercisable to purchase different securities, evidences of indebtedness or other assets or entitle the holder to purchase a different number or amount of the foregoing or to purchase any of the foregoing at a different purchase price, then the occurrence of each such event shall be deemed to be the date of issuance and Record Date with respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the holder thereof to the extent not exercised). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto, that resulted in an adjustment to the Conversion Price under this Section 15.5(d), (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution (but not a distribution paid exclusively in cash), equal to the per share redemption or repurchase price received by a holder of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants all of which shall have expired or been terminated without exercise, the Conversion Price shall be readjusted as if such rights and warrants had never been issued. For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any dividend or distribution to which this Section 15.5(d) is applicable that also includes shares of Common Stock or also includes rights or warrants to subscribe for or purchase shares of Common Stock to which Section 15.5(b) applies (or also includes both), shall be deemed to be (1) a dividend or distribution of the evidences of indebtedness, assets, shares of capital stock, rights or warrants other than such shares of Common Stock or rights or warrants to which Section 15.5(b) applies (and any Conversion Price reduction required by this Section 15.5(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) 56 62 a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 15.5(a) and (b) with respect to such dividend or distribution shall then be made, except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution", "Record Date fixed for such determination" and "Record Date" within the meaning of Section 15.5(a) and as "the date fixed for the determination of stockholders entitled to receive such rights or warrants", "the Record Date fixed for the determination of the stockholders entitled to receive such rights or warrants" and "such Record Date" within the meaning of Section 15.5(b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the Record Date fixed for such determination" within the meaning of Section 15.5(a)). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 15.6 applies or as part of a distribution referred to in Section 15.5(d)), in an aggregate amount that, combined together with (1) the aggregate amount of any other such distributions to all holders of its Common Stock made exclusively in cash within the twelve (12) months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 15.5(e) has been made, and (2) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender offer by the Company or any Subsidiary for all or any portion of the Common Stock concluded within the twelve (12) months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to Section 15.5(f) has been made, exceeds 10% of the product of the Current Market Price (as defined in Section 15.5(h)) on the Record Date with respect to such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such Record Date by a fraction (i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount equal to the quotient of (x) the excess of such combined amount over such 10% and (y) the number of shares of Common Stock outstanding on the Record Date and (ii) the denominator of which shall be equal to the Current Market Price on such date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion of a Note (or any portion thereof) the amount of cash such holder would have received had such holder converted such Note (or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. Any cash distribution to all holders of Common Stock as to which the Company 57 63 makes the election permitted by Section 15.5(n) and as to which the Company has complied with the requirements of such Section shall be treated as not having been made for all purposes of this Section 15.5(e). (f) In case a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (1) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender offer, of consideration payable in respect of any other tender offers, by the Company or any Subsidiary for all or any portion of the Common Stock expiring within the twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this Section 15.5(f) has been made and (2) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 15.5(e) has been made, exceeds 10% of the product of the Current Market Price (as defined in Section 15.5(h)) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date of the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction (if any) to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company or any Subsidiary is obligated to purchase shares pursuant to any such tender offer, but the Company or such Subsidiary is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer had not been made. If the application of this Section 15.5(f) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such 58 64 tender offer under this Section 15.5(f). Any cash distribution to all holders of Common Stock as to which the Company has made the election permitted by Section 15.5(n) and as to which the Company has complied with the requirements of such Section shall be treated as not having been made for all purposes of this Section 15.5(f). (g) In case of a tender or exchange offer made by a person other than the Company or any Subsidiary for an amount which increases the offeror's ownership of Common Stock to more than 25% of the Common Stock outstanding and shall involve the payment by such person of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors whose determination shall be conclusive and described in a Board Resolution at the last time (the "Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended)) that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the Offer Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Offer Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Common Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Common Shares) on the Offer Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Offer Expiration Time. In the event that such person is obligated to purchase shares pursuant to any such tender or exchange offer, but such person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender or exchange offer had not been made. If the application of this Section 15.5(g) to any tender or exchange offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender or exchange offer under this Section 15.5(g). Notwithstanding the foregoing, the adjustment described in this Section 15.5(g) shall not be made if, as of the Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article XII. (h) For purposes of this Section 15.5, the following terms shall have the meaning indicated: 59 65 (1) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the Nasdaq National Market or New York Stock Exchange, as applicable, or, if such security is not listed or admitted to trading on such National Market or Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or, if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution. (2) "Current Market Price" shall mean, except as provided in the following sentence, the average of the daily Closing Prices per share of Common Stock for the ten (10) consecutive Trading Days immediately prior to the date in question; provided, however, that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs during such ten (10) consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (2) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event, and (3) if the "ex" date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 15.5(d), (f) or (g), whose determination shall be conclusive and described in a Board Resolution) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Sections 15.5(f) or (g), the Current Market Price of the Common Stock on any date shall mean the 60 66 average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the tender or exchange offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f) and (g) occurs on or after the Expiration Time or Offer Expiration Time, as applicable, for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the Expiration Time or Offer Expiration Time, as applicable, of such offer. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this Section 15.5, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 15.5 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors. (3) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (4) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (5) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or such other national security exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than 61 67 a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (i) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 15.5(a), (b), (c), (d), (e), (f) and (g), as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive and described in a Board Resolution; provided that in no event may the Conversion Price be less than the par value of the Common Stock as a result of any such reduction. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to the holder of each Note at his last address appearing on the Note register provided for in Section 2.5 a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect. (j) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this Section 15.5(j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article XV shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. No adjustment need be made for a change in the par value or no par value of the Common Stock. (k) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each Note at his last address appearing on the Note register provided for in Section 2.5, within twenty (20) days of the effective date of such adjustment. Failure to deliver such notice shall not effect the legality or validity of any such adjustment. (l) In any case in which this Section 15.5 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Note converted after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable 62 68 upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fractional shares pursuant to Section 15.3. (m) For purposes of this Section 15.5, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (n) In lieu of making any adjustment to the Conversion Price pursuant to Section 15.5(e), the Company may elect to reserve an amount of cash for distribution to the holders of the Notes upon the conversion of the Notes so that any such holder converting Notes will receive upon such conversion, in addition to the shares of Common Stock and other items to which such holder is entitled, the full amount of cash which such holder would have received if such holder had, immediately prior to the Record Date for such distribution of cash, converted its Notes into Common Stock, together with any interest accrued with respect to such amount, in accordance with this Section 15.5(n). The Company may make such election by providing an Officers' Certificate to the Trustee to such effect on or prior to the payment date for any such distribution and depositing with the Trustee on or prior to such date an amount of cash equal to the aggregate amount the holders of the Notes would have received if such holders had, immediately prior to the Record Date for such distribution, converted all of the Notes into Common Stock. Any such funds so deposited by the Company with the Trustee shall be held in a segregated account and invested by the Trustee in a money market fund limited to United States government obligations, or repurchase agreements backed by such obligations as shall be specifically directed by the Company in writing, and the Trustee shall not be liable for any losses incurred from any such investment. Upon conversion of Notes by a holder, the holder will be entitled to receive, in addition to the Common Stock issuable upon conversion, an amount of cash from such funds equal to the amount such holder would have received if such holder had, immediately prior to the Record Date for such distribution converted its Note into Common Stock, along with such holder's pro rata share of any accrued interest earned as a consequence of the investment in such funds and the Trustee may liquidate any such investment then held by it as it may determine to make such payments. Promptly after making an election pursuant to this Section 15.5(n), the Company shall give or shall cause to be given notice to all Noteholders of such election, which notice shall state the amount of cash per $1,000 principal amount of Notes such holders shall be entitled to receive (excluding interest) upon conversion of the Notes as a consequence of the Company having made such election. Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or 63 69 combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture if such supplemental indenture is then required to so comply) providing that such Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purposes of this Section 15.6 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. If, in the case of any such reclassification, change, consolidation, merger, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, change, consolidation, merger, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the holders of the Notes as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including to the extent practicable the provisions providing for the repurchase rights set forth in Article XVI herein. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Notes, at his address appearing on the Note register provided for in Section 2.5 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The Trustee, subject to the provisions of Sections 8.1 and 8.2, shall be entitled to receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Section 15.6. 64 70 The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. If this Section 15.6 applies to any event or occurrence, Section 15.5 shall not apply. Section 15.7 Taxes on Shares Issued. The issue of stock certificates on conversions of Notes shall be made without charge to the converting Noteholder for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Note converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock. The Company shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares to provide for the conversion of the Notes from time to time as such Notes are presented for conversion. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Notes, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock issued upon conversion of Notes will be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. The Company covenants that if any shares of Common Stock to be provided for the purpose of conversion of Notes hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. The Company further covenants that if at any time the Common Stock shall be listed on the Nasdaq National Market or any other national securities exchange or automated quotation system the Company will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion of the Notes. Section 15.9 Responsibility of Trustee. The Company is solely responsible for performing the duties and responsibilities contained in this Article XV, except for the specific obligations assigned to the Trustee in Sections 15.2, 15.5(n) and 15.6, respectively, and except for the specific duties 65 71 assigned to any conversion agent. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any holder of Notes to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Note; and the Trustee and any other conversion agent make no representations with respect thereto. Neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article. Without limiting the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 15.6 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Noteholders upon the conversion of their Notes after any event referred to in such Section 15.6 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 8.1, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. Section 15.10 Notice to Holders Prior to Certain Actions. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock (that would require an adjustment in the Conversion Price pursuant to Section 15.5); or (b) the Company shall authorize the granting to all or substantially all of the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company; the Company shall cause to be filed with the Trustee and to be mailed to each holder of Notes at his address appearing on the Note register, provided for in Section 2.5 of this Indenture, as promptly as 66 72 possible but in any event at least fifteen (15) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, authorization of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. ARTICLE XVI REPURCHASE UPON A DESIGNATED EVENT Section 16.1 Repurchase Right. If, at any time prior to _________, 2004 there shall occur a Designated Event, then each Noteholder shall have the right, at such holder's option, to require the Company to repurchase all of such holder's Notes, or any portion thereof (in principal amounts of $1,000 or integral multiples thereof), on the repurchase date (the "repurchase date") that is forty (40) calendar days after the date of the Company Notice (as defined in Section 16.2 below) of such Designated Event (or, if such 40th day is not a Business Day, the next succeeding Business Day). Such repayment shall be made in cash at a price equal to 100% of the principal amount of Notes such holder elects to require the Company to repurchase together with accrued interest thereon to, but excluding, the repurchase date (the "Repurchase Price"); provided that, if such repurchase date is an interest payment date, the semi-annual payment of interest becoming due on such date shall be payable to the holders of such Notes registered as such on the relevant record date subject to the terms and provisions of Section 2.3 hereof. No Notes may be repurchased at the option of holders upon a Designated Event if there has occurred and is continuing an Event of Default, other than a default in the payment of the Repurchase Price with respect to such Notes on the repurchase date. Section 16.2 Notices; Method of Exercising Repurchase Right, Etc. (a) Unless the Company shall have theretofore called for redemption all of the outstanding Notes, on or before the fifteenth (15th) calendar day after the occurrence of a Designated Event, the Company or, at the request of the Company, the Trustee, shall mail to all holders a notice (the "Company Notice") of the occurrence of the Designated Event and of the repurchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such Company Notice of a repurchase right to the Trustee and cause a copy of such Company Notice of a repurchase right, or a summary of the information contained therein, to be published in a newspaper of general circulation in The City of New York. The Company Notice shall contain the following information: (1) the repurchase date, 67 73 (2) the date by which the repurchase right must be exercised, (3) the Repurchase Price, (4) a description of the procedure which a holder must follow to exercise a repurchase right and the procedure which a holder must follow to withdraw such repurchase right once exercised (including the last date for such withdrawal), and (5) the Conversion Price then in effect, a statement that a Note for which the holder has delivered a notice of exercise of repurchase right may be converted only if such notice is withdrawn by a written notice of withdrawal delivered by such holder to the Company (or agent designated by the Company for such purpose) prior to the close of business on the Business Day prior to the repurchase date, and the place or places where Notes may be surrendered for conversion. No failure of the Company to give the foregoing notices or defect therein shall limit any holder's right to exercise a repurchase right or affect the validity of the proceedings for the repurchase of Notes. If any of the foregoing provisions are inconsistent with applicable law, such law shall govern. (b) To exercise a repurchase right, a holder shall deliver to the Trustee on or before the thirty-fifth (35th) day after the date the Company Notice is first mailed to Noteholders (i) written notice to the Company (or agent designated by the Company for such purpose) of the holder's exercise of such right, which notice shall set forth the name of the holder, the principal amount of the Notes to be repurchased and a statement that an election to exercise the repurchase right is being made thereby, and (ii) the Notes with respect to which the repurchase right is being exercised, duly endorsed for transfer to the Company. A holder's notice of exercise of a repurchase right may be withdrawn by means of a written notice of withdrawal delivered to the Company at any time prior to the close of business on the Business Day prior to repurchase date specifying: (1) the serial number of the Note in respect of which such notice of withdrawal is being submitted, (2) the principal amount of the Note with respect to which such notice of withdrawal is being submitted, and (3) the principal amount, if any, of such Note which remains subject to the original written notice of exercise of the repurchase right and which has been delivered for repurchase by the Company. 68 74 (c) If the Company fails to repurchase on the repurchase date any Notes (or portions thereof) as to which the repurchase right has been properly exercised, then the principal of such Notes shall, until paid, bear interest to the extent permitted by applicable law from the repurchase date at the rate borne by the Notes and each such Note shall be convertible into Common Stock in accordance with this Indenture until the principal of such Note shall have been paid or duly provided for. (d) Any Note which is to be repurchased only in part shall be surrendered to the Trustee (with due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the holder of such Note without service charge, a new Note or Notes, containing identical terms and conditions, of any authorized denomination as requested by such holder in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Note so surrendered. (e) On or prior to the repurchase date, the Company shall deposit with the Trustee or with a paying agent (or, if the Company is acting as its own paying agent, segregate and hold in trust as provided in Section 5.4) an amount of money sufficient to pay the Repurchase Price of the Notes that are to be repaid on the repurchase date, provided that if such payment is made on the repurchase date it must be received by the Trustee or paying agent, as the case may be, by 10:00 a.m., New York City time, on such date. (f) The Company will comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act to the extent then applicable, and will otherwise comply with all federal and state securities laws in connection with any offer by the Company to repurchase Notes pursuant to this Article XVI. Section 16.3 Certain Definitions. For purposes of this Article XVI: (a) the term "beneficial owner" shall be determined in accordance with Rule 13d-3 and 13d-5, as in effect on the date of the original execution of this Indenture, promulgated by the Commission pursuant to the Exchange Act; (b) the term "person" or "group" shall include any syndicate or group which would be deemed to be a "person" under Section 13(d)(3) and 14(d) of the Securities Exchange Act of 1934, as amended, as in effect on the date of the original execution of this Indenture; (c) the term "Continuing Director" means at any date a member of the Company's Board of Directors (i) who was a member of such board on ________, 1997 or (ii) who was nominated or elected by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Company's Board of Directors was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or such lesser number comprising a majority of a nominating committee if authority for such nominations or elections has been delegated to a nominating committee whose 69 75 authority and composition has been approved by at least a majority of the directors who were Continuing Directors at the time such committee was formed. (Under this definition, if the current Board of Directors of the Company were to approve a new director or directors and then resign, no Change in Control would occur even though the current Board of Directors would thereafter cease to be in office); (d) the term "Designated Event" means a Change in Control or a Termination of Trading; (e) the term "Change in Control" means an event or series of events after the original issuance of the Notes as a result of which (i) any person or group is or becomes the beneficial owner of shares representing more than 50% of the combined voting power of the then outstanding securities entitled to vote generally in elections of directors of the Company (the "Voting Stock"), (ii) the stockholders of the Company approve any plan or proposal for the liquidation, dissolution or winding up of the Company, (iii) the Company consolidates with or merges into any other corporation, or conveys, transfers or leases all or substantially all of its assets to any person, or any other corporation merges into the Company, and in the case of any such transaction, the outstanding common stock of the Company is changed or exchanged into or for other assets or securities as a result, unless the stockholders of the Company immediately before such transaction own, directly or indirectly immediately following such transaction, at least 51% of the combined voting power of the outstanding voting securities of the corporation resulting from such transaction in substantially the same proportion as their ownership of the Voting Stock immediately before such transaction, or (iv) any time Continuing Directors do not constitute a majority of the Board of Directors of the Company (or, if applicable, a successor corporation to the Company); provided that a Change in Control shall not be deemed to have occurred if either (x) the Closing Price of the Common Stock for any five (5) Trading Days during the ten (10) Trading Days immediately preceding the Change in Control is at least equal to 105% of the Conversion Price in effect on the date on which the Change in Control occurs or (y) in the case of a merger or consolidation, at least 95% of the consideration (excluding cash payments for fractional shares and for dissenters' rights) in such merger or consolidation or otherwise constituting the Change in Control consists of common stock traded on a United States national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted when issued or exchanged in connection with such Change in Control) and as a result of such transaction or transactions such Notes become convertible solely into such common stock; and (f) a "Termination of Trading" shall have occurred if the Common Stock of the Company (or other common stock into which the Notes are then convertible) is neither listed for trading on a United States national securities exchange nor approved for trading on an established automated over-the-counter trading market in the United States. Section 16.4 Consolidation, Merger, etc. In the case of any reclassification, change, consolidation, merger, combination, sale or conveyance to which Section 15.6 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive shares of stock and other securities or property or assets (including cash) which includes shares of Common Stock of the Company or common stock of another person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated 70 76 over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such shares of stock and other securities, property and assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the person formed by such consolidation or resulting from such merger or combination or which acquires the properties or assets (including cash) of the Company, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of holders of the Notes to cause the Company to repurchase the Notes following a Change in Control, including without limitation the applicable provisions of this Article XVI and the definitions of the Common Stock, Designated Event, Continuing Directors, as appropriate, and such other related definitions set forth herein as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply to the common stock and the issuer thereof if different from the Company and Common Stock of the Company (in lieu of the Company and the Common Stock of the Company). ARTICLE XVII MISCELLANEOUS PROVISIONS Section 17.1 Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements of the Company in this Indenture contained shall bind its successors and assigns whether so expressed or not. Section 17.2 Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. Section 17.3 Addresses for Notices, Etc. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Notes on the Company shall be deemed to have been sufficiently given or made, for all purposes if given or served by being sent by overnight courier, or deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee) to Hadco Corporation, 12A Manor Parkway, Salem, New Hampshire 03079, Attention: Chief Financial Officer. Any notice, direction, request or demand hereunder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or served by being sent by overnight courier, or deposited postage prepaid by registered or certified mail in a post office letter box addressed to the Corporate Trust Office of the Trustee, which office is, at the date as of which this Indenture is dated, located at 2 International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department (Hadco Corporation __% Convertible Subordinated Notes due 2004). 71 77 The Trustee, by notice to the Company, may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Noteholder shall be mailed to him by first class mail, postage prepaid, at his address as it appears on the Note register and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 17.4 Governing Law. This Indenture and each Note shall be deemed to be a contract made under the laws of New York, and for all purposes shall be construed in accordance with the laws of New York. Section 17.5 Evidence of Compliance with Conditions Precedent; Certificates to Trustee. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel, stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Section 17.6 Legal Holidays. In any case where the date of maturity of interest on or principal of the Notes or the date fixed for redemption or repurchase of any Note will not be a Business Day, then payment of such interest on or principal of the Notes need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption or repurchase, and no interest shall accrue for the period from and after such date. Section 17.7 No Security Interest Created. Nothing in this Indenture or in the Notes, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction. 72 78 Section 17.8 Trust Indenture Act. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision included in this Indenture which is required to be included in this Indenture by any of Section 310 to 317, inclusive, of the Trust Indenture Act, such required provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. Section 17.9 Benefits of Indenture. Nothing in this Indenture or in the Notes, expressed or implied, shall give to any person, other than the parties hereto, any paying agent, any authenticating agent, any Note registrar, any conversion agent and their successors hereunder, the holders of Notes and to the extent expressly provided herein the holders of Senior Indebtedness, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 17.10 Table of Contents, Headings, Etc. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 17.11 Authenticating Agent. The Trustee may appoint an authenticating agent which shall be authorized to act on its behalf and subject to its direction in the authentication and delivery of Notes in connection with the original issuance thereof and transfers and exchanges of Notes hereunder, including under Sections 2.4, 2.5, 2.6, 2.7, 3.3, 5.2 and 16.2 as fully to all intents and purposes as though the authenticating agent had been expressly authorized by this Indenture and those Sections to authenticate and deliver Notes. For all purposes of this Indenture, the authentication and delivery of Notes by the authenticating agent shall be deemed to be authentication and delivery of such Notes "by the Trustee" and a certificate of authentication executed on behalf of the Trustee by an authenticating agent shall be deemed to satisfy any requirement hereunder or in the Notes for the Trustee's certificate of authentication. Such authenticating agent shall at all times be a person eligible to serve as trustee hereunder pursuant to Section 8.9. Any corporation into which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any authenticating agent shall be a party, or any corporation succeeding to the corporate trust business of any authenticating agent, shall be the successor of the authenticating agent hereunder, if such successor corporation is otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the parties hereto or the authenticating agent or such successor corporation. Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible under this Section, the Trustee shall promptly appoint a successor authenticating agent (which may be the Trustee), shall give written notice of such 73 79 appointment to the Company and shall mail notice of such appointment to all holders of Notes as the names and addresses of such holders appear on the Note register. The Trustee agrees to pay to the authenticating agent from time to time reasonable compensation for its services (to the extent pre-approved by the Company in writing), and the Trustee shall be entitled to be reimbursed for such pre-approved payments, subject to Section 8.6. The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 17.11 shall be applicable to any authenticating agent. Section 17.12 Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. State Street Bank and Trust Company hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. 74 80 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly signed all as of the date first written above. HADCO CORPORATION By:______________________________________ Title:___________________________________ STATE STREET BANK AND TRUST COMPANY as Trustee By:______________________________________ Title:___________________________________ 75 81 EXHIBIT A - FORM OF NOTE [FORM OF FACE OF NOTE] No.___________ $______________ HADCO CORPORATION __% Convertible Subordinated Note Due 2004 Hadco Corporation, a corporation duly organized and validly existing under the laws of the State of Massachusetts (herein called the "Company", which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received hereby promises to pay to _____________________, or registered assigns, the principal sum of _____________________ Dollars on _________________, 2004, and to pay interest on said principal sum semiannually on ___________ and _________ of each year, commencing _________, 1997, at the rate per annum specified in the title of this Note, to holders of record at the close of business on the preceding _______________ and _____________, respectively (whether or not a Business Day), accrued from the _________ or _________, as the case may be, next preceding the date of this Note to which interest has been paid or duly provided for, unless the date of this Note is a date to which interest has been paid or duly provided for, in which case interest shall accrue from the date of this Note, or unless no interest has been paid or duly provided for on this Note, in which case interest shall accrue from __________, 1997, until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after any ________ or ________, as the case may be, and before the following ________ or ________, this Note shall bear interest from such ________ or ________, respectively; provided, however, that if the Company shall default in the payment of interest due on such ________ or ________, then this Note shall bear interest from the next preceding ________ or ________ to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on this Note, from ________, 1997. Except as provided in the Indenture with respect to Notes redeemed or repurchased between a ________ and ________ or between a ________ and ________, the interest so payable on any ________ or ________ will be paid to the person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the record date, which shall be the ________ or ________ (whether or not a Business Day) next preceding such ________ or ________, respectively; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Payment of the principal of and interest accrued on this Note shall be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of the holder of this Note, at the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts; provided, however, that at the option of the Company, payment of interest may be made by check mailed to the registered address of the person entitled thereto; provided that the holder of Notes with an aggregate principal amount in excess of A-1 82 $2,000,000 shall, at the election of such holder, be paid by wire transfer in immediately available funds. Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal of, premium, if any, and interest on this Note to the prior payment in full of all Senior Indebtedness as defined in the Indenture and provisions giving the holder of this Note the right to convert this Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said state. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. HADCO CORPORATION Dated: By: --------------------- --------------------------------- Title Attest: ------------------------------------- Secretary A-2 83 [FORM OF CERTIFICATE OF AUTHENTICATION] TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-named Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee By: ---------------------------- Authorized Signatory By: ---------------------------- As Authentication Agent (if different from Trustee) [FORM OF REVERSE OF NOTE] HADCO CORPORATION % Convertible Subordinated Note Due 2004 This Note is one of a duly authorized issue of Notes of the Company, designated as its % Convertible Subordinated Notes due 2004 (herein called the "Notes"), limited to the aggregate principal amount of $115,000,000 all issued or to be issued under and pursuant to an Indenture dated as of ______________, 1997 (herein called the "Indenture"), between the Company and State Street Bank and Trust Company (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on all Notes may be declared, and upon said declaration shall become, due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority of the aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; A-3 84 provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption or repurchase thereof, change or impair the obligation of the Company to repurchase any Note at the option of the holder upon the happening of a Designated Event, as defined in the Indenture, or impair or affect the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, or change or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture, including Section 15.6 thereof, or modify the provisions of the Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders, without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. It is also provided in the Indenture that the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest or any premium on or the principal of any of the Notes, a default in the payment of redemption price pursuant to Article III or repurchase price pursuant to Article XVI or a failure by the Company to convert any Notes into Common Stock of the Company. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, expressly subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company, as defined in the Indenture, whether outstanding at the date of the Indenture or thereafter incurred, and this Note is issued subject to the provisions of the Indenture with respect to such subordination. Each holder of this Note, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his attorney in fact for such purpose. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The Notes are issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without A-4 85 payment of any service charge but with payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations. The Notes will not be redeemable at the option of the Company prior to __________, 2000. On or after such date and prior to maturity the Notes may be redeemed at the option of the Company as a whole, or from time to time in part, upon mailing a notice of such redemption not less than 20 nor more than 60 days before the date fixed for redemption to the holders of Notes at their last registered addresses, all as provided in and subject to the conditions set forth in the Indenture, at the following redemption prices (expressed as percentages of the principal amount), together in each case with accrued interest to, but excluding, the date fixed for redemption. If redeemed during the 12-month period beginning ______________, 2000 (beginning __________, 2000 and ending _________, 2001 in the case of the first such period):
Year Redemption Price - ---- ---------------- 2000.............................. % 2001.............................. 2002.............................. 2003..............................
and 100% at __________ , 2004; provided that, if the date fixed for redemption is a __________ or __________, then the interest payable on such date shall be paid to the holder of record on the next preceding __________ or __________, respectively. The Notes are not subject to redemption through the operation of any sinking fund. Upon the occurrence of a Designated Event, as defined in the Indenture, prior to __________, 2004, the Noteholder has the right, at such holder's option, to require the Company to repurchase this Note or any portion of the principal amount hereof that is an integral multiple of $1,000 on the 40th day after notice of such Designated Event at a price equal to 100% of the principal amount of the Notes repurchased, together in each case with accrued interest to, but excluding, the date fixed for redemption; provided that if such repurchase date is __________ or __________, then the interest payable on such date shall be paid to the holder of record of the Note on the next preceding __________ or __________, respectively. The Company shall mail to all holders of record of the Notes a notice of the occurrence of a Designated Event and of the repurchase right arising as a result thereof on or before 15 calendar days after the occurrence of such Designated Event. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after the latest date of original issuance of the Notes and prior to the close of business on __________, 2004, or, as to all or any portion hereof called for redemption, prior to the close of business on the Business Day next preceding the date fixed for redemption (unless the Company shall A-5 86 default in payment due upon redemption), to convert the principal hereof or any portion of such principal which is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of the Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Note or portion thereof to be converted by the conversion price of $_______ as such conversion price is adjusted from time to time as provided in the Indenture, upon surrender of this Note, together with a conversion notice as provided in the Indenture and this Note, to the Company at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or at the option of such holder, the Corporate Trust Office of the Trustee, and, unless the shares issuable on conversion are to be issued in the same name as this Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided, however, that if this Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest through the close of business on the Business Day next preceding the following interest payment date, this Note (unless it or the portion being converted shall have been called for redemption on a date in such period) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest otherwise payable on such interest payment date on the principal amount being converted; provided, further, that no such payment will be required with respect to interest payable on __________, 2000. No fractional shares of Common Stock will be issued upon any conversion, but an adjustment in cash will be paid to the holder, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Note or Notes for conversion. Any Notes called for redemption, unless surrendered for conversion on or before the close of business on or before the date fixed for redemption, may be deemed to be purchased from the holder of such Notes at an amount equal to the applicable redemption price, together with accrued interest to the date fixed for redemption, by one or more investment bankers or other purchasers who may agree with the Company to purchase such Notes from the holders thereof and convert them into Common Stock of the Company and to make payment for such Notes as aforesaid to the Trustee in trust for such holders. Upon due presentment for registration of transfer of this Note at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at the option of the holder of this Note, at the Corporate Trust Office of the Trustee, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall A-6 87 be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Note. No recourse for the payment of the principal of or premium, if any, or interest on this Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, director or Subsidiary, as defined in the Indenture, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. Terms used in this Note and defined in the Indenture are used herein as therein defined. In the case of any conflict between the provisions of this Note and the Indenture, the provisions of the Indenture shall control. A-7 88 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - ________ Custodian _________ TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors Act _________________________________ JT TEN - as joint tenants with (State) right of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. A-8 89 [FORM OF CONVERSION NOTICE] CONVERSION NOTICE To: Hadco Corporation The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion hereof (which is $1,000 principal amount or an integral multiple thereof) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Note. Dated:_________________ -------------------------------- -------------------------------- Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes are to be delivered, other than to and in the name of the registered holder. - -------------------------------- Signature Guarantee A-9 90 Fill in for registration of shares if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: - ----------------------------------- (Name) - ----------------------------------- (Street Address) - ----------------------------------- (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all): $_____,000 --------------------------------- Social Security or Other Taxpayer Identification Number A-10 91 [FORM OF OPTION TO ELECT REPURCHASE UPON A DESIGNATED EVENT] To: Hadco Corporation The undersigned registered owner of this Note hereby acknowledges receipt of a notice from Hadco Corporation (the "Company") as to the occurrence of a Designated Event with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Note, or the portion thereof (which is $1,000 principal amount or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Note, together with accrued interest to, but excluding, such date, to the registered holder hereof. Dated:______________________ ----------------------------------- ----------------------------------- Signature(s) ----------------------------------- Social Security or Other Taxpayer Identification Number Principal amount to be repaid (if less than all): $_____,000 NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. A-11 92 [FORM OF ASSIGNMENT] For value received __________________________ hereby sell(s), assign(s) and transfer(s) unto ________________________________ (Please insert social security or other identifying number of assignee) the within Note, and hereby irrevocably constitutes and appoints _________________________________________________________ attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises. Dated: __________________ - ------------------------------- - ------------------------------- Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 - ------------------------------ Signature Guarantee NOTICE: The signature on the conversion notice, the option to elect repurchase upon a Designated Event or the assignment must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. A-12 EX-10.3 5 CONSTRUCTION AGREEMENT 1 EXHIBIT 10.3 HTI ENGINEERING (M) SDN. BHD. 25-3(TINGKAT2), JALAN 14/22, 46100 PETALING JAYA, SELANGOR DARUL ESHAN, WEST MALAYSIA, TEL: 03-7573210, 7573212 FAX: 03-7573626 Our Ref: HE/95/1218-shs August 7, 1995 Zycon Corporation 445 El Camino Real Santa Clara California, 95050-4366 U.S.A. Attention: Mr. Ron Donati Dear Sir, RE: AGREEMENT BETWEEN OWNER AND CONSTRUCTION MANAGER ZYCON CORP. SDN BHD HITI ENGINEERING (M) SDN BHD ------------------------------------------------------- Enclosed is a copy of the Agreement which has been signed by the Construction Manager, Mr. Felix Tee Yee Loh. Please do not hesitate to contact us if you require further information. Your Faithfully, HITI ENGINEERING (M) SDN BHD /s/ - ---------------------------- MR. NG BOON HOCK Technical Director 2 - 2 - - -------------------------------------------------------------------------------- AGREEMENT BETWEEN OWNER AND CONSTRUCTION MANAGER This Document has important legal and insurance consequences; consultation with an attorney is encouraged with respect to its completion or modification. - -------------------------------------------------------------------------------- AGREEMENT Made this Third day of August in the year Nineteen Hundred and Ninety Five (1995) BETWEEN ZYCON CORPORATION SDN. BHD. the Owner, and HITI ENGINEERING (M) SDN. BHD. the Construction Manager. For services in connection with the following Project described on Exhibit A hereto which is incorporated by reference. The Owner and the Construction Manager agree as set forth below: 3 - 3 - TABLE OF CONTENTS ARTICLE 1 The Construction Team and Extent of Agreement...............................................4. ARTICLE 2 Construction Manager's Services.........................4. ARTICLE 3 Owner's Responsibilities...............................10. ARTICLE 4 Trade Contracts........................................11. ARTICLE 5 Schedule...............................................12. ARTICLE 6 Guaranteed Maximum Price...............................12. ARTICLE 7 Construction Manager's Fee............................13. ARTICLE 8 Cost of the Project....................................13. ARTICLE 9 Changes in the Project.................................15. ARTICLE 10 Bonuses................................................18. ARTICLE 11 Payments to the Construction Manager.. ................18. ARTICLE 12 Insurance, Indemnity and Waiver of Subrogation............................................20. ARTICLE 13 Termination of the Agreement and Owner's Right to Perform Construction Manager's Obligations............................................23. ARTICLE 14 Assignment and Governing Law...........................25. ARTICLE 15 Miscellaneous Provisions...............................26. ARTICLE 16 Arbitration............................................26. 4 - 4 - ARTICLE 1 --------- The Construction Team and Extent of Agreement The CONSTRUCTION MANAGER accepts the relationship of trust and confidence established between him and the Owner by this Agreement. He covenants with the Owner to furnish his best skill and judgment and to cooperate with the Owner in furthering the interests of the Owner. He agrees to furnish efficient business administration and superintendence and to use his best efforts to complete the Project in an expeditious and economical manner consistent with the interest of the Owner. 1.1. THE CONSTRUCTION TEAM. The Construction Manager and the Owner (through Owner's representative) called the "Construction Team" shall work from the beginning of design through construction completion. The Construction manager shall provide leadership to the Construction Team on all matters relating to construction. 1.2. EXTENT OF AGREEMENT. This Agreement represents the entire agreement between the Owner and the Construction Manager and supersedes all prior negotiations, representations or agreements. When Drawings and Specifications are completed, they shall be identified by amendment to this Agreement. This Agreement shall not be superseded by any provisions of the documents for construction and may be amended only by written instrument signed by both the Owner and the Construction Manager. 1.3. DEFINITIONS. The Project is the total construction to be performed under this Agreement, the exhibits hereto, and the Drawings and Specifications and Time Schedule referenced below. The Work is that part of the construction that the Construction Manager is to perform with his own forces or the part of the construction that a particular Trade Contractor is to perform. The term day shall mean calendar day unless specifically designated. "Hard Construction Costs" shall mean the cost items specified in Article 8.2 below. "Soft Construction Costs" shall mean all engineering costs associated with the Project and the commissions and expenses involved in obtaining the Performance Bonds, as defined below, and premiums for insurance required of Construction Manager under Section 12.2 below. ARTICLE 2 --------- Construction Manager's Services The Construction Manager will perform the following services under this Agreement in each of the two phases described below. 2.1. Design Phase. 2.1.1. CONSULTATION DURING PROJECT DEVELOPMENT. Schedule and attend regular meetings with the Owner during the development of conceptual and preliminary design to advise on site use and improvements, selection of materials, building systems 5 - 5 - and equipment. Provide recommendations on construction feasibility, availability of materials and labor, time requirements for installation and construction and factors related to cost including costs of alternative designs or materials, preliminary budgets and possible economies. 2.1.2. SCHEDULING. Develop with Owner a project Time Schedule that coordinates and integrates the design efforts with construction schedule, including realistic activity sequences and durations, allocation of labor and materials, processing of shop drawings and samples, and delivery of products requiring long lead-time procurement. 2.1.3. PROJECT CONSTRUCTION BUDGET. Prepare a Project Budget within fourteen (14) days of execution of this agreement for Owner's approval, which shall be consistent with the Construction Manager's May 18, 1995 quotation, as amended on May 30, 1995, on an overall basis, and update such Budget periodically for the Owner's approval. Advise the Owner if it appears that the Project Budget will not be met and make recommendations for corrective action. 2.1.4. COORDINATION OF CONTRACT DOCUMENTS. Prepare with Owner the Drawings and Specifications, recommending alternative solutions whenever design details affect construction feasibility or schedules. 2.1.5. CONSTRUCTION PLANNING. Recommend for purchase and expedite the procurement of long-lead items to ensure their delivery by the required dates. 2.1.5.1. Make recommendations to the Owner regarding the division of work in the Drawings and Specifications to facilitate the bidding and awarding of Trade Contracts, allowing for phase construction taking into consideration such factors as time performance, availability of labor, overlapping trade jurisdictions and provisions for temporary facilities. 2.1.5.2. Review the Drawings and Specifications with the Owner to eliminate areas of conflict and overlapping in the Work to be performed by the various Trade Contracts and prepare pre-qualification criteria for bidders. 2.1.5.3. Develop Trade Contractor interest in the Project and as working Drawings and Specifications are completed, take competitive bids of the Work from the various Trade Contractors. After analyzing the bids and aware contract pursuant to Article 4 below. 2.2. Construction Phase 2.2.1. PROJECT CONTROL. Monitor the work of the Trade Contractors and coordinate the Work with the activities and responsibilities of the Owner and to complete the Project in accordance with the Owner's objectives of cost, time and quality. 6 - 6 - 2.2.1.1. Maintain a competent full-time staff at the Project site to coordinate and provide general direction of the Work and progress of the Trade Contractors on the Project. Without limiting the above, Construction Manager agrees, except in the event of death or disability: a. Luke Lai Khin Lee and Chua Shen Huat shall be on the construction site on all work days during the start up and through the completion of the major civil and structural phases; b. Luke Lai Khin Lee shall be present at the construction site through the balance of the project including, but not limited to, the electrical phase; c. Ng Boon Hock or Change Chin Sia shall be present at the construction site on all work days during the installation of the mechanical and electrical equipment; d. Felix Tee shall supervise the Project as required but at a minimum shall be on site at least every other week for sufficient time to assure that prudent decisions have been made concerning the construction and that materials and equipment have been ordered in sufficient time to assure that the Project is completed as contemplated by this agreement. In the event of death or disability of any of the aforementioned individuals, Construction Manager shall replace the individual at Construction Manager's expense with another qualified individual acceptable to Owner. 2.2.1.2. Establish on-site organization and lines of authority in order to carry out the overall plans of the Construction Team. 2.2.1.3. Establish procedures for coordination with the Owner and Trade Contractors with respect to all aspects of the Project and implement such procedures. Without limiting the above, Construction Manager shall hold weekly progress meetings concerning the status of the construction project, a comparison with the estimated construction Time Schedule and Construction Budget. Construction Manager shall prepare accurate minutes of such meetings which shall be promptly forwarded to Ronald Donati, Robert Snyder, Larry Jo and Richard Goh. 7 - 7 - 2.2.1.4. Schedule and conduct progress meetings at which Trade Contractors, owner and Construction Manager can discuss jointly such matters as procedures, progress, problems and scheduling. 2.2.1.5. Provide regular monitoring of the schedule as construction progresses. Identify potential variances between scheduled and probable completion dates. Review schedule for Work not started or incomplete and recommend to the Owner and Trade Contractors adjustments in the schedule to meet the probable completion date. Provide summary reports of each monitoring and document all changes in schedule. 2.2.1.6. Determine the adequacy of the Trade Contractors' personnel and equipment and the availability of materials and supplies to meet the schedule. 2.2.1.7. Pay strict attention to safety on the Project for all workers and others visiting the site and will insure that safety helmets and apparel are worn by all workers and other persons visiting the site. Construction Manager shall instruct all employees and hold appropriate classes on safety. 2.2.2.1. PHYSICAL CONSTRUCTION. Except as provided in Article 2.2.2.2., provide all supervision, labor, materials, construction equipment, including, but not limited to, equipment, tools and subcontract items which are necessary for the completion of the Project which are not provided by either the Trade Contractors or the Owner. To the extent that the Construction Manager performs any Work with his own forces, he shall, with respect to such Work, perform in accordance with the Drawings and Specifications and in accordance with the procedure applicable to the Project. 2.2.2.2. The Project items which Construction Manager is not required to provide are: a. Process vacuum system b. Epoxy floor coatings c. Ceco scrubber system The above items will be obtained and paid for directly by Owner and will not be considered Costs of the Project. Construction Manager shall, however, unless directed otherwise by Owner, supervise and direct the installation of such items. Owner shall pay Construction Manager a separate supervision fee equal to 2% of the Owner's cost of each system or equipment, the installation of which Construction Manager supervises. 2.2.3. COST CONTROL. Develop and monitor an effective system of Project cost control. Revise and refine the initially approved Project Construction Budget, incorporate approved changes as they occur and develop cash flow reports and forecasts as needed. Identify variances between actual and budgeted or estimated costs and advise 8 - 8 - Owner whenever projected cost exceeds budgets or estimates. All modifications to the Project construction Budget must be approved by Owner. 2.2.3.1. Maintain cost accounting records on authorized Work performed. Afford the Owner access to these records and preserve them for a period of six (6) years after final payment. 2.2.4. CHANGE ORDERS. Develop and implement a system for the preparation, review and processing of Change Orders. Recommend necessary or desirable changes to the Owner, review requests for changes, submit recommendations to the Owner and assist in negotiating Change Orders. All Change Orders must be approved by Owner. 2.2.5. PAYMENTS TO TRADE CONTRACTORS. Develop and implement a procedure for the review, processing and payment of applications by Trade Contractors for progress and final payments, which procedure shall be satisfactory to Owner. 2.2.6. PERMITS AND FEES. Obtain all building permits and special permits for permanent improvements. Without limiting the above, Construction Manager shall be responsible for obtaining all necessary permits, licenses and approvals in connection with the Project other than approval from the Division of Environment including, but not limited to, the following agencies: a. Sarawak State Government b. Local town council c. Fire department (BOMBA) d. Jabatan Kerja Raya/water boards e. State Economic Development Corporation (SEDCO) Construction Manager shall insure that all work on the Project is done in conformity with such permits, licenses and approvals (and the approval of the Department of Environment) and all such work shall be done in compliance with all applicable laws, including local laws and ordinances of Kuching. The cost of obtaining all such approvals (other than from the Department of Environment) shall be considered a Cost of the Project within the meaning of Article 8, but not a Hard Construction Cost. Fees required by the licensing authorities shall be paid directly by Owner or Construction Manager, but if Owner pays the fees (other than for approval from the Department of Environment), the amount so paid shall be credited against the Cost of the Project at the time of final payment under Article 11.2. Notwithstanding anything to the contrary above stated, in the event any contributions, fees or levies shall be imposed by either SESCO, the Sarawak Water Board or Telekoms, such contributions, fees or levies shall be paid directly by the Owner and shall not be considered a Cost of the Project. 9 - 9 - 2.2.7. OWNER'S CONSULTANTS. If required, assist the Owner in selecting and retaining professional services of a surveyor, testing laboratories and special consultants and coordinate these services, without assuming any responsibility or responsibility or liability of or for these consultants. 2.2.8. INSPECTION. Inspect the work of Trade Contractors for defects and deficiencies in the Work. 2.2.8.1. Review the safety programs of each of the Trade Contractors and make appropriate recommendations. The performance of such services by the Construction Manager shall not relieve the Trade Contractors of their responsibilities for the safety of persons and property, and for compliance with laws, rules, regulations and orders applicable to the conduct of the Work. 2.2.9. Intentionally omitted. 2.2.10. REPORTS AND PROJECT SITE DOCUMENTS. Record the progress of the Project. Submit written progress reports to the Owner including information on the Trade Contractors' Work and the percentage of completion. Keep a daily log available to the Owner. 2.2.10.1. Maintain at the Project site, on a current basis: records of all necessary Contracts, Drawings, Permits, Licenses and Approvals, samples, purchases, materials, equipment, maintenance and operating manuals and instructions, and other construction related documents, including all revisions. Obtain data from Trade Contractors and maintain a current set of record Drawings, Specifications and operating manuals. At the completion of the Project, deliver all such records to the Owner. 2.2.12. TRADE CONTRACTORS' SUPERVISION. Prepare for Trade Contractors' readiness and assist in their initial start-up and supervise and direct Trade Contractors' performance. 2.2.13. START-UP. With the Owner's maintenance personnel, direct the checkout of utilities, operations, systems and equipment for readiness and assist in their initial start-up and testing by the Trade Contractors. 2.2.14. FINAL COMPLETION. Provide written notice to the Owner that the Work is ready for final inspection. Secure and transmit to the Owner required guarantees, affidavits, releases, bonds and waivers. Turn over to the Owner all keys, manuals, record drawings and maintenance stocks. 2.2.15. PIPES: All process pipes shall be labeled every twenty (20) feet by the Construction Manager to identify the gases or fluids transported. 2.2.16. AS-BUILT PLANS: Upon completion of the Project, the Construction Manager shall deliver a complete set of as-built plans for the Project to the Owner. 10 - 10 - 2.2.17. WARRANTY. Where any Work is performed by the Construction Manager's own forces or by Trade Contractors under contract with the Construction Manager, the Construction Manager shall warrant that all materials and equipment included in such Work will be new, unless otherwise specified, and that such Work will be of good quality, free from improper workmanship and defective materials and in conformance with the Drawings and Specifications. With respect to the same Work, the Construction Manager further agrees to correct all work defective in material and workmanship for a period of one year from the Construction Completion Date, as defined below, or for such longer periods of time as may be set forth with respect to specific warranties contained in the trade sections of the Specifications. The Construction Manager shall collect and deliver to the Owner any specific written warranties given by others. 2.3. Additional Services. 2.3.1. At the request of the Owner the Construction Manager will provide the following additional services upon written agreement between the Owner and Construction Manager defining the extent of such additional services and the amount and manner in which the Construction Manager will be compensated for such additional services. 2.3.2. Services related to investigation, appraisals or valuations of existing conditions, facilities or equipment, or verifying the accuracy of existing drawings or other Owner-furnished information. 2.3.3. Services related to Owner-furnished equipment, furniture and furnishings which are not a part of this Agreement. 2.3.4. Obtaining or training maintenance personnel or negotiating maintenance service contracts. 2.4. As a condition to Construction Manager's rights under this agreement and Owner's obligation to Construction Manager, Construction Manager shall obtain and provide to Owner two performance guarantees ("Performance Bonds") through a bank or insurance company operating in Malaysia which bank or insurance company is acceptable to Owner each in an amount equal to 5% of the Guaranteed Maximum Price. The cost of such bonds shall be borne by Construction Manager and shall not be considered a Hard Construction Cost within the meaning of Article 10. Owner shall permit the cancellation of one Performance Bond in an amount of not more than RM1,675,000 when Owner has recouped payment made under Article 11.6. as provided in Article 11.1. The other Performance Bond shall remain effective through completion of the Project. 2.5. All plans and equipment to be purchased for the Project must be approved in writing by Owner. Any changes to the building plans or types and brands of equipment already selected for the Project must also be approved. 11 - 11 - ARTICLE 3 Owner's Responsibilities 3.1. The Owner shall provide full information regarding his requirement for the Project. 3.2. The Owner shall designate a representative who shall be fully acquainted with the Project and has authority to issue and approved Project Construction Budget, issue Change Orders, Equipment Purchases, render decisions within three (3) business days (excluding Saturdays and Sundays) of receipt of a written request by the Construction Manager and furnish information expeditiously by telephone facsimile. Owner has designated Larry Jo as its representative. However, all project construction budgets, change orders, equipment purchases and other decisions called for under this agreement must be approved by one of the following persons in addition to Larry Jo: a. Ronald Donati b. Robert Snyder c. Joe Brechel Owner reserves the right to change its representative for any reason whatsoever by giving notice to Construction Manager. 3.3. Within three business days (excluding Saturdays and Sundays and American national holidays) of a party's receipt of any written request for information or a decision concerning the Project from the other party, the information or decision will be communicated to the requesting party by personal delivery or telephone facsimile. 3.4. The Owner shall furnish soil reports for the site of the Project. 3.5. Intentionally omitted. 3.6. Intentionally omitted. 3.7. Intentionally omitted. 3.8. The Owner shall provide insurance for the Project as provided in Article 12.4. 3.9. The services, information, and reports required by Owner under the above paragraphs or otherwise to be furnished by other consultants employed by the Owner, shall be furnished with reasonable promptness at the Owner's expense and the 12 - 12 - Construction Manager shall be entitled to rely upon the accuracy and completeness thereof. 3.10. If the Owner becomes aware of any fault or defect in the Project or non-conformance with the Drawings and Specifications, he shall give prompt written notice thereof to the Construction Manager. 3.11. The Owner shall communicate with the Trade Contractors only through or with the knowledge of the Construction Manager. ARTICLE 4 Trade Contracts 4.1. All portions of the Project that the Construction Manager does not perform with his own forces shall be performed under Trade Contracts. The Construction Manager shall request and receive proposals from Trade Contractors and award Trade Contracts. Trade Contractor's proposals will be submitted to Owner for review on Owner's request. 4.2. If the Owner refuses to accept a Trade Contractor recommended by the Construction Manager, the Construction Manager shall recommend an acceptable substitute and the Guaranteed Maximum Price if applicable shall be increased or decreased by the difference in cost occasioned by such substitution and an appropriate Change Order shall be issued. 4.3. Unless otherwise directed by the Owner, Trade Contracts will be between the Construction Manager and the Trade Contractors. Whether the Trade Contracts are with the Construction Manager or the Owner, the form of the Trade Contracts shall be prepared by Construction Manager, include the General and Supplementary Conditions, and shall be satisfactory to the Construction Manager. 4.4. The Construction Manager shall be responsible to the Owner for the acts and omissions of his agents and employees, Trade Contractors performing Work under a contract with the Construction Manager and such Trade Contractor's agents and employees. 4.5. No Trade Contract will be awarded and no Trade Contractor will be used if Owner objects in writing to the Trade Contract or the Trade Contractor. ARTICLE 5 Schedule 5.1. The services to provide under this Agreement shall be in general accordance with the Time Schedule mutually agreed upon by the parties in writing. 13 - 13- 5.2. Intentionally omitted. 5.3. "Substantial Completion" of the Project occurs when construction is substantially completed in accordance with the Drawings and Specifications so the Owner can occupy and utilize the Project for its intended purpose and a temporary occupancy permit or appropriate letter of approval for occupancy from appropriate government authorities has been issued. In the Time Schedule, the date projected for Substantial completion shall be July 1, 1996, which shall be referred to as the "Construction Completion Date." 5.4. If the Construction Manager is delayed at any time in the Progress of the Project by any act or neglect of the Owner or by any separate contractor employed by the Owner, or by changes ordered in the Project, the Construction Completion Date shall be extended by Change Order for a reasonable length of time, and the dates set forth in Article 10 (relative to Bonus) shall be extended accordingly, but no such extensions shall affect the dates set forth in Article 10 (relative to Bonus) by more than two weeks. ARTICLE 6 Guaranteed Maximum Price 6.1. The Guaranteed Maximum Price (guaranteeing the maximum price to the Owner for the Cost of the Project and the Construction Manager's Fee) is RM33,500,000. Such Guaranteed Maximum Price will be subject to modification for Changes in the Project as provided in Article 9, and for additional reasonable costs directly arising from delays caused by the Owner. The Guaranteed Maximum Price is made up of the following: Hard Construction Cost - RM30,000,000.00, Soft Construction Cost - RM1,896,000.00, and Construction Manager's Fee - RM1,610,000.00 for a total of RM33,500,000.00. 6.2. The Owner authorizes the Construction Manager to take all steps necessary, including arbitration or litigation, to assure that the Trade Contractors perform their contracts in accordance with their terms. 6.3. Intentionally omitted. 6.4. Intentionally omitted. ARTICLE 7 Construction Manager's Fee 7.1. In consideration of the performance of this agreement, the Owner agrees to pay Construction Manager as compensation for services under this agreement, a Construction Manager's Fee equal to Ringgit Malaysian One Million Six Hundred and Ten Thousand Only (RM1,610,000.00). 14 - 14 - 7.2. The Construction Manager's Fee shall be paid in accordance with the provisions of Article 11. The Construction Manager's Fee in relation to change orders approved by Owner and with respect to items of cost that are incurred if the Construction Manager is placed in charge of the reconstruction of any insured or uninsured loss (provided such uninsured loss does not arise from a breach of duty or warranty by Construction Manager) shall be five percent (5%) of the costs to be incurred resulting from the change orders. In the event of a change order resulting in savings, the Construction Manager's Fee shall be similarly reduced. The Construction Manager's Fee shall in the event of change orders being issued be calculated according to the following formula: Construction Manager's Fee = RM1,610,000.00 +/- (5% x Value of Change Orders). ARTICLE 8 Cost of the Project 8.1. The term Cost of the Project shall mean cost necessarily incurred in the Project during either the Design or Construction Phase, and paid by the Construction Manager other than as set forth in Article 7. Such costs are the Soft Construction Costs and the items set forth below in this Article, including all items of costs set forth under `A' and `B' in Construction Manager's quotation, dated May 30, 1995. 8.1.1. The Owner agrees to pay the Construction Manager for the Cost of the Project as defined in Article 8. Such payment shall be in addition to the Construction Manager's Fee stipulated in Article 7. 8.2. HARD CONSTRUCTION COSTS. 8.2.1. Wages paid for labor in the direct employ of the Construction Manager in the performance of this Work under applicable collective bargaining agreements, or under any salary or wage schedule, and including such welfare or other benefits, if any, as may be payable with respect thereto. 8.2.2. Salaries of the Construction Manager's employees when stationed at the field office, in whatever capacity employed, employees on the road in expediting the production or transportation of materials and equipment, and employees in the main or branch office performing the functions listed below. 8.2.3. Cost of all employee benefits and taxes for such items as unemployment compensation and social security, insofar as such cost is based on wages, salaries, or other remuneration paid to employees of the Construction Manager and included in the Cost of the Project under Subparagraphs 8.2.1 and 8.2.2. 8.2.4. Reasonable transportation, traveling, moving and hotel expenses of the Construction Manager or of his officers or employees incurred in discharge of duties connected with the Project. 15 - 15- 8.2.5. Cost of all materials, supplies and equipment incorporated in the Project, including costs of transportation and storage thereof. 8.2.6. Payments made by the Construction Manager or Owner to Trade Contractors for their Work performed pursuant to contract under this Agreement. This provision shall not apply to Owners' installation of any of the items specifically excluded from the agreement under Article 2.2.2.2. 8.2.7. Cost, including transportation and maintenance, of all materials, supplies, equipment, temporary facilities and hand tools not owned by the workmen, which are employed or consumed in the performance of the Work, and cost less salvage value on such items used but not consumed which remain the property of the Construction Manager. 8.2.8. Rental charges of all necessary machinery and equipment, exclusive of hand tools, used at the site of the Project, whether rented from the Construction Manager or other, including installation, repairs and replacements, dismantling, removal, costs of lubrication, transportation and delivery costs thereof, at rental charges consistent with those prevailing in the area. 8.2.9. Intentionally omitted. 8.2.10. Sales, use, gross receipts of similar taxes related to the Project imposed by any governmental authority, and for which the Construction Manager is liable. Notwithstanding anything to the contrary in this Section 8.2.10, in the event any taxes, duties or levies are imposed on production or support materials and equipment for incorporation into the Project, Construction Manager shall use its best efforts to eliminate any such taxes, duties or levies and shall prepare all necessary documents for a protest of [PAGE 15 MISSING] 9.1.1. A Change Order is a written order to the Construction Manager signed by the Owner or his authorized agent issued after the execution of this Agreement, authorizing a change in the Project or the method or manner of performance and/or an adjustment in the Guaranteed Maximum Price, the Construction Manager's Fee or the Construction Completion Date. Each adjustment in the Guaranteed Maximum Price resulting from a Change Order shall clearly separate the amount attributable to the Cost of the Project and the Construction Manager's Fee. 9.1.2. The increase or decrease in the Guaranteed Maximum Price resulting form a Change in the Project shall be determined in one or more of the following ways: a. by mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation; 16 - 16 - b. by Cost as defined in Article 8 plus a percentage equal to the Construction Manager's Fee Percentage specified in Article 7.1; or c. by the method provided in subparagraph 9.1.3. 9.1.3. If none of the methods set forth in Clauses 9.1.2.a. through 9.1.2.c is agreed upon, the Construction Manager, provided he receives a written order signed by the Owner, shall promptly proceed with the Work involved. The cost of such Work shall then be determined on the basis of the reasonable expenditures and savings of those performing the Work attributed to the change, including, in the case of an increase in the Guaranteed Maximum Price, an increase in the Construction Manager's fee based upon the Construction Manager's fee Percentage or in the case of a decrease in the Guaranteed Maximum Price, a decrease in the Construction Manager's Fee based upon the Construction Manager's Fee Percentage. In such case, and also under Clause 9.1.2.c. and 9.1.2.d. above, the Construction Manager shall keep and present, in such form as the Owner may prescribe, an itemized accounting together with appropriate supporting data of the increase in the Cost of the Project as outlined in Article 8. When both additions and credits are involved in any one change, the increase or decrease in the Construction Manager's Fee shall be figured on the basis of net increase or net decrease, if any. 9.1.4. If unit prices are stated in the Agreement or subsequently agreed upon, and if the quantities originally contemplated are so changed in a proposed Change Order or as a result of several Change Orders that application of the agreed unit prices to the quantities of Work proposed will cause substantial inequity to the Owner or the Construction Manager the applicable unit prices and Guaranteed Maximum Price shall be equitably adjusted. 9.1.5. Intentionally omitted. 9.2. CLAIMS FOR ADDITIONAL COST OR TIME. 9.2.1. If the Construction Manager wishes to make a claim or an increase in the Guaranteed Maximum Price, an increase in his fee, or extension in the Construction Completion Date, he shall give the Owner written notice thereof within a reasonable time after the occurrence of the event giving rise to such claim. This notice shall be given by the Construction manager before proceeding to execute any Work, except in an emergency endangering life or property in which case the Construction Manager shall act, at his discretion, to prevent threatened damage, injury or loss. Claims arising from delay shall be made within a reasonable time after the delay. No such claim shall be valid unless so made. If the Owner and the Construction Manager cannot agree on the amount of the adjustment in the Guaranteed Maximum Price, Construction Manager's Fee or Construction Completion Date it shall be determined pursuant to the provisions of Article 16. Failure of the Owner and the Construction manager to agree on any such adjustment shall not entitle the Construction manager to suspend or stop the performance of Work. Any change in the Guaranteed Maximum Price, Constructions Manager's Fee 17 - 17 - or Construction Completion Date resulting from such claim shall be authorized by Change Order. 9.3. MINOR CHANGES IN THE PROJECT. 9.3.1. Owner's representative, as designated under Article 3.2, will have authority to order minor Changes in the Project not involving an adjustment in the Guaranteed Maximum Price or an extension of the Construction Completion Date and not inconsistent with the intent of the Drawings and Specifications. Such Changes may be effected by written order and shall be binding on the Owner and the Construction Manager. 9.4. EMERGENCIES. 9.4.1. In any emergency affecting the safety of persons or property, the Construction Manager shall act, at his discretion, to prevent threatened damage, injury or loss. Any increase in the Guaranteed Maximum Price or extension of time claimed by the Construction Manager on account of emergency work shall be determined as provided in this Article. ARTICLE 10 Bonuses 10.1. COST BONUS. If the final total Hard Construction Costs of the Project is RM30,000,000 or less, than the difference between the total Hard Construct Cost of the Project and RM30,000,000 shall be shared and divided equally between Owner and Construction Manager. For example, if the total Hard Construction Cost of the Project is RM26,000,000, then Owner shall pay to Construction Manager a bonus of RM2,000,000. Any payment due under this Article shall be paid after Owner has been granted a final occupancy permit and all items contained on the punch list referred to in Article 11.2 have been completed to Owner's satisfaction. As used herein, Hard Construction Costs are the cost of labor, equipment, materials, and Trade Contracts, and the Construction Manager's Fee but are not Construction Manager's fixed costs, overhead, and the costs of insurance, Performance Bonds, permit approval costs or similar items, all of which Construction Manager has estimated to be in the amount of approximately RM1,890,000. 10.2. TIMELINESS BONUS. Owner will pay Construction Manager a bonus equal to RM250,000 at the date of occupancy if there is no material breach of this Agreement and all of the following conditions are fully and timely met: a. The Project is completed so that Owner is able to commence installation of the automatic plating lines no later than April 1, 1996; b. The Project is completed so that Owner is able to commerce the installation of the waste treatment equipment no later than April 1, 1996; and 18 - 18 - c. Owner receives a temporary occupancy permit or an appropriate letter of approval for occupancy from appropriate governmental authorities no later than July 1, 1996. ARTICLE 11 ---------- Payments to the Construction Manager 11.1. Construction Manger shall submit to Owner in California by telephone facsimile, personal delivery, or Federal Express (or DHL) delivery, on a monthly basis, a statement showing in detail the amount of all bills for labor, material, subcontracts and other Costs of the Project for work completed during the previous calendar month with each item compared to the approved budget for such item. Owner (or a personal or entity designated by Owner which may be Owner's bank) shall within ten (10) days after receipt of such a progress statement certify that the work was actually performed in compliance with the approved plans and actually performed in compliance with the approved plans and specifications, the amounts charged were reasonable and the work and amount shown were within the budget for such items and consistent with the overall Project budget. If any cost claimed [PAGE 19 MISSING] 19 - 20 - The Owner may remit payment by wire transfer to an account designated by the Construction Manager. 11.5. Payments due but unpaid shall bear interest at the rate the Owner is paying on his construction loan. 11.6. Owner shall pay Construction Manager an amount equal to 10% of the Guaranteed Maximum Price when this agreement has been signed by both parties and the conditions in Section 13.3.3 have been met. 11.7. BONUS. A Bonus will be paid in accordance with Article 10.2. ARTICLE 12 ---------- Insurance, Indemnity and Waiver of Subrogation 12.1. INDEMNITY 12.1.1. The Construction Manager agrees to indemnify, hold harmless and defend Owner, its shareholders, and their respective officers, employees, directors, agents ("Indemnitees") from and against any and all liabilities, damages, actions, costs, losses, claims and expenses (including attorneys' fees) on account of personal injury, or death of any persons whomsoever or damage to or loss of real or personal property or profits arising out of or resulting, in whole or in part, from any act, omission, negligence, violation of law or ordinance by or attributable to the Construction Manager, any Trade Contractor or any of their employees or agents. Such indemnification shall apply unless and to the extent such damage or injury results from the sole negligence or willful misconduct of Owner, its employees or agents. 12.1.2. The Owner shall cause any other contractor who may have a contract with Owner to perform construction or installation work in the areas where Work will be performed under this agreement, to agree to indemnify the Owner and the Construction Manager and hold them harmless from all claims for bodily injury and property damage (other than property insured under Article 12.3.) that may arise from the contractor's operations. Such provisions shall be in a form satisfactory to the Owner. 12.2. CONSTRUCTION MANAGER'S LIABILITY INSURANCE 12.2.1. Without prejudice to the Construction Manager's liability to indemnify the Owner under subparagraph 12.1.1., the Construction Manager shall purchase a Workmen Compensation Policy and such other liability insurance as is satisfactory to Owner for the duration of the Project from a reputable insurance company acceptable to Owner. Construction Manger shall submit the insurance policies to Owner for Owner's approval. 20 - 21 - 12.2.2. The foregoing policies shall contain a provision that coverages afforded under the policies will not be cancelled or not renewed until at least sixty (60) days' prior written notice has been given to the Owner. Certificates of Insurance showing such coverages to be in force shall be filed with the Owner prior to commencement of the Work. The Owner may require copies of the insurance policies or inspect the originals thereof at any time during construction. All insurers for policies under this Article 12.2 shall be acceptable to the Owner with coverages acceptable to Owner. 12.3. OWNER'S LIABILITY INSURANCE. 12.3.1. The Owner may purchase and maintain his own liability insurance and, at his option, may purchase and maintain such insurance as will protect him against claims which may arise from operations under this Agreement. Such insurance shall be secondary to insurance carried by Construction Manager. 12.4. INSURANCE TO PROTECT PROJECT. 12.4.1. The Owner shall purchase and maintain property insurance upon the entire Project for the full cost of replacement as of the time of any loss. This insurance shall include as named insured only the Owner, and shall include "All risk" insurance for physical loss or damage with coverage acceptable to Owner. The Owner will increase limits of coverage, if necessary, to reflect estimated replacement cost. The Owner will be responsible for an co-insurance penalties or deductibles. 12.4.1.1. If the Owner finds it necessary to occupy or use a portion of the Project prior to Substantial Completion thereof, such occupancy shall not commerce prior to a time mutually agreed to by the Owner and Construction Manager and to which the insurance company or companies providing the property insurance have consented by endorsement to the policy or policies. This insurance shall not be cancelled or lapsed on account of such partial occupancy. Consent of the Construction Manager and of the insurance company or companies to such occupancy or use shall not be unreasonably withheld. It is contemplated that prior to Substantial Completion, Owner will be given access to the building to commerce or cause its contractors to commerce installation of equipment to be supplied by Owner. All policies provided shall permit such occupancy. 12.4.2. The Owner shall purchase and maintain such boiler and machinery insurance as may be required or necessary. This insurance shall include only the interests of the Owner. 12.4.3. Intentionally omitted. 12.4.4. Intentionally omitted. 12.5. PROPERTY INSURANCE LOSS ADJUSTMENT 21 - 22 - 12.5.1. Any insured loss shall be adjusted with the Owner and made payable to the Owner, subject to any applicable mortgages clause. 12.5.2. Intentionally omitted. 12.6. ADDITIONAL INSURANCE PROVISIONS 12.6.1. Intentionally omitted. 12.6.2. Intentionally omitted. 12.6.3. Intentionally omitted. 12.6.4. If the policies of insurance referred to in this Article 12, require an endorsement to provide for continued coverage where there is a waiver of subrogation, the owners of such policies will cause them to be co-endorsed. 12.7. Notwithstanding the provisions of Articles 12.2 or 12.4, Owner shall have the right to either require Construction Manager to obtain the liability insurance required under Section 12 or Owner may obtain such policies itself. If the Construction Manager fails to pay insurance or fails to renew the same, the Owner may pay such premiums or renew the insurance on behalf of the Construction Manager. If Owner obtains or renews such policies, then the cost of such insurance shall not be considered a Cost of the Project and the Guaranteed Maximum Price established under Article 6 shall be reduced by the sum of the cost of said insurance and by Construction Manager's Fee Percentage attributable thereto. 12.8. Construction Manager will not do any act or permit or suffer any circumstances whereby the insurance referred to in Articles 12.2 and 12.4 may at any time become void or voidable and the Construction Manager shall at all times at its own expense comply with conditions of the policies and the requirements of the insurer so as to prevent the invalidation of those insurance or otherwise prejudice the rights of any insured. The Construction Manager hereby indemnifies the Owner against all or any losses, caused, and expenses arising out of the Construction Manager's default under this clause. 12.9. Upon the happening of any loss, damage, injury, death or accident likely to give rise to a claim under insurance referred to in Articles 12.2 and 12.4, the Construction Manager shall immediately give notice thereof to the Owner stating the circumstances of the damages, injury, death or accident. Such notice shall be confirmed in writing by the Construction Manager as soon as possible. If any theft, vandalism, or malicious damages is suspected, the Construction Manager shall forthwith inform the appropriate law enforcement agencies. The Construction Manager shall comply in all respects with requirements for notice, reporting, detail, insurance claims, and any other item in accordance with the policies. In addition, the Construction Manager shall at all times fully cooperate with the Owner in pursuing recovery of any claims under the 22 - 23 - insurances referred to in Articles 12.2 and 12.4, including the provisions of report, information and other matters as may be required by the Owner from time to time. 12.10. The Owner shall have the power to negotiate settlement and to effect compromise in respect of any claims against insurers under the insurances referred to in Article 12.4 and the Owner shall not be liable for any loss to the Construction Manager or any other insured occasioned thereby. Notwithstanding the above, the Owner may direct the Construction Manager to claim, negotiate and settle whether in part or in whole, any claim against insurers under insurances referred to in Articles 12.2 and 12.4. ARTICLE 13 ---------- Termination of the Agreement and Owner's Right to Perform Construction Manager's Obligations 13.1. Termination by the Construction Manager. 13.1.1. If the Project, in whole or substantial part, is stopped for a period of thirty days under an order of any court or other public authority having jurisdiction, or as a result of an act of government, such as a declaration of a national emergency making materials unavailable, through no act or guilt of the Construction Manager, or if the Project should be stopped for a period of thirty days by the Construction Manager for the Owner's failure to make an undisputed payment thereon, then the construction Manager may, upon seven days' written notice to the Owner terminate this Agreement and recover from the Owner payment for all completed Work executed, the Construction Manager's Fee earned to date, any proven loss sustained upon any materials, equipment, tools, construction equipment and machinery, cancellation charges on existing obligations of the Construction Manager, and a reasonable profit. 13.2. OWNER'S RIGHT TO PERFORM CONSTRUCTION MANAGER'S OBLIGATION AND TERMINATION BY THE OWNER FOR CAUSE. 13.2.1. If the Construction Manager fails to perform any of his obligations under this Agreement including any obligation he assumes to perform Work with his own forces, the Owner may, after seven days' written notice during which period the Construction Manager fails to perform such obligation, make good such deficiencies. The Guaranteed Maximum Price, if any, shall be reduced by the cost of the Owner of making good such deficiencies plus the Construction Manager's fee attributable thereto. 13.2.2. If the Construction Manager is adjusted bankrupt, or if he makes a general assignment for the benefit of his creditors, or if a receiver is appointed on account of his insolvency, or if he refuses to or fails, to a material extent, except in cases for which extension of time is provided, to supply enough properly skilled workmen or proper materials or fails to timely complete construction in accordance with the Time Schedule agreed upon by the parties or if he fails to make proper payment to Trade Contractors or for materials or labor, or materially or intentionally disregards laws, 23 - 24 - ordinances, rules, regulations or orders of any public authority having jurisdiction, or otherwise is guilty of a substantial violation of a provision of the Agreement then the Owner may, without prejudice to any right or remedy and after giving the Construction Manager and his surety, if any, seven days' written notice, during which period the Construction Manager fails to cure the violation, terminate the employment of the Construction Manager and take possession of the site and of all materials, equipment, tools, construction equipment, plans, records and machinery thereon owned by the Construction Manager and may finish the Project by whatever reasonable method he may deem expedient. In such case, the Construction Manager shall not be entitled to receive any further payment until the Project is finished nor shall he be relieved from his obligations assumed under this Agreement. 13.3.1. If the Owner terminates this Agreement other than pursuant to Article 13.2.2. or Article 13.3.2. he shall reimburse the Construction Manager for any unpaid Cost of the Project due to him under Article 8, plus (1) the unpaid balance of the Fee computed upon the Cost of the Project to the date of termination at the rate of the percentage named in Article 7.2.1. The Owner shall also pay to the Construction Manager fair compensation either by purchase or rental at the election of the Owner, for any equipment retained. In case of such termination of the Agreement, the Owner shall further assume and become liable for obligations, commitments and unsettled claims that the Construction Manager has previously undertaken or incurred in good faith in connection with said Project which benefit the Project. The Construction Manager shall, as a condition of receiving the payments referred to in this Article 13, execute and deliver all such papers and take all such steps, including the legal assignment of his contractual rights, as the Owner may require for the purpose of fully vesting in him the rights and benefits of the Construction Manager under such obligation or commitments. 13.3.2. After the completion of the Design Phase, if the final cost estimates make the Project no longer feasible from the standpoint of the Owner, the Owner may terminate this Agreement and pay the Construction Manager his Fee in accordance with subparagraph 7.1.1. plus any Costs of the Project incurred pursuant to Article 9 and the Construction Manager's Fee attributable thereto. 13.3.3. Owner may cancel this agreement and shall have no liability to Construction Manager if: a. Owner does not obtain a permit to proceed with the construction by the Department of Environment; or b. Owner does not receive financing to construct the Project satisfactory to Owner; or c. Construction Manager fails to obtain the performance bonds or any insurance required by this agreement; or 24 - 25 - d. Construction Manager and Owner fail to agree in writing on the Time Schedule for construction, Construction Budget and final Drawings and Specifications by July 31, 1995. Notwithstanding the foregoing, if the Owner cancels this agreement under Section 13.3.3.b., the Owner shall reimburse the Construction Manager for all its expenses incurred to the date of such cancellation. 13.4. OTHER REMEDIES: Nothing in this Article shall be construed as a limitation on any remedies available at law, including damages, to either party, for breach of this agreement by the Construction Manager or Owner, including any failure of the Construction Manager to comply with the Time Schedule (including the Construction Completion Date), Construction Budget, and final Drawings and Specifications. 13.5. DELAY DAMAGES: If Substantial Completion of the Project is delayed beyond the Construction Completion Date, as agreed by the Owner and the Construction Manager in the Time Schedule, the parties agree that the Owner would suffer damages and Construction Manager shall therefore pay to the Owner the sum of RINGGIT MALAYSIA EIGHT THOUSAND (RM8,000.000) per day for each calendar day during which Substantial Completion Date as agreed by Owner and the Contractor in the Time Schedule. ARTICLE 14 ---------- Assignment and Governing Law 14.1. Neither the Owner nor the Construction Manager shall assign his interest in this Agreement without the written consent of the other except as to the assignment of proceeds. 14.2. This Agreement shall be governed by the laws of the place where the Project is located. ARTICLE 15 ---------- Miscellaneous Provisions 15.1. Intentionally omitted. ARTICLE 16 ---------- Arbitration 16.1. Any dispute, controversy or claim arising out of or relating to this contract or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules in effect on the date of this contract. If the parties are unable to agree upon an arbitrator or if for any reason an appointing 25 - 26 - authority is necessary, the appointing authority shall be the director of the Regional Center for Arbitration in Kuala Lampur. At the request of either party, the case shall be administered by the director of the Regional Center for Arbitration in Kuala Lampur in accordance with its Procedure for cases under the UNCITRAL Arbitration Rules. The language to be used in the arbitral proceedings shall be English. Unless the parties agree otherwise, the place of arbitration shall be Kuala Lampur and there shall be only one arbitrator and he shall be a citizen of Singapore. 16.2. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement. The demand for arbitration shall be made within a reasonable time after the claim, dispute or other matter in question has arisen, and in no event shall it be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. 16.3. The award rendered by the arbitrators shall be final and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. 16.4. Unless otherwise agreed in writing, the Construction Manager shall carry on the Work and maintain the Contract Completion Date during any arbitration proceedings, and the Owner shall continue to make payments in accordance with this Agreement. 16.5. All claims which are related to or dependent upon each other, shall be heard by the same arbitrator or arbitrators even though the parties are not the same unless a specific contract prohibits such consolidation. This Agreement executed the day and year first written above. OWNER: ZYCON CORPORATION SDW. BHD By: /s/ Ronald H. Donati - President -------------------------------- Name: Title: CONSTRUCTION MANAGER: HITI ENGINEERING (M) SDW.BHD By: /s/ Felix Tee Yee Loh -------------------------------- Name: Title: 26 - 27 - EX-10.7 6 PROFIT SHARING PLAN AND TRUST OF REGISTRANT 1 Exhibit 10.7 PLAN 001 FIN 04-2393279 HADCO CORPORATION PROFIT SHARING AND 401K PLAN AND TRUST AS AMENDED THROUGH DECEMBER 9, 1988 AND RESTATED EFFECTIVE JANUARY 1, 1988 2 TABLE OF CONTENTS Page No. INTRODUCTION................................................ ARTICLE I DEFINITIONS................................................. ARTICLE II PLAN PARTICIPATION.......................................... 2.1 - Initial Participation............................... 2.2 - Cessation of Participation.......................... 2.3 - Reinstatement of Active Participation............... ARTICLE III CONTRIBUTIONS AND ALLOCATIONS............................... 3.1 - Profit Sharing Contributions........................ 3.2 - Elective Deferrals.................................. 3.3 - Matching Contributions.............................. 3.4 - Qualified Nonelective Contributions................. 3.5 - Voluntary Contributions............................. 3.6 - Rollover Contributions.............................. 3.7 - Forfeitures......................................... 3.8 - Investment Adjustment............................... 3.9 - Limitations on Allocations.......................... 3.10 - Allocation of Excess Allocations and Contributions.. 3.11 - Contributions for Top-Heavy Plan Years.............. ARTICLE IV WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT.................................................. 4.1 - Withdrawals from Voluntary Accounts................. 4.2 - Resumption of Voluntary Contributions............... 4.3 - Withdrawals from Employer Contributions Account..... 4.4 - Withdrawals from Rollover Account................... 4.5 - Withdrawals from Salary Savings Account............. 4.6 - Loans to Participants............................... ARTICLE IV-A VALUATION OF ACCOUNTS....................................... 4A.1 - Accounts............................................ 4A.2 - Adjustment of Accounts.............................. 4A.3 - Valuation of Trust Fund............................. 4A.4 - Annual Statements................................... ARTICLE V VESTING..................................................... 5.1 - Full Vesting........................................ 5.2 - Partial Vesting..................................... 5.3 - Vesting after Receipt of Distribution............... -ii- 3 5.4 - Vesting for Top-Heavy Plan.......................... 5.5 - Crediting Years of Service.......................... ARTICLE VI DISTRIBUTION AT RETIREMENT, DEATH OR DISABILITY............. 6.1 - Distribution at Retirement.......................... 6.2 - Distribution Upon Incurring Disability.............. 6.3 - Distributions at Death.............................. 6.4 - Notices and Election Procedures..................... 6.5 - Definitions and Application......................... ARTICLE VII TERMINATION OF EMPLOYMENT................................... 7.1 - Termination Distributions........................... 7.2 - Termination Forfeitures............................. 7.3 - Repayment to Reinstate Forfeited Amounts............ ARTICLE VIII TRUSTEES.................................................... 8.1 - Appointment and Tenure of Trustees.................. 8.2 - Basic Responsibilities of Trustee................... 8.3 - Powers and Duties of Trustee........................ 8.4 - Directed Investments by Participants................ 8.5 - Authority........................................... 8.6 - Participation....................................... 8.7 - Discretion.......................................... 8.8 - Disputes............................................ 8.9 - Records............................................. 8.10 - Accounts............................................ 8.11 - Taxes............................................... 8.12 - Expenses............................................ 8.13 - Compensation........................................ 8.14 - Vacancies........................................... 8.15 - Employer's Records.................................. 8.16 - ERISA............................................... ARTICLE IX ADMINISTRATION.............................................. 9.1 - Allocation of Responsibility........................ 9.2 - Appointment of Plan Administrator................... 9.3 - Claims Procedure.................................... 9.4 - Records and Reports................................. 9.5 - Powers and Duties of the Plan Administrator......... 9.6 - Rules and Decisions................................. 9.7 - Authorization of Benefits Payments.................. 9.8 - Application and Forms for Benefits.................. 9.9 - Facility of Payment................................. ARTICLE X MISCELLANEOUS............................................... -iii- 4 10.1 - Nonguarantee of Employment.......................... 10.2 - Rights of Employees and Beneficiaries............... 10.3 - Nonalienation of Benefits........................... 10.4 - Discontinuance of Employer Contributions............ 10.5 -No Reversion in Employer............................ 10.6 - Jurisdiction........................................ 10.7 - Timing of Distributions............................. 10.8 - Beneficiary Designations............................ 10.9 - Benefits of Lost Participants....................... ARTICLE XI AMENDMENTS AND ACTION BY EMPLOYER........................... 11.1 - Amendments.......................................... 11.2 - Action by Employer.................................. ARTICLE XII SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS...................................... 12.1 - Successor Employer.................................. 12.2 - Plan Assets......................................... ARTICLE XIII PLAN TERMINATION............................................ 13.1 - Right to Terminate.................................. 13.2 - Partial Termination................................. 13.3 - Liquidation of the Plan............................. 13.4 -Manner of Distribution............................... ARTICLE XIV DISCHARGE OF DUTIES BY FIDUCIARIES.......................... -iv- 5 INTRODUCTION WHEREAS, Hadco Corporation, hereinafter referred to as the "Employer," a corporation organized and existing under the laws of the Commonwealth of Massachusetts, established effective October 27, 1973 the Hadco Printed Circuits, Inc. Profit Sharing Plan and Trust for the purpose of providing retirement benefits for those employees of the Employer entitled to participate therein, and WHEREAS, the Employer has previously amended and restated said Profit Sharing Plan; and WHEREAS, the Employer has most recently amended said Profit Sharing Plan on September 9, 1988 and December 9, 1988; NOW, THEREFORE, the Employer hereby publishes this Restatement of the Hadco Corporation Profit Sharing and 401(k) Plan and Trust reflecting amendments through December 9, 1988 for those of its Employees entitled to participate herein pursuant to the provisions hereof. ARTICLE I DEFINITIONS 1.1 ADJUSTMENT FACTOR shall mean the cost of living adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the Code for years beginning after December 31, 1987, as applied to such items and in such manner as the Secretary shall provide. (1/l/88) 1.2 BENEFICIARY shall mean the person(s) or other recipient designated in accordance with the provisions of Article X hereof to receive any death benefit which may become payable under this Plan. 1.3 BREAK IN SERVICE shall mean a Computation Period in which an Employee completes less than five hundred one (501) Hours of Service. (1/l/85) 1.4 CODE shall mean the Internal Revenue Code of 1986 and amendments thereto. (1/l/87) 1.5 COMPENSATION shall mean the total compensation of a Participant during the calendar year for which a contribution is being made for which the Participant received or was entitled to receive a W-2 form from the Employer. For purposes of this Section 1.5, compensation shall include those items specified in Treasury Regs. (cent)1.415-2(d)(1) and shall not include those items specified in Treasury Regs. (cent)1.415-2(d)(2). (1/l/88) 1.6 DEFINED CONTRIBUTION PLAN shall mean all defined contribution plans (whether or not terminated) of an employer which shall be treated as one defined contribution plan for purposes of applying the limitations of Section 415(b), (c), and (e) of the Code. 6 -2- 1.7 DETERMINATION DATE shall mean December 31. (1/l/87). 1.8 DISABILITY shall mean a Participant's permanent and total incapacity of engaging in any employment of the Employer for physical or mental reasons. Disability shall be deemed to exist only when a written application has been filed with the Plan Administrator by or on behalf of such Participant and when Disability is certified to the Plan Administrator by a licensed physician approved by the Plan Administrator; provided, however, that in the event any such Participant meets the requirements for disability benefits under the Social Security law then in effect, he shall thereafter be deemed to be disabled within the meaning of this definition. 1.9 EARLY RETIREMENT DATE shall mean the date the Participant attains age fifty-five (55) and completes fifteen (15) Years of Service. 1.10 EFFECTIVE DATE shall mean the original effective date of the Plan, October 27, 1973. 1.11 ELECTIVE DEFERRALS shall mean contributions to the Plan made by the Employer during the Plan Year at the election of the Participant in lieu of cash compensation and shall include contributions made pursuant to a salary reduction agreement under Section 3.2 of the Plan. (1/l/88) 1.12 EMPLOYEE shall mean any individual who is employed by the Employer (other than nonresident aliens employed outside the United States) on or after the Effective Date, and shall include leased employees within the meaning of Section 414(n)(2) of the Code except to the extent excludable under Section 414(n)(5) of the Code. An Employee who is on an authorized leave of absence shall retain his status as an Employee for all purposes under the Plan, regardless of whether he is receiving Compensation during such leave of absence. (1/1/88) 1.13 EMPLOYER shall mean Hadco Corporation, a corporation organized and existing under the laws of the Commonwealth of Massachusetts, and all its subsidiaries. (1/l/84) 1.14 EMPLOYER CONTRIBUTIONS shall mean the contributions paid hereunder by the Employer to the Trustees in accordance with the provisions of Article III of this document. 1.15 EMPLOYER CONTRIBUTIONS ACCOUNT shall mean the portion of a Participant's Account which is attributable to Employer Profit Sharing Contributions made on behalf of such Participant. (1/l/88) 7 -3- 1.16 EMPLOYER PROFIT SHARING CONTRIBUTIONS shall mean contributions to the Plan made by the Employer for the Plan Year, other than Elective Deferrals, Matching Contributions and Qualified Nonelective Contributions, and allocated to Employer Contributions Accounts under Section 3.1 of the Plan. (1/1/88) 1.17 ENTRY DATE shall mean any January 1, April 1, July 1 or October 1 following the date a Participant meets the eligibility requirements of Section 2.1 of the Plan. (1/l/88) 1.18 ERISA shall mean Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, and any amendments thereto. 1.19 FAMILY MEMBER shall mean any individual described in Section 4.14(q)(6) of the Code. (1/l/87) 1.20 FISCAL YEAR shall mean a twelve (12)- month period ending on the last Saturday in October. 1.21 FORFEITURES shall mean the portion of a Participant's Employer Contribution Account and/or Matching Contributions Account which is forfeited in accordance with Section 7.2 of Article VII hereof. (1/l/88) 1.22 HIGHLY COMPENSATED EMPLOYEE shall mean any Employee who, during the Plan Year or the preceding Plan year, (a) owns (or is considered as owning within the meaning of Section 318 of the Code) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer, in each case determined without regard to the aggregation rules of subsections (b), (c) and (m) of Section 414 of the Code; or (b) received Compensation from the Employer in excess of $75,000.00; or (c) received Compensation from the Employer in excess of $50,000.00 and was in the top paid group of employees for such year; or (d) was at any time an officer and received Compensation greater than 150 percent of the amount in effect under Section 415(c)(1)(A) of the Code for such year. For purposes of this Section 1.22, the provisions of subsections (2), (4), (5), (6), (7), (8), (9) and (10) of Section 414(q) of the Code are incorporated herein by reference. (1/l/87) 1.23 HOUR OF SERVICE shall mean: (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These hours shall be credited to the Employee for the computation period in which the duties are performed; and (b) Each hour for which an Employee is paid or entitled to payment by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave 8 -4- of absence. No more than 501 Hours of Service. shall be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference; and (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service shall not be credited both under paragraphs (a) or (b), as the case may be, and under this paragraph (c). These hours shall be credited to the Employee for the computation period in which the award, agreement, or payment pertains rather than the period in which such award, agreement or payment is made. [12/9/88]) 1.24 INSURANCE COMPANY shall mean a legal reserve life insurance company organized and incorporated under the laws of any one of the United States of America and duly licensed in the Commonwealth of Massachusetts. 1.25 KEY EMPLOYEE shall mean any Employee, former Employee, or Beneficiary of any Employee or former Employee who at any time during a Plan Year or any of the four (4) preceding Plan Years, is: (a) an officer of the Employer having an annual Compensation greater than 150% of the amount in effect under Section 415(c)(1)(A) of the Code for any such Plan Year; (b) one (1) of the ten (10) Employees having an annual Compensation from the Employer greater than 150% of the amount in effect under Section 415(c)(1)(A) of the Code and owning (or considered as owning) within the meaning of Section 318 of the Code the largest interests in the Employer; (c) a five (5%) percent owner of the Employer; or (d) a one (1%) percent owner of the Employer having an annual Compensation from the Employer of more than $150,000. For purposes of clause (a), no more than fifty (50) Employees (or, if lesser, the greater of three [3] or ten [10%] percent of all Employees) shall be treated as officers. For purposes of clause (b), if two Employees own the same percentage interest in the Employer, the Employee with the highest Compensation from the Employer will be considered to own a greater percentage. For purposes of clauses (c) and (d), the definitions of percentage owners" set forth in Section 416(i)(1)(B) of the Code are incorporated herein by reference. (1/l/84) 1.26 MATCHING CONTRIBUTIONS shall mean contributions to the Plan made by the Employer for the Plan Year under Section 3.3 of the Plan and allocated to a Participant's 9 -5- Matching Contributions Account by reason of the Participant's Elective Deferrals. (1/l/88) 1.27 MATCHING CONTRIBUTIONS ACCOUNT shall mean the portion of a Participant's Account which is attributable to Matching Contributions made on behalf of such Participant. (1/l/88) 1.28 NET PROFIT shall mean the net profit of Hadco Corporation and its subsidiaries on a consolidated basis, determined in accordance with generally accepted accounting principles. (1/l/84) 1.29 NONHIGHLY COMPENSATED EMPLOYEE shall mean an Employee who is neither a Highly Compensated Employee nor an individual described in Section 414(q)(6) of the Code. (1/l/87) 1.30 NORMAL RETIREMENT AGE shall mean age sixty-five (65). NORMAL RETIREMENT DATE shall mean the later of the following: (a) the Participant's sixty-fifth (65th) birthday, or (b) the tenth (10th) anniversary of the time the Participant commenced participation in the Plan. A Participant may continue participation beyond his Normal Retirement Date. 1.31 PARTICIPANT shall mean an "Employee who is actively participating in the Plan in accordance with the provisions of Section 2.1 of Article II hereof. 1.32 PARTICIPANT'S ACCOUNT shall mean the Participant's Employer Contributions Account, Matching Contributions Account, Voluntary Account, Salary Savings Account and Rollover Account referred to collectively. (1/l/88) 1.33 PARTICIPATION COMPUTATION PERIOD shall mean a twelve (12) consecutive-month period during which an Employee completes one thousand (1,000) hours of service with the Employer. An Employee's initial Participation Computation Period shall be the twelvemonth period commencing with the Employee's employment commencement date. Thereafter, the Participation Computation Period shall be the Plan Year beginning with the Plan Year which includes the first anniversary of the Employee's employment commencement date, provided that an. Employee who is credited with one thousand (1,000) hours of service in both the initial Participation Computation Period and the Plan Year which includes the first anniversary of the Employee's employment commencement date shall be credited with two years of service for purposes of eligibility to participate. (1/l/81) 1.34 PLAN shall mean the Hadco Corporation Profit Sharing and 401(k) Plan and Trust. 10 -6- 1.35 PLAN ADMINISTRATOR shall mean Hadco Corporation or such other person or entity appointed under Article IX hereof, who shall have those responsibilities of administering the Plan as set forth in Article IX. 1.36 PLAN FIDUCIARY shall be the Trustees, but only with respect to the specific allocated responsibilities for Plan Administration, as described in Section 9.1 of Article IX hereof. 1.37 PLAN YEAR shall mean October 28, 1979 to December 31, 1979. Thereafter, a Plan Year shall mean the twelve (12) month period beginning on each January 1 and ending on the succeeding December 31. 1.38 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 "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. [12/9/88] 1.39 QUALIFIED NONELECTIVE CONTRIBUTIONS shall mean contributions to the Plan made by the Employer for the Plan Year, other than Elective Deferrals, Employer Profit Sharing Contributions, and Matching Contributions and allocated to Participants' Salary Savings Accounts under Section 3.4 of the Plan. (1/l/88) 1.40 ROLLOVER ACCOUNT shall mean the portion of a Participant's interest in this Plan which is attributable to his Rollover Contributions. (1/l/84) 1.41 ROLLOVER CONTRIBUTION shall mean a contribution made by an Employee from another qualified plan as provided in Section 3.6 of this Plan. (1/l/84) 1.42 SALARY SAVINGS ACCOUNT shall mean that portion of a Participant's Account which is attributable to Elective Deferrals and Qualified Nonelective Contributions made on behalf of such Participant, and which is subject to the limitations and provisions of Sections 5.1(a) and 4.5 of the Plan. (1/l/88) 1.43 TOP-HEAVY PLAN shall mean this Plan with respect to any Plan Year if, as of the last day of the preceding Plan Year, (i) the aggregate of the accounts of Key Employees under the Plan exceeds sixty (60%) percent of the aggregate of the accounts of all Employees under the Plan or (ii) this Plan is part of a Top-Heavy group. For purposes of determining whether this Plan is a Top Heavy Plan, (A) each plan of the Employer in which a Key Employee is a Participant and (B) each other plan of the Employer which enables any plan described in subclause (A) to meet the requirements of Sections 401(a)(4) or 410 of the Internal Revenue Code of 1954, as amended, shall be aggregated. This Plan shall be considered as part of a Top-Heavy group for any Plan Year if it is included in a group of plans which are aggregated in accordance with the preceding sentence and the sum of (x) the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans included in such aggregation group and (y) the aggregate of the accounts of Key Employees under all defined contribution plans 11 -7- included in such aggregation group, exceeds sixty (60%) percent of a similar sum determined for all Employees. The following shall apply for purposes of this Section 1.43: (a) For purposes of determining the present value of the cumulative accrued benefit for any Employee or the amount of the account of any Employee, such present value of amount shall be increased by the aggregate distributions made with respect to such Employee during the five (5) year period ending on the Determination Date. (b) Except to the extent provided in regulations issued by the Secretary of the Treasury or his designate, any Rollover Contribution (or similar transfer) initiated by an Employee and made after December 31, 1983 to a plan shall not be taken account with respect to the transferee plan for purposes of determining whether such plan is a Top-Heavy Plan (or whether any aggregation group which includes such plan is a Top-Heavy group). (c) If an individual is not a Key Employee with respect to any plan for any Plan Year, but such individual was a Key Employee with respect to such plan for any prior Plan Year, any accrued benefit for such Employee and the account of such Employee shall not be taken into account. (d) If an individual has not received any Compensation from the Employer (other than benefits under the Plan) at any time during the five (5) year period ending on the determination date, any accrued benefit for such individual and the account of such individual shall not be taken into account. (1/l/85) (e) To the extent provided in regulations issued by the Secretary of the Treasury or his designate, this section shall be applied on the basis of any year specified in such regulations in lieu of plan years. (1/l/84) 1.44 TRUST shall mean the trust agreement entered into by the Employer and the Trustee(s), embodied herein (inclusive of any subsequent amendments or supplements hereto), and as duly executed by both parties. 1.45 TRUSTEES shall mean the individual(s) or entity who may at any time be appointed and acting as Trustees under this Plan and Trust. (1/l/87) 1.46 VALUATION DATE shall mean the last day of each calendar quarter. 1.47 VESTING COMPUTATION PERIOD shall mean the Plan Year. Each Vesting Computation Period during which the Employee completes one thousand (1,000) Hours of Service shall be considered a Year of Service for vesting purposes. An Employee who completes more than 1,000 hours of service during. both twelve-month periods extending from October 28, 1979 to October 25, 1980 and from January 1, 1980 to December 31, 12 -8- 1980 shall be credited with two Years of Service for purposes of determining his vested interest in his Employer Contribution Account. (10/28/79) 1.48 VOLUNTARY ACCOUNT shall mean the portion of a Participant's interest in this Plan which is attributable to his Voluntary Contributions. 1.49 VOLUNTARY CONTRIBUTIONS shall mean the voluntary contributions paid by a Participant hereunder. 1.50 Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise. ARTICLE II PLAN PARTICIPATION 2.1 INITIAL PARTICIPATION For Plan Years ending on or before December 31, 1987, each Employee, other than an Employee who is covered by a collective bargaining agreement under which retirement benefits were the subject of good faith bargaining, shall commence participation hereunder on the first day of the month next following his completion of a Participation Computation Period during which he completed one thousand (1,000) Hours of Service, but in no event earlier than the Effective Date. For Plan Years beginning on or after January 1, 1988, each Employee, other than an Employee who is covered by a collective bargaining agreement under which retirement benefits were the subject of good faith bargaining, shall commence participation hereunder on the Entry Date next following the completion of a six month period of service with the Employer without regard to the number of Hours of Service completed. (1/l/88) For purposes of determining an Employee's initial eligibility to participate, an Employee shall receive credit for the time period commencing with the first day he performs an Hour of Service for the Employer and ending on the date a twelve consecutive month period of severance begins. A period of severance shall mean a period of time during which the Employee is no longer employed by the Employer, and shall begin on the earlier of (i) the date on which the Employee quits, retires, is discharged or dies or(ii) the first anniversary of the first day of a period in which the Employee remains absent from service (with or without pay) with the Employer for any reason other than quit, retirement, discharge or death, such as on account of vacation, holiday, sickness, disability, leave of absence or layoff. [12/9/88] 2.2 CESSATION OF PARTICIPATION A Participant shall become an inactive Participant on the date his employment with the Employer terminates. He shall remain an inactive Participant until the date on which the balance of his Participant Account is distributed to him, or is forfeited, at which time he 13 -9- shall cease to be an inactive Participant and become a former Participant. Active participation in this Plan subsequent to either of those dates shall be determined in accordance with Section 2.3. 2.3 REINSTATEMENT OF ACTIVE PARTICIPATION An inactive or former Participant shall recommence active participation in this Plan on his date of reemployment by the Employer. (1/l/85) ARTICLE III CONTRIBUTIONS AND ALLOCATIONS 3.1 PROFIT SHARING CONTRIBUTIONS The Employer may make annual Profit Sharing Contributions to the Plan in accordance with this Section 3.1 for the Fiscal Year during which this Plan is established and for each subsequent Fiscal Year. The Profit Sharing Contribution for each Fiscal Year shall be an amount from the Employer's current or accumulated Net Profit as determined annually by the Board of Directors of the Employer, subject to the limitations set forth in this Section 3.1 and in Section 3.9, provided that the Board of Directors may determine that no Profit Sharing Contribution shall be made for a particular Fiscal Year regardless of whether the Employer has a Net Profit for such year or an accumulated Net Profit for prior Fiscal Years. The Profit Sharing Contribution for each Fiscal Year shall be limited in amount so that it does not exceed any of the following amounts: (a) The sum of the Employer's Net Profit for such Fiscal Year plus its accumulated Net Profit for prior Fiscal Years; or (b) The maximum amount deductible from the Employer's income for such Fiscal Year under Section 404 of the Code as a contribution to a profit sharing plan which meets the requirements for qualification under Section 401 of the Code, after taking into consideration all other Employer contributions under this Plan; or (c) The aggregate individual Participant limitations in accordance with Section 415 of the Code, as applied in accordance with Section 3.9. The Profit Sharing Contribution for each Fiscal Year shall be paid to the Trustees 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 Trustees within sixty (60) days after the end of such Fiscal Year. Profit Sharing Contributions shall be allocated to the Employer Contributions Accounts of those Participants who shall 14 -10- have received any Compensation during the Plan Year within which such Fiscal Year ends and who are employed on the last day of the Plan Year. Such contribution shall be allocated according to the ratio that each such Participant's Compensation for the Plan Year bears to the total Compensation of all such Participants for the Plan Year. [12/9/88] (1/l/88) 3.2 ELECTIVE DEFERRALS Effective as of April 1, 1988, an Employee who has met the eligibility and participation requirements of Article II may authorize the Employer to contribute to the Plan on his behalf as an Elective Deferral an amount from his Compensation from employment with the Employer, subject to the limitations set forth in this Section 3.2, and in Section 3.9. A Participant may authorize Elective Deferrals by filing a salary reduction agreement with the Employer within thirty (30) days before the Entry Date he first elects to participate under this Section 3.2. Each salary reduction agreement shall state the amount to be contributed to the Plan on behalf of the Participant as a whole percentage of his Compensation of not less than one percent (1%) or more than fifteen percent (15%), and shall authorize the Employer to reduce the Participant's Compensation by such percentage. Such agreement shall continue until revoked or changed by the Participant by written notice to the Employer at least thirty (30) days prior to the effective date of the revocation or change. A Participant who revokes his salary reduction agreement shall not be eligible to enter into a new salary reduction agreement before the next Entry Date following the final payroll period in which such revocation was effective. A Participant may change his salary reduction agreement quarterly without restriction. Contributions may be made under this Section 3.2 without regard to current or accumulated Net Profits. No Employee shall be permitted to have Elective Deferrals made under this Plan during any calendar year in excess of $7,000.00 multiplied by the Adjustment Factor. In addition, Elective Deferrals on behalf of Highly Compensated Employees shall be limited as provided in Section 3.9. Elective Deferrals, reduced by the amount of any taxes required of a Participant with respect to such Elective Deferrals under the Federal Insurance Contributions Act and the Federal Unemployment Tax Act, shall be paid by the Employer to the Trustees promptly following each pay period, but in no event later than 30 days after the end of the Plan Year. The amount of such taxes shall be paid by the Employer to the appropriate government agency as required by law. Elective Deferrals shall be allocated to the Salary Savings Accounts of the respective Participants on whose behalf the contributions are made. (1/1/88) 15 -11- 3.3 MATCHING CONTRIBUTIONS The Employer shall make Matching Contributions to the Plan in accordance with this Section 3.3 for any calendar quarter during which one or more Participants authorize Elective Deferrals. The Employer shall contribute as a Matching Contribution on behalf of each Participant who has authorized Elective Deferrals an amount equal to twenty-five percent (25%) of the amount of the Elective Deferrals (determined without regard to taxes, if any, required to be deducted therefrom as provided in Section 3.2), up to a maximum of four percent (4%) of the Participant's Compensation in any Plan Year and subject to the limitations set forth in Section 3.9. The Board of Directors may determine that no Matching Contributions shall be made for a particular calendar quarter, or may increase or decrease the amount of Matching Contributions for any calendar quarter; provided that such determination, increase or decrease does not discriminate in favor of Highly Compensated Employees. Matching Contributions under this Section 3.3 may be made without regard to current or accumulated Net Profits. Matching Contributions shall be paid by the Employer to the Trustees on a quarterly basis, promptly following the close of each calendar quarter, but in any event not later than the due date for the Employer's federal income tax return for the Fiscal Year which ends within the Plan Year, including extensions. Matching Contributions shall be allocated to the Matching Contributions Accounts of the respective Participants on whose behalf the contributions are made and who are employed on the last day of the quarter. (1/1/88) 3.4 QUALIFIED NONELECTIVE CONTRIBUTIONS The Employer may make Qualified Nonelective Contributions to the Plan in accordance with this Section 3.4 for any Plan Year. If a Participant authorizes Elective Deferrals under Section 3.2 when he first becomes eligible to do so, the Employer shall contribute to the Plan on behalf of such Participant the sum of $100.00 without regard to the amount of the Elective Deferral. Any additional Qualified Nonelective Contribution for any Plan Year shall be an amount as determined annually by the Board of Directors of the Employer, subject to the limitations set forth in Section 3.9, provided that the Board of Directors may determine that no Qualified Nonelective Contribution shall be made for a particular Plan Year, and provided further that the Board of Directors may authorize any additional Qualified Nonelective Contribution to be allocated among all Participants who are Nonhighly Compensated Employees equally, or according to the ratio that each such Participant's Elective Deferrals for the Plan Year bears to the total Elective Deferrals of all Participants who are Nonhighly Compensated Employees, or according to the ratio that each such Participant's Compensation bears to the total Compensation of all Participants who are Nonhighly Compensated Employees for the Plan Year. [9/9/88] 16 -12- Qualified Nonelective Contributions under this Section 3.4 may be made without regard to current or accumulated Net Profits. Qualified Nonelective Contributions shall be paid to the Trustees as soon as practicable after the end of the Plan Year, but in any event not later than the due date for the Employer's federal income tax return for the Fiscal Year which ends within such Plan Year, including extensions, and shall be allocated to the Salary Savings Accounts of Participants on whose behalf the contributions are made. (1/1/88) 3.5 VOLUNTARY CONTRIBUTIONS For Plan Years ending on or before December 31, 1987, a Participant may elect to make Voluntary Contributions to the Plan by executing an application authorizing the Employer to make regular payroll deductions of said Voluntary Contributions or by means of a lump sum payment to the Plan. The amount of such Voluntary Contributions shall be subject to the limitations of Section 3.9, and the aggregate of all amounts a Participant contributes shall not exceed ten (10%) percent of the total Compensation paid to him since he became a Participant in the Plan. Voluntary Contributions shall be allocated to the Voluntary Account of the Participant who' has made such contribution. (1/l/88) 3.6 ROLLOVER CONTRIBUTIONS An Employee may, with the consent of the Employer and the Trustees, contribute to the Plan cash as a Rollover Contribution from another qualified plan or individual retirement trust or annuity or retirement bond in accordance with Sections 402(a)(5), 403(a)(4), 408(d)(3) or 409(3)(C) of the Code. The Trustees shall maintain a separate Rollover Account under the Plan for each Rollover Contribution. All such contributions and the investments thereon shall immediately become and at all time remain fully vested in the Employee. Rollover Contributions shall not be taken into consideration in determining the limitations set forth in Section 3.9. (1/l/88) 3.7 FORFEITURES Any Forfeitures from Employer Contributions Accounts which have become available for distribution during a Plan Year shall be credited. to the Employer Contributions Accounts of those Participants who are entitled to share in the Employer's Profit Sharing Contribution for such Plan Year (regardless of whether a Profit Sharing Contribution has been made) and such amounts shall be allocated according to the ratio that each such Participant's Compensation for such Plan Year bears to the total Compensation of all such Participants for that Plan Year. 17 -13- Any Forfeitures from Matching Contributions Accounts which have arisen during a Plan Year shall be used to reduce the amount of Matching Contributions required to be made by the Employer under Section 3.3 for the Plan Year. In the event that the amount of such Forfeitures exceeds the amount of Matching Contributions so required, the excess shall be held in a suspense account to be used to reduce the amount of Matching Contributions required for any subsequent Plan Year. In the event that upon the termination of the Plan there is any amount then held in such suspense account, such amount shall be allocated among those Participants who have a balance in their Matching Contributions Accounts according to the ratio that the aggregate of each such Participant's Matching Contributions Account and Salary Savings Account bears to the aggregate of all Participants' Matching Contributions Accounts and Salary Savings Accounts, and such amounts shall be credited to such Matching Contributions Accounts, subject to Sections 3.9 and 3.10. [12/9/88] (1/l/88) 3.8 INVESTMENT ADJUSTMENT The net earnings or losses of the trust fund shall be computed on a quarterly basis. The quarterly periods shall end each March 31, June 30, September 30 and December 31. The earnings allocated base will be updated to reflect distributions and contributions before earnings are allocated. At the end of each quarter, the net earnings and losses of the trust fund for that quarter shall be allocated to each of the individual accounts of Participants and Beneficiaries in proportion to their account balances as of the last day of such quarter except to the extent the provisions of Section 8.4 of the Plan are applicable to any individual account. (1/l/88) 3.9 LIMITATIONS ON ALLOCATIONS AND CONTRIBUTIONS (a) Maximum Annual Additions All annual additions made under the provisions of this Article III within any Plan Year and with respect to any Participant shall not exceed the lesser of: (i) Thirty thousand dollars ($30,000.00) multiplied by the Adjustment Factor or (ii) 25% of the Participant's Compensation for such Plan Year. For Plan Years ending on or before December 31, 1986, the term "annual addition" shall mean the sum of (1) Employer contributions, plus (2) the lesser of one-half (1/2) of the Participant's Voluntary Contributions or such Participant's Voluntary Contributions in excess of six percent (6%) of his annual 18 -14- Compensation, plus (3) Forfeitures. For Plan Years beginning after December 31, 1986, the term "annual addition" shall mean the amount allocated to a Participant's Account during the Plan Year that constitutes Profit Sharing Contributions, Elective Deferrals, Matching Contributions, Qualified Nonelective Contributions, Voluntary Contributions and Forfeitures. In the event the limits of this Section 3.9(a) are exceeded, the provisions of Section 3.10(a) shall become effective. (1/l/88) (b) Maximum Elective Deferrals The average actual deferral percentage for eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the greater of (i) or (ii) below: (ii) the average actual deferral percentage for eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25, or (ii) the average actual deferral percentage for eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2, provided that the average actual deferral percentage for eligible Participants who are Highly Compensated Employees does not exceed the average actual deferral percentage for eligible Participants who are Nonhighly Compensated Employees by more than two percentage points or such lesser amount as the Secretary of the Treasury may prescribe by regulation. For purposes of this Section 3.9(b) and Section 3.10(c), the following definitions shall be used: (x) "actual deferral percentage" shall mean the ratio (expressed as a percentage) of Elective Deferrals and Qualified Nonelective Contributions on behalf of the eligible Participant for the Plan Year to the eligible Participant's Compensation for the Plan Year; (y) "average actual deferral percentage" shall mean the average (expressed as a percentage) of the actual deferral percentages of the eligible Participants in a group; and (z) "eligible Participant" shall mean any Participant who is authorized under the terms of the Plan to have Elective Deferrals or Qualified Nonelective Contributions allocated to his Salary Savings Account for the Plan Year. 19 -15- For purposes of determining the actual deferral percentage of a Participant who is a Highly Compensated Employee, the Elective Deferrals, Qualified Nonelective Contributions and Compensation of such Participant shall include the Elective Deferrals, Qualified Nonelective Contributions and Compensation of Family Members, and such Family Members shall be disregarded in determining the actual deferral percentage for Participants who are Nonhighly Compensated Employees. The determination and treatment of the Elective Deferrals, Qualified Nonelective Contributions and actual deferral percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. In the event the limits of this Section 3.9(b) are exceeded, the provisions of Section 3.10(c) shall become effective. (1/1/88) (c) Maximum Employee Contributions and Matching Contributions The average contribution percentage for eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the greater of (i) or (ii) below: (i) The average contribution percentage for eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25; or (ii) The average contribution percentage for eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2, provided that the average contribution percentage for eligible Participants who are Highly Compensated Employees does not exceed the average contribution percentage for eligible Participants who are Nonhighly Compensated by more than two percentage points or such lesser amount as the Secretary of the Treasury may prescribe by regulation. For purposes of this Section 3.9(c) and Section 3.10(d), the following definitions shall be used: (x) "average contribution percentage" shall mean the average (expressed as a percentage) of the contribution percentages of the eligible Participants in a group; (y) "contribution percentage" shall mean the ratio (expressed as a percentage), of the sum of the Voluntary Contributions and Matching Contributions under the plan on behalf of the eligible Participant for the Plan Year to the eligible Participant's Compensation for the Plan Year; and 20 -16- (z) "eligible Participant" shall mean any Participant who is authorized under the terms of the Plan to have Voluntary Contributions or Matching Contributions allocated to his account for the Plan Year. For purposes of determining the contribution percentage of an eligible Participant who is a Highly Compensated Employee, the Voluntary Contributions, Matching Contributions and Compensation of such eligible Participant shall include the Voluntary Contributions, Matching Contributions, and Compensation of Family Members, and such Family Members shall be disregarded in determining the contribution percentage for eligible Participants who are Nonhighly Compensated Employees. The determination and treatment of the contribution percentage of any eligible Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. In the event the limits of this Section 3.9(c) are exceeded, the provisions of Section 3.10(d) shall become effective. (1/l/87) (c) Maximum Employee Contributions and Matching Contributions The average contribution percentage for eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the greater of (i) or (ii) below: (I) The average contribution percentage for eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25; or (ii) The average contribution percentage for eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2, provided that the average contribution percentage for eligible Participants who are Highly Compensated Employees does not exceed the average contribution percentage for eligible Participants who are Nonhighly Compensated by more than two percentage points or such lesser amount as the Secretary of the Treasury may prescribe by regulation. For purposes of this Section 3.9(c) and Section 3.10(d), the following definitions shall be used: (x) "average contribution percentage" shall mean the average (expressed as a percentage) of the contribution percentages of the eligible Participants in a group' 21 -17- (y) "contribution percentage" shall mean the ratio (expressed as a percentage), of the sum of the Voluntary Contributions and Matching Contributions under the plan on behalf of the eligible Participant for the Plan Year to the eligible Participant's Compensation for the Plan Year; and (z) "eligible participant" shall mean any Participant who is authorized under the terms of the Plan to have Voluntary Contributions or Matching Contributions allocated to his account for the Plan Year. For purposes of determining the Contribution percentage of an eligible Participant who is a Highly Compensated Employee, the Voluntary Contributions, Matching Contributions and Compensation of such eligible Participant shall include the Voluntary Contributions, Matching Contributions, and Compensation of Family Members, and such Family Members shall be disregarded in determining the contribution percentage for eligible Participants ;who are Nonhighly Compensated Employees. (d) Limitations on Compensation For Plan Years beginning after December 31, 1988, the Compensation of each Employee taken into account under this Plan shall not exceed $200,000.00 multiplied by the Adjustment Factor. (1/l/88) 3.10 ALLOCATION OF EXCESS ALLOCATIONS AND CONTRIBUTIONS (a) Excess Annual Additions The following steps shall be taken when a Participant has received an allocation to his Participant Account in a given Plan Year which results in an annual addition that would exceed the limitations in 3.9(a) above: (i) That portion of a Participant's Voluntary Contribution for that Plan Year which is a part of the annual additions shall be refunded to him to the extent necessary to reduce the annual addition to the allowable limits as set forth in Section 3.9(a) above. (ii) If, after returning a Participant's Voluntary Contributions for that Plan Year as called for in (i) above, the limits of Section 3.9(a) are still exceeded, then the excess portion of the allocation of Profit Sharing Contributions and Forfeitures shall be reallocated to eligible Participants 22 -18- as a Forfeiture for the Year in the manner described in Section 3.7 of this Article III. (iii) In the event that any Profit Sharing Contributions and/or Forfeitures may still be remaining subsequent to the procedures set forth in (ii) above, then such amounts shall be placed in a suspense account to be reallocated on the next succeeding Allocation Date in accordance with Section 3.7 of this Article III. In the event of termination of the Plan, the suspense account shall revert to the Employer to the extent it may not then be allocated to any Participant's account. (iv) Notwithstanding any other provisions of this Plan, the Employer shall not contribute any amount that would cause an allocation to the suspense account as of the date the contribution is allocated. If the contribution is made prior to the date as of which it is to be allocated, then such contribution shall not exceed an amount that would cause an allocation to the suspense account if the date of contribution were on the. allocation date. if an allocation is made to such suspense account, it shall contain gains or losses. Any such gains shall be viewed as an annual addition at the time they are allocated to a Participant's Account. (1/l/87) (b) Excess Deferrals In the event the aggregate elective deferrals of a Participant under one or more plans described in Sections 401(k), 408(k) or 403(b) of the Code exceed $7,000.00 for any taxable year of such Participant, the excess deferral amount for such year that the Participant allocates to this Plan and income allocable thereto shall be distributed no later than April 1 following the close of such taxable year, provided that the Participant gives written notice on or before March 1 following the close of the taxable year specifying the excess deferral amount allocated to this Plan and stating that if such amounts are not distributed, such excess deferral amount, when added to amounts deferred under other plans or arrangements described in Sections 401(k), 408(k), or 403(b) of the Code, will exceed the limit imposed on the Participant by Section 402(g) of the Code for the year in which the deferral occurred. Notwithstanding a distribution under this Section 3.10(b), any excess deferral amount allocated to this Plan shall be treated as an Elective Deferral for purposes of applying Section 3.9(b). (1/l/88) (c) Excess Contributions The Plan Administrator may suspend, reduce or prohibit all Elective Deferrals made on behalf of Participants who are Highly Compensated Employees for any 23 -19- Plan Year or part thereof, if the Plan Administrator in its discretion determines that such Elective Deferrals may result in an actual deferral percentage that exceeds the limits of Section 3.9(b). In the event the limits of Section 3.9(b) are exceeded for any Plan Year, the excess contributions shall be treated as provided in (i) or (ii) below: (i) At the Participant's written election, excess contributions and income allocable thereto shall be treated as an amount distributed to the Participant and than contributed by the Participant to the Plan, provided that such treatment does not cause the limitations of Sections 3.9(a) or 3.9(c) to be exceeded. (ii) Except as otherwise elected in writing by a Participant pursuant to (i) above, excess contributions and income allocable thereto shall be distributed no later than the last day of the following Plan Year to Participants on whose behalf such excess contributions were made. Any distribution of excess contributions for any Plan Year shall be made to Highly Compensated Employees on the basis of the respective portions of the excess contributions attributable to each of such Employees. The term "excess contributions" means, with respect to any Plan Year, the excess of (x) the aggregate amount of Elective Deferrals, Matching Contributions and Qualified Nonelective Contributions actually paid over to the Trustees on behalf of Highly Compensated Employees for such Plan Year, over (y) the maximum amount of such contributions permitted under the limitations of Section 3.9(b) (determined by reducing contributions made on behalf of Highly Compensated Employees in order of actual deferral percentages beginning with the highest of such percentages). (1/l/88) (d) Excess Aggregate Contributions In the event the limits of Section 3.9(c) are exceeded for any Plan Year, excess aggregate contributions and income allocable thereto shall be forfeited, if otherwise forfeitable under the terms of this Plan, or if not forfeitable, distributed no later than the last day of the following Plan Year to Participants to whose accounts such Voluntary Contributions or Matching Contributions were allocated. Any distribution of excess aggregate contributions for any Plan Year shall be made to Highly Compensated Employees on the basis of the respective portions of such amounts attributable to each of such Employees. Forfeitures of excess aggregate contributions may not be allocated to Participants whose contributions are reduced under this paragraph. The term "excess aggregate Contributions means, with respect to any Plan Year, the excess of (x) the aggregate amount of contributions taken into account in 24 -20- computing the contribution percentage under Section 3.9(c) actually made on behalf of Highly Compensated Employees for such Plan Year, over (y) the maximum amount of such contributions permitted under the limitations of Section 3.9(c) (determined by reducing contributions made on behalf of Highly Compensated Employees in order of their contribution percentages beginning with the highest of such percentages). The determination of the amount of excess aggregate contributions shall be made after first applying the provisions of Sections 3.10(b) and 3.10(c). (1/l/87) 3.11 CONTRIBUTIONS FOR TOP-HEAVY PLAN YEARS For any Plan Year for which this Plan is deemed to be a Top-Heavy Plan under the provisions of Section 1.43 of the Plan, the following provisions shall apply: (a) The Employer shall contribute for each Participant who is not a Key Employee not less than three (3%) percent of such Participant's Compensation for the year, except as provided in Section 3.11(b) below. For purposes hereof, any Participant who has not separated from service at the end of the Plan Year shall receive the minimum contribution provided for herein without regard to the number of hours worked during the Plan Year. [12/9/88] (b) The percentage referred to in Section 3.11(a) above for any year shall not exceed the percentage at which contributions are made under the Plan for such year the Key Employee for whom such percentage is the highest for the year. The determination of the percentage at which contributions are made for each Key Employee shall be made by dividing the contribution for such Employee by so much of his Compensation for the year as does not exceed $200,000.00 multiplied by the Adjustment Factor. (c) The annual Compensation of each Empl___________________________________ account under this Plan shal_____________________________________________ $200,000.00 multiplied by the Adjust______________________________________ (1/l/88) ARTICLE IV WITHDRAWALS PRIOR TO TERMINATION OF __________ 4.1 WITHDRAWALS FROM VOLUNTARY ACCOUNTS A Participant may, at any time prior to the distribution of his Voluntary Account, elect to withdraw a cash amount equal to all or a specified portion of the value of such Account, 25 -21- including interest and earnings thereof. The minimum withdrawal shall be the total balance of the Voluntary Account or in increments of $500.00. The Participant's election to withdraw must be made in writing to the Plan Administrator and such request must specify the amount to be withdrawn from his Voluntary Account. Each such withdrawal shall be made as soon as practicable following the date the Plan Administrator receives from the Participant such written notice of withdrawal. (1/l/88) 4.2 RESUMPTION OF VOLUNTARY CONTRIBUTIONS Any Participant who makes a withdrawal in accordance with this Article shall be prohibited from making Voluntary Contributions for a period of twelve (12) months. The Participant may elect to resume Voluntary Contributions as of the first day of any month which succeeds the date of withdrawal by at least twelve (12) months. Election to resume payments must be made in writing to the Plan Administrator at least thirty-one (31) days prior to the first day of the month in which the Participant wishes the resumption to be made effective. Amounts withdrawn by a Participant may not be returned to this Plan. 4.3 WITHDRAWALS FROM EMPLOYER CONTRIBUTIONS ACCOUNT In no event shall a Participant be eligible to elect withdrawal of any monies from his Employer Contributions Account except upon his termination of employment with the Employer, at which time such withdrawal shall be subject to the terms of Article VII. 4.4 WITHDRAWALS FROM ROLLOVER ACCOUNT In no event shall a Participant be eligible to elect withdrawal of any monies from his Rollover Account except upon his termination of employment with the Employer. At any time, on or after a Participant's termination of employment, the Participant may elect, by written notice meeting the requirements set out in Section 7.1 hereof, to receive a lump sum distribution of his Rollover Account valued as of the Valuation Date coincident with or next following receipt of such notice. Such lump sum payment shall be made as soon as practicable after the date the Plan Administrator receives such written notice from the Participant. (8/22/86; 1/l/87) 4.5 WITHDRAWALS FROM SALARY SAVINGS ACCOUNT A Participant shall not be eligible to elect a withdrawal of any monies from his Salary Savings Account prior to his separation from service, except upon the earlier to occur of (a) attainment of age 59 1/2 by the Participant, or (b) termination of the Plan without the establishment of a successor plan, or (c) upon hardship of the Participant. Upon a Participant's separation from service with the Employer, whether by reason of death, disability, retirement or termination of employment,. distribution of the Participant's 26 -22- Salary Savings Account shall be subject to the provisions of Article VI or VII as the case may be. [9/9/88] For purposes of this Section 4.5, "hardship" shall be limited to such extraordinary circumstances as the Plan Administrator in its sole discretion shall determine, such as: unusual and uninsured medical expenses.. college educational expense, the construction, renovation or purchase of a principal residence, but generally excluding hardship attributable solely to layoff; provided, however, any distribution under this Section 4.5 shall not exceed the amount required to meet the immediate financial need created by the hardship and in making such determination the Plan Administrator shall take into account other financial resources available to the Participant (provided that similarly situated Plan Participants shall be treated in a uniform and nondiscriminatory manner). Hardship withdrawals under this Section 4.5 shall be limited to that portion of the Participant's Salary Savings Account that is attributable to his Elective Deferrals and shall not include any portion of such account that is attributable to income earned on such account after December 31, 1988. In addition, hardship withdrawals shall not include any portion of the Participant's Salary Savings Account that is attributable to Qualified Nonelective Contributions or qualified employer matching contributions (if any) or any income earned thereon. [12/9/88] All requests for distributions under this Section 4.5 shall be made in writing and delivered to the Plan Administrator thirty days prior to the end of any calendar quarter. Distributions under this Section 4.5 shall be made not later than 60 days following the close of the calendar quarter coinciding with or next following the delivery of the written request for withdrawal to the Plan Administrator. 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. In determining the value of a Participant's Salary Savings Account for purposes of this Section, the Plan Administrator shall have the discretion to use either of the following values: (i) the value as of the most recent valuation, or (ii) the value as of the next valuation. [9/9/88] Any Participant who makes a withdrawal in accordance with this Section 4.5 shall be prohibited from making Elective Deferrals for a period of twelve (12) months. The Participant may elect to resume Elective Deferrals as of the Entry Date which succeeds the date of withdrawal by at least twelve (12) months, provided that the Participant's Elective Deferrals for his taxable year immediately following the taxable year of the hardship withdrawal shall not exceed the limit set forth in Section 3.2 of this Plan decreased by the amount of the Participant's Elective Deferrals for the taxable year of the hardship withdrawal. An election to resume Elective Deferrals must be made in writing to the Plan Administrator at least thirty (30) days prior to the Entry Date on which the Participant wishes the resumption to be made effective. Amounts withdrawn by a Participant may not be returned to this Plan. [12/9/88] 27 -23- (1/l/88) 4.6 LOANS TO PARTICIPANTS The Plan Administrator may, subject to rules of uniform application, authorize the Trustees to make loans to any Participant who has authorized Elective Deferrals under Section 3.3, subject to the provisions of this Section 4.6. (a) The amount of any loan to a Participant, when added to the outstanding balance of all other loans from this Plan or a related plan, shall be limited as follows: (i) If the present value of the Participant's vested interest in his Salary Savings Account and Matching Contributions Account is ten thousand ($10,000) dollars or less, then the limit shall be the amount of such vested interest; (ii) If the present value of the Participant's vested interest in his Salary Savings Account and Matching Contributions Account exceeds ten thousand ($10,000) dollars, then the limit shall be the greater of ten thousand ($10,000) dollars or one-half of such vested interest, but not more than fifty thousand ($50,000) dollars. (9/9/88) (b) The minimum loan amount shall be $1,000 and may be in additional increments of $500. Written requests for a loan must be submitted to the Plan Administrator within sixty days prior to the beginning of any calendar quarter. (c) Any loan hereunder shall be evidenced by a valid promissory note, payable on a date or dates certain by payroll deduction, with interest at a rate to be established by the Plan Administrator with reference to the then current interest rates available from lending institutions in the Southern New Hampshire area. Unless the loan is to be used to acquire any dwelling unit which, within a reasonable time of the date of the loan, is to be used as a principal residence of the Participant, the promissory note shall provide that the loan is to be repaid within five (5) years. [9/9/88] (d) The Trustees may require such security for the loan as they deem reasonable; provided that, if the Participant's Account is to be used as security, the spouse of the Participant must consent in writing to the use of the account as security and such consent must be given at the time the security interest is entered into. (e) For purposes of this Section 4.6, the value of a Participant's Salary Savings Account and Matching Contributions Account shall be based on the value of such accounts as determined as of the date of the most recent preceding valuation or, in the discretion of the Plan Administrator, as of the date on which the loan is made. (1/l/88) 28 -24- ARTICLE IV-A VALUATION OF ACCOUNTS 4A.1 ACCOUNTS 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 Employer Contributions Accounts, Matching Contributions Account, Salary Savings Accounts, Voluntary Accounts and Rollover Accounts, and credits and charges shall be made to such accounts in the manner described in this Article IV-A. 4A.2 ADJUSTMENT OF ACCOUNTS All Participant's Accounts shall be adjusted as of the last day of each calendar quarter to reflect transfer of funds, contributions, forfeitures and net earnings allocated, and withdrawals, distributions, forfeitures and losses debited, during or with respect to such quarter under the provisions of this Plan. 4A.3 VALUATION OF TRUST FUND As of each Determination Date and at such other times as may be requested by the Employer or the Plan Administrator, the Trustees shall determine the fair market value of the trust fund. 4A.4 ANNUAL STATEMENTS Not less frequently than annually, each Participant or Beneficiary shall be furnished a statement showing the value of his Participant's Account, including a breakdown by individual account. (Article amended effective 1/l/88) ARTICLE V VESTING 5.1 FULL VESTING (a) A Participant shall be one hundred percent (100%) vested in his Voluntary Account, Rollover Account, and Salary Savings Account at all times. (b) A Participant's interest in his Employer Contributions Account shall become one hundred percent (100%) vested at the earliest of the following dates: 29 -25- (i) For Plan Years ending on or before December 31, 1987, the date the Participant has completed ten (10) Years of Service with the Employer, or for Plan Years beginning after December 31, 1987, the date the Participant has completed five (5) Years of Service with the Employer; provided that, if the Participant has completed five (5) Years of Service on or before December 31, 1987 and is employed on that date, he shall become one hundred percent (100%) vested as of December 31, 1987; (ii) The date of the Participant's death; (iii) The date the Participant incurs a Disability; (iv) The Participant's Normal Retirement Age; (v) The date of termination of this Plan or partial termination of this Plan with respect to the Participant as provided in Article XIII, or the date of complete discontinuance of Employer contributions as provided in Section 10.4. (c) A Participant's interest in his Matching Contributions Account shall become one hundred percent (100%) vested at the earliest of the following dates: (i) The date the Participant has completed three (3) Years of Service with the Employer; (ii) The date of the Participant's death; (iii) The date the Participant incurs a Disability; (iv) The Participant's Normal Retirement Age; (v) The date of termination of this Plan or partial termination of this Plan with respect to the Participant as provided in Article XIII. (1/l/88) 5.2 PARTIAL VESTING Prior to the date that the Participant's interest in his Employer Contributions Account or Matching Contributions Account becomes fully vested in accordance with Section 5.1, his current vested interest shall be determined in accordance with (a), (b) or (c) below: (a) For Plan Years ending on or before December 31, 1987, the following schedule shall apply with respect to Employer Contributions Accounts: Vested Percentage of Years of Service Participant's Employer 30 -26- With the Employer Contributions Account ----------------- --------------------- Less than 4 0% 4 40% 5 50% 6 60% 7 70% 8 80% 9 90% 10 or more 100% (b) For Plan Years beginning after December 31, 1987, the following schedule shall apply with respect to Employer Contributions Accounts: Vested Percentage of Years of Service Participant's Employer With the Employer Contributions Account ----------------- --------------------- Less than 2 0% 2 25% 3 50% 4 75% 5 or more 100% (c) For Plan Years beginning after December 31, 1987, the following schedule shall apply with respect to Matching Contributions Accounts: Vested Percentage of Years of Service Participant's Employer With the Employer Contributions Account ----------------- --------------------- Less than 1 0% 1 33-1/3% 2 66-2/3% 3 or more 100% (1/l/88) 5.3 VESTING AFTER RECEIPT OF DISTRIBUTION In the event that a Participant receives a distribution from his Employer Contributions Account in accordance with the provisions of this Plan governing distributions prior to the date he is one hundred percent (100%) vested in such Account, then his vested interest in such Account on any date of determination subsequent to the date of distribution and prior to the date he ceases participation shall not be less than an amount ("X") determined by the formula: 31 -27- X = P (AB + (R) (D)) - (R) (D), where AB = The Participant's Account Balance as of the date of determination D = Amount of the distribution P = The Vested percentage applicable to the Participant as of the date of determination R = The ratio of the Account Balance as of the date of determination to the Account Balance after the distribution 5.4 VESTING FOR TOP-HEAVY PLAN (a) In the event this Plan is deemed to a Top-Heavy Plan, a Participant's current vested interest in his Employer Contributions Account shall be determined in accordance with this Section 5.4 notwithstanding the foregoing provisions of this Article V. (b) The following vesting schedule shall be applicable in lieu of the vesting schedule set out in Section 5.2(a), with respect to Plan Years ending on or before December 31, 1987: Vested Percentage of Years of Service Participant's Employer With the Employer Contributions Account ----------------- --------------------- Less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 or more 100% (c) The vesting schedule set out in section 5.2(b) shall be applicable with respect to Plan Years beginning after December 31, 1987. (d) For purposes of this Section 5.4, Years of Service shall be determined under the applicable provisions of Sections 1.47, 2.2 and 2.3 of this Plan. (e) At such time as the Plan ceases to be a Top-Heavy Plan, the vesting schedule of Section 5.2 shall again become applicable in determining a Participant's vested interest in his Employer Contributions Account; provided, however, that no Participant's vested interest may be reduced hereunder; and provided further, that any Participant who has completed at least three (3) years of service at the time the Plan ceases to be a Top-Heavy Plan may elect to continue to have his vested percentage determined under the schedule set out in this Subsection 5.4. (1/l/88) 32 -28- 5.5 CREDITING YEARS OF SERVICE (a) Years of Service for purposes of determining a Participant's vested interest in this Plan, as defined in Section 1.47, shall be credited in accordance with the following provisions: (1) All Years of Service of a Participant who has never incurred a Break in Service or who has incurred fewer than five (5) consecutive Breaks in Service shall be taken into account in determining his vested interest in his Employer Contribution Account and/or Matching Contributions Account. (2) In the case of a Participant who has incurred five (5) or more consecutive Breaks in Service, and who has retained a vested interest in this Plan, separate accounts will be maintained for the Employer Contributions and Matching Contributions accrued prior to such Breaks and Employer Contributions and Matching Contributions accrued after such Breaks. Years of Service after such Breaks shall be disregarded for purposes of determining such Participant's vested interest in his preBreak Employer `Contributions Account and/or Matching Contributions Account, and all Years of Service shall be taken into account in determining his vested interest in his postBreak Employer Contribution Account and/or Matching Contributions Account. (3) All Years of Service of an inactive or former Participant whose vested percentage in this Plan in accordance with this Article V is zero (0) shall be taken into account for purposes of determining such Participant's vested interest after reemployment with the Employer unless the number of his consecutive Breaks in Service equals or exceeds five (5), in which case prebreak service shall be disregarded. (1/l/88) (b) For purposes of determining whether a Participant has incurred a Break in Service, the following provisions shall apply in the case of any individual who is absent from work for any period by reason of the pregnancy of the individual, the birth of a child of the individual, the placement of a child with the individual in connection with the adoption of such child by such individual, or for purposes of caring for such child for a period beginning immediately following such birth or placement. (1) The following hours shall be treated as Hours of Service under the Plan: (i) the Hours of Service which otherwise normally would have been credited to such individual but for such absence, or 33 -29- (ii) eight (8) hours per day of such absence, if the actual number of hours described in paragraph (i) cannot be determined; except that the total number of hours treated as Hours of Service hereunder shall not exceed 501 hours. (2) The hours described in subsection ______________________________ shall be treated as Hours of Service _____________________________ the Plan Year in which the absence _____________________________ begins, if a Participant would __________________________________ from incurring a Break in Service in _____________________________ solely because the period of absence _____________________________ treated as Hours of Service as provided in subsection (1) above, or otherwise in the immediately following year. (3) The Plan Administrator may require a Participant to provide reasonable evidence to establish that the absence from work is covered by these provisions and the number of days for which there was such an absence. (1/l/85) ARTICLE VI DISTRIBUTION AT RETIREMENT, DEATH, OR DISABILITY 6.1 DISTRIBUTION AT RETIREMENT (a) A Participant shall, upon retirement on or after his Early Retirement Date (if applicable) or his Normal Retirement Date, be entitled to a distribution of his Participant Account as described in this section. The final value of the Participant Account shall be determined as of the Valuation Date coincident with or next following the applicable retirement date. (1/l/88) (b) Unless otherwise elected as provided in Section 6.4 below, the Plan benefit to be distributed to a Participant shall be paid in the form of a qualified joint and survivor annuity. (c) 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 6.4 below, he shall be entitled 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; (ii) An annuity for the life of the Participant; 34 -30- (iii) A contingent annuitant annuity; (iv) A year certain and life annuity; or (v) A full cash refund annuity. 6.2 DISTRIBUTION UPON INCURRING DISABILITY If a Participant should become disabled prior to his Retirement Date, he may elect, in accordance with the procedure described in Section 6.4 below, to receive a distribution of benefits in any of' the forms described in Section 6.1 above at any time after the date he incurs the Disability. As of the Participant's Retirement Date, any amount then remaining in his Participant Account shall commence to be paid as a retirement benefit in accordance with Section 6.1 above. 6.3 DISTRIBUTIONS AT DEATH (a) The Beneficiary of a Participant who dies before benefits have commenced under this Plan shall be entitled to a death benefit based on the value of the Participant's account as of the actual date of distribution, to be paid in a single sum cash distribution. (b) In the case of a Participant's death after the commencement of a benefit under this Plan, any death benefit shall be payable in accordance with the particular form of annuity the Participant had elected. 6.4 NOTICES AND ELECTION PROCEDURES (a) At least nine (9) months prior to a Participant's Early or Normal Retirement Date, the Plan Administrator shall notify the Participant in writing of: (i) the terms and conditions of a qualified joint and survivor annuity; (ii) the Participant's right to make and the effect of an election to waive the qualified joint and survivor annuity form of benefit; (iii) the rights of a Participant's spouse; and (iv) the right to make, and the effect of, a revocation of a previous election to waive the qualified joint and survivor annuity. The Plan Administrator will also provide a Participant with a written explanation, in nontechnical language, of each of the forms of benefits described in Section 6.1(c) above, and the financial consequences and legal ramifications, if any, contained therein, at the same time as the said notice concerning the qualified joint and survivor annuity is given. 35 -31- (b) A Participant may elect to waive a benefit in the form of a qualified joint and survivor annuity, provided that the waiver must be in writing and must be consented to by the Participant's spouse. The spouse's consent must acknowledge the effect of the election and must be witnessed by a Plan representative or notary public. Notwithstanding this consent requirement, if the Participant establishes to the satisfaction of a Plan representative that such written consent may not be obtained because there is no spouse or the spouse cannot be located, a waiver signed only by the Participant will be deemed a qualified election. Any consent necessary under this provision will be valid only with respect to the spouse who signs the consent, or in the event of a deemed qualified election, the designated spouse. Additionally, a revocation of a prior waiver may be made by a Participant without the consent of the spouse at any time before the commencement of benefits. The number of waivers or revocations shall not be limited. (c) 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. 6.5 DEFINITIONS AND APPLICATION (a) As used in this Article VI, the following terms have the meanings set out below: (i) Qualified Joint and Survivor Annuity: An annuity for the life of the Participant with a survivor annuity for the life of the spouse which meets the requirements of Section 1.38 above, and which is the amount of the benefit which can be purchased with the Participant's vested account balance. A qualified joint and survivor annuity for an unmarried Participant is an annuity for the life of the Participant. [12/9/88] (ii) Spouse: The spouse or surviving spouse of the Participant, provided that a former spouse will be treated as the spouse of a surviving spouse to the extent provided under a qualified domestic relations order as described in Section 414(p) of the Code. (b) The provisions of Section 6.1 relating to qualified joint and survivor annuities shall apply to any Participant who is credited with at least one (1) Hour of Service on or after August 23, 1984. (c) A Participant who is living, who has been credited with at least one (1) Hour of Service on or after September 2, 1974, who separated from service before August 23, 1984 and who has not commenced receiving benefits, may elect to have the provisions of Section 6.1 apply to him and his spouse. (d) A Participant who is living, who has been credited with at least one (1) Hour of Service in a Plan Year beginning on or after January 1, 1976, who separated from 36 -32- service before August 23, 1984 having at least ten (10) years of service under the Plan, and who has not commenced receiving benefits, may elect to have the provisions of Section 6.1 apply to him and his spouse. (e) An election under either subsection (c) or (d) may be made within the period beginning on August 13, 1984 and ending on the earlier of the date benefits would commence or the date of the Participant's death. Notice of the right to make such election shall be provided in accordance with applicable rules and regulations. (Article amended 1/l/85) ARTICLE VII TERMINATION OF EMPLOYMENT 7.1 TERMINATION DISTRIBUTIONS Upon the termination of the Participant's employment with the Employer prior to his Retirement Date, other than by reason of his incurring a Disability or his death, the Participant's vested interest in each of his Accounts shall be determined, as of his date of termination of employment, in accordance with Article V hereof. Distribution of the Participant's vested interest in his Accounts (valued as of the Valuation Date next prior to the actual distribution commencement date) shall be made in accordance with (a) , (b) or (c) as follows: (a) Before Retirement Date: The Participant may elect, by written notice meeting the requirements set out below to the Plan Administrator, to receive a lump sum distribution equal to his vested interest in his Employer Contributions Account at any time after he has incurred a one year Break in Service during a Vesting Computation Period (determined without regard to the provisions of Section 5.5(b)) and prior to his Retirement Date; provided, however, that such election may be made at any time on or after a Participant's date of termination of employment if his interest in such Account is fully vested. The Participant may make such election with respect to his Salary Savings Account, Matching Contributions Account, Voluntary Account and Rollover Account at any time on or after his date of termination of employment. Such lump sum cash payment shall be made as soon as practicable after the Valuation Date following the later of (i) the date the Participant becomes eligible to receive such payment or (ii) the date the Plan Administrator receives from the Participant such written notice. [9/9/88] (b) At Social Security Retirement: A Participant who otherwise does not qualify for Early or Normal Retirement under the Plan, but who has attained age sixty-two (62) and is actually retiring under the provisions of the Social Security Act, may elect to receive a lump sum distribution equal to his vested interest in his Participant Account, by giving written notice meeting the requirements set out 37 -33- below to the Plan Administrator that he meets the conditions of this section and that he does not intend to seek future employment with the Employer. Such lump sum payment shall be made as soon as practicable after the Valuation Date following the date the Plan Administrator receives such written notice. (c) At or After Retirement Date: If, as of the Participant's Retirement Date, any amount shall then be remaining in his Participant Account, distribution of said amount shall automatically be made to such Participant (provided he is then living) as of such Retirement Date. Payment at Retirement Date shall be in any method described in Section 6.1 hereof as shall be chosen by the Participant. Any election to receive a lump sum distribution must be in writing and signed by the Participant. 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. Notwithstanding the foregoing, if the value of the vested interest of the Participant in his Participant's Account upon retirement or termination of employment is three thousand five hundred ($3,500.00) dollars or less, the Plan Administrator may direct the distribution of such amount as a lump sum cash payment to the Participant, whether or not the Participant has filed a written election under this Section 7.1. [9/9/88] (1/l/88) 7.2 TERMINATION FORFEITURES A Participant whose employment with the Employer is terminated as described in Section 7.1 of this Article, and who has not received a distribution of the vested portion of his Employer Contributions Account and/or Matching Contributions Account, shall forfeit the value of that portion of his Employer Contributions Account and/or Matching Contributions Account in which he was not vested at the date of his termination of employment as of the Valuation Date coincident with or next following the date he incurs five (5) consecutive Breaks in Service after such termination of employment. A Participant who has received a distribution of the vested portion of his Employer Contributions Account and/or Matching Contributions Account under Section 7.1 shall forfeit the value of the portion of his Employer Contributions Account and/or Matching Contributions Account in which he was not vested at the date of his termination of employment as of December 31 of the Plan Year in which such distribution was made, provided that such forfeited amounts may be reinstated as provided in Section 7.3 of this Article. Except as provided in Article XII hereof, any amounts so forfeited by Participants shall be allocated to remaining Participants in accordance with Section 3.4 of Article III. [9/9/88] If the Participant's employment with the Employer is terminated as described in Section 7.1 of this Article, and he subsequently resumes employment with the Employer prior to 38 -34- receiving a distribution of his vested interest in his Employer Contributions Account and/or Matching Contributions Account, the then current value of the nonvested portion of his Employer Contributions Account and/or Matching Contributions Account shall not be forfeited on account of such termination of employment and shall continue to be maintained in said Employer Contributions Account and/or Matching Contributions Account. (1/l/88) 7.3 REPAYMENT TO REINSTATE FORFEITED AMOUNTS (a) A former Participant who has received a distribution from the Plan pursuant to Section 7.1(a) or 7.1(b), and who resumes employment with the Employer prior to incurring five (5) consecutive Breaks in Service, shall have reinstated that portion of his Employer Contribution Account and/or Matching Contributions Account which was forfeited under Section 7.2 upon repayment by the Participant of the full distribution made to him. Such repayment must be made before the end of a period of five (5) consecutive Breaks in Service after the distribution. (b) The amount to be credited to the Participant's Employer Contribution Account and/or Matching Contributions Account upon repayment shall not be less than the balance of the Participant's Employer Contribution Account and/or Matching Contributions Account at the time of distribution, including both the amount distributed and the nonvested amount, unadjusted by any subsequent gains or losses. (c) In the event that the Participant elects not to make the repayment described in subsection (a) above, the forfeited amounts shall not be taken into account in computing his accrued benefit under this Plan. [9/9/88] (1/l/88) ARTICLE VIII TRUSTEE RESPONSIBILITY AND INVESTMENT OF TRUST FUNDS 8.1 APPOINTMENT AND TENURE OF TRUSTEES The Employer may name either individual or corporate Trustees, provided that there shall be at least two Trustees so long as any individual is serving as Trustee. Any Trustee may resign by notice in writing mailed or delivered to the Employer. The Employer shall have the power to remove a Trustee. A Trustee shall cease to be such upon death or upon removal by the Employer. (1/l/87) 8.2 BASIC RESPONSIBILITIES OF TRUSTEE 39 -35- The Trustees are hereby empowered, in addition to such other powers as are set forth herein or conferred by law: (a) Consistent with the funding policy established by the Employer, to invest, manage and maintain custody of the trust assets; (b) At the direction of the Plan Administrator, to distribute benefits to the Participants or their Beneficiaries as required under the terms of the Plan; and (c) To maintain records of receipts and disbursements on behalf of the trust fund and to furnish the Employer and/or Plan Administrator with information required under the provisions of this Plan. (1/l/87) 8.3 POWERS AND DUTIES OF TRUSTEE In carrying out the Plan's funding policy as established by the Employer, and except as directed by the Participants (as hereinafter provided), the Trustee is empowered: (a) To invest and reinvest such part of the Trust Fund as in their sole judgment is advisable and is not required for current expenditures. (b) To sell, exchange, lease, convey, or dispose of any property, whether real or personal, at any time forming a part of the Trust Fund upon such terms as they may deem proper' and to execute and deliver any and all instruments of conveyance and transfer in connection therewith. (c) To consent to or participate in dissolutions, reorganizations, consolidations, mergers, sales, leases, mortgages, transfers, or other changes, affecting property or money held by them and to pay assessments, subscriptions, or other charges in connection therewith. (d) To enter into any and all contracts, Group Annuity Contracts, and agreements for carrying out the terms of this Plan and for the administration of the Trust Fund and to do all acts as they, in their discretion, may deem necessary or advisable, and such contracts and agreements and acts shall be binding and conclusive on the parties hereto and on the Employees involved. (e) To keep property and securities registered in the name of the Trustee or in the name of nominee or nominees or in unregistered or bearer form. (f) To keep money, property or securities of the Trust Fund in the custody of a bank. (g) To establish and accumulate as part of the Trust Fund a reserve or reserves, adequate, in the opinion of the Trustees, to carry out the purpose of the Plan. 40 -36- (h) To hold uninvested such part of the Trust Fund as reasonably needed for current purposes. (i) To pay out of the Trust Fund all real and personal property taxes, income taxes and other taxes of any and all kinds levied or assessed under existing or future laws upon or in respect to the Trust Fund or any money, property or securities forming a part thereof. (j) To do all acts, whether or not expressly authorized herein, which the Trustees may deem necessary or proper for the protection of the property held hereunder. (k) To acquire and hold qualifying employer real property and/or qualifying employer securities, as defined in Section 407 of ERISA, whether or not the aggregate fair market value of such property and/or securities exceeds ten (10%) percent of the fair market value of the assets of the Plan. (12/31/84) (1/l/87) 8.4 DIRECTED INVESTMENTS BY PARTICIPANTS Participants shall be permitted to direct the Trustee in writing as to the investment of their Salary Savings Accounts and Matching Contributions Accounts in increments of twenty-five percent (25%) of such Accounts in accordance with the investment alternatives offered by the Trustee. Information concerning available investment alternatives will be provided by the Trustee to all Participants who are eligible to direct the investment of their accounts under this Section 8.4. A Participant may change investment directives quarterly, by giving written notice to the Trustees. Upon giving such direction to the Trustee, that portion of the Participant's Salary Savings Account and Matching Contributions Account to which such direction applies shall be segregated from the remainder of the trust fund, shall be invested in accordance with such directive, shall be credited or charged with the gains and losses resulting from such directed investment, and such gains or losses shall not be considered in determining gains or losses of the remainder of the trust fund. No Participant shall be deemed a Plan Fiduciary by reason of giving investment directives hereunder, and no person who is otherwise a Plan Fiduciary shall be liable for any loss attributable to such directed investments, or for any result of a Participant's exercise of control over the investment of his accounts which would otherwise constitute a breach of fiduciary responsibility. (1/l/88) 8.5 AUTHORITY The Trustees may delegate to any one of their number authority to sign documents on behalf of the Trustees, or to perform ministerial acts, but no person to whom such authority is delegated shall perform any act involving the exercise of any discretion 41 -37- without first obtaining the concurrence of the other Trustee or Trustees, even though he alone may sign any document required by third parties. If at any time there shall be less than two (2) Trustees, the remaining Trustee shall have authority to act. In the event the Trustees are unable to agree on any matter, the decision of a majority of the Trustees shall control; or if the Trustees are evenly divided upon such matter, the Board of Directors of the Employer shall decide the issue; and the Trustees shall take such action as shall be in accordance therewith. 8.6 PARTICIPATION No Trustee shall be precluded from becoming a Participant of this Plan if he would be otherwise eligible, he shall not be entitled to vote or act upon, or sign any documents relating to, his own participation under the Plan. In the event that there is only one Trustee hereunder, the Board of Directors of the Employer shall make all decisions and take all action with respect to his participation hereunder. 8.7 DISCRETION Wherever in this Plan discretionary powers are given to the Trustees, it shall be understood that the Trustees shall have complete discretion, and their decisions shall be binding upon all parties. The Trustees shall exercise their discretion in a nondiscriminatory manner. 8.8 DISPUTES In the event that any dispute shall arise as to any act to be performed by the Trustees, the Trustees may postpone the performing of such act until actual adjudication of such dispute shall have been made in a court of competent jurisdiction. 8.9 RECORDS The Trustees shall keep records which shall show the operation of the Trust Fund. Any Participant may demand a copy of the Trustee's records with respect to his own participation, but shall have no right to inquire with respect to other persons. The Employer may at any time inspect the records of the Trustee. 8.10 ACCOUNTS The Trustees may from time to time file with the Employer a statement of accounting of their acts hereunder and the Employer may enter into an agreement approving and allowing the same, and any such agreement shall be final, binding and conclusive on all persons and parties hereto or claiming any interest hereunder, and shall be a full discharge and acquittance of the Trustee with respect to the matters set forth in such statement or accounting. This shall not, however, deprive the Trustees of the right to have a judicial settlement of their accounts if they so desire. 42 -38- 8.11 TAXES The Trustees shall deduct from and charge against the Trust Fund any taxes paid by them, which may be imposed upon the Trust Fund or the income thereof, or which the Trustees are required to pay, upon or with respect to the interest of any person therein. 8.12 EXPENSES The Employer agrees to pay the reasonable expenses of the Trustee in the administration of the Trust Fund including reasonable legal expenses. 8.13 COMPENSATION The Trustees shall receive for their services as Trustees hereunder the compensation which the Employer may from time to time agree to pay from its own funds to the Trustees, provided that no full-time Employee who may be serving as Trustee shall be compensated for such service. 8.14 VACANCIES Vacancies of the Trustees shall be filled by the Employer. The appointment of a successor shall become effective upon acceptance in writing of such appointment by the successor Trustee. 8.15 EMPLOYER'S RECORDS The Trustees may inspect the records of the Employer whenever such inspection shall be reasonably necessary in order to determine any fact pertinent to the performance of their duties under this Plan. 8.16 ERISA In all matters involving the investment and administration of the Trust Fund, the Trustees shall be obligated to act in a prudent manner to be consistent with ERISA. ARTICLE IX ADMINISTRATION 9.1 ALLOCATION OF RESPONSIBILITY The Employer, Trustees, Plan Administrator and Plan Fiduciary shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under this Plan. In general, the Employer shall have the sole responsibility for making the payment required in accordance with Sections 3.1. The Plan Administrator shall have the sole responsibility for the administration of this Plan, which responsibility is specifically described in this Plan. The Plan Fiduciary shall have responsibility for the 43 -39- investment and general disposition of Plan and Trust Fund assets. The Employer, Plan Administrator and Plan Fiduciary shall each warrant that any directions given, information furnished or any action taken shall be in accordance with the provisions of this Plan authorizing or providing for such direction, information or action. 9.2 APPOINTMENT OF PLAN ADMINISTRATOR The Plan shall be administered by the Plan Administrator who shall be appointed by and serve at the discretion of the Employer. The Plan Administrator may be an Employee who shall not be precluded from participating in this Plan, but he shall not receive compensation with respect to his services as Plan Administrator, nor shall he be permitted to make any decision or take any action with respect to his own participation in the Plan. 9.3 CLAIMS PROCEDURE The Plan Administrator shall make all determinations as to the right of any person to a benefit. Any denial by the Plan Administrator of the claim for benefits to a Participant, former Participant or Beneficiary under the Plan shall be stated in writing by him and delivered or mailed to the Participant, former Participant or Beneficiary; and such notice shall set forth the specific reasons for the denial, written to the best of his ability in a manner that may be understood without legal or actuarial counsel. Any person whose claim has been denied shall have the opportunity to appeal such denial by written notification to the Plan Administrator within sixty (60) days following receipt of such written denial. Within sixty (60) days following receipt of such written appeal, the Plan Administrator shall transmit written notification of its decision regarding the' appeal to said person provided, however, that if the Plan Administrator determines a hearing shall be necessary, such sixty (60) day period shall be extended for one hundred twenty (120) days. 9.4 RECORDS AND REPORTS The Plan Administrator shall exercise such authority and responsibility as he deems appropriate in order to comply with ERISA, and governmental regulations issued thereunder relating to records of Participant' s service, Retirement Benefits and the percentage of such Benefits which are nonforfeitable under the Plan; notifications to Participants; periodic registration with the Internal Revenue Service; annual reports to the Department of Labor; and applicable reports to the Pension Benefit Guaranty Corporation. 9.5 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR The Plan Administrator shall have such duties and powers as may be necessary to discharge his duties hereunder, including, but not limited to the following: 44 -40- (a) To construe and interpret the Plan, decide all questions of eligibility and determine the amount and time of payment of any benefits hereunder; (b) To prescribe procedures to be followed by Participants, Former Participants or Beneficiaries in filing applications for benefits; (c) To prepare and distribute, in such manner as he determines to be appropriate, information explaining the Plan; (d) To receive from the appropriate sources such information as shall be necessary for the proper administration of the Plan; (e) To receive, review and keep on file (as he deems convenient or proper) reports of the financial condition, and of the receipts and disbursements, of the assets from the Plan Fiduciary; (f) To appoint or employ individuals to assist in the administration of the Plan and any other agents he deems advisable, including legal counsel. The Plan Administrator shall have no power to add to, subtract from or modify any of the terms of the Plan, or to change or add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for a benefit under the Plan. 9.6 RULES AND DECISIONS The Plan Administrator may adopt such rules as he deems necessary, desirable, or appropriate. All rules and decisions of the Plan Administrator shall be uniformly and consistently applied to all Participants in similar circumstances. When making a determination or calculation. The Plan Administrator shall be entitled to rely upon information furnished by a Participant or Beneficiary, or the legal counsel of the Employer, or the Plan Fiduciary. 9.7 AUTHORIZATION OF BENEFITS PAYMENTS The Plan Administrator shall issue directions to the appropriate party concerning the payment of all benefits which are to be paid from the assets of the Plan, and warrants that all such directions are in accordance with the provisions of this Plan. 9.8 APPLICATION AND FORMS FOR BENEFITS The Plan Administrator may require a Participant or Beneficiary to complete and file with him an application for benefits and all other forms approved by him and furnish all pertinent information requested by him. The Plan Administrator may rely upon all such information so furnished him, including the Participant's or Beneficiary's current mailing address. 45 -41- 9.9 FACILITY OF PAYMENT Whenever, in the Plan Administrator's opinion, a person entitled to receive any benefit hereunder is under a legal disability or is incapacitated in any way so as to be unable to manage his financial affairs, the Plan Administrator may cause payments otherwise payable to such person to be made to such person's legal representative or to a relative or friend of such person for his benefit. Any payment of benefit in accordance with the provisions of this Section shall be a complete discharge of any liability for the making of such payment under the provisions of this Plan. ARTICLE X MISCELLANEOUS 10.1 NONGUARANTEE OF EMPLOYMENT Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any Employee, or as a right of any Employee to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its Employees, with or without cause. 10.2 RIGHTS OF EMPLOYEES AND BENEFICIARIES No Employee or Beneficiary shall have any right to interest in any assets of the Plan upon termination his employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable under the Plan to such Employee or Beneficiary out of such assets. All payments of benefits as provided for in this Plan shall be made solely out of Trust Fund assets. 10.3 NONALIENATION OF BENEFITS Benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the Employee, prior to actually being received by the person entitled to the benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder, shall be void. The Plan assets shall not in any manner be liable for, or subject to the debts, contracts liabilities, engagements or torts of any person entitled to benefits hereunder. Nothing herein shall be construed as preventing the assignment of all or part of a Participant's interest in this Plan pursuant to a qualified domestic relations order which meets the requirements of Sections 401(a)(13) and 414(p) of the Code. (1/l/85) 46 -42- 10.4 DISCONTINUANCE OF EMPLOYER CONTRIBUTIONS In the event of complete discontinuance of contributions to the Plan by the Employer, within the meaning of Section 411(d) of the Code and the related regulations, the accounts of all Participants shall, as of the date of such discontinuance, become fully vested. 10.5 NO REVERSION IN EMPLOYER The Employer has no beneficial interest in the Plan assets and no part of the Plan assets shall ever revert or be repaid to the Employer, directly or indirectly, except that if the Internal Revenue Service initially determines that the Plan does not meet the requirements of Section 401(a) of the Internal Revenue Code, any assets attributable to contributions made by the Employer under the Plan shall be returned to the Employer within one calendar year of denial of qualification of the Plan. 10.6 JURISDICTION This Plan shall be construed in accordance with the laws of the jurisdiction of the Commonwealth of Massachusetts except to the extent to which said laws are superseded by Federal Law. 10.7 TIMING OF DISTRIBUTIONS (a) The distribution of any benefits under this Plan shall begin, unless otherwise' elected by the Participant, no later than the sixtieth (60th) day after the latest of the close of the Plan Year in which (i) the Participant attains age sixty-five (65), (ii) occurs the tenth (10th) anniversary of the time the Participant commenced participation in the Plan, or (iii) the Participant terminates his employment with the Employer. (b) Any distribution to be made due to a Participant's termination of employment prior to his Normal Retirement Date shall begin no later than the sixtieth (60th) day following the date he has incurred five (5) consecutive Breaks in Service for vesting computation purposes, unless the Participant otherwise elects to defer payment to a date specified in the preceding Subsection (a). (1/l/85) (c) The entire interest of a Participant either: (i) will be distributed to him not later than April 1 of the calendar year following the calendar year in which he attains age seventy and one-half (70-1/2) (hereinafter, the "required date"), or (ii) will be distributed, commencing not later than such required date, (i) 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 (ii) in accordance with such regulations, over a 47 -43- period not extending beyond the life expectancy of such Participant or the life expectancy of such Participant and a designated beneficiary. (1/l/87) (d) If distribution of a Participant's interest has begun in accordance with subsection 10.7(c)(ii) above and the Participant dies before his entire remaining is distributed to him, the remaining portion of such interest will be distributed at least as rapidly as under the method of distribution being used as of the date of his death. (e) If a participant dies before the distribution of his interest has begun in accordance with subsection 10.7(c)(ii) above, the entire interest of the Participant will be distributed in accordance with the following provisions: (i) Any portion payable to or for the benefit of a designated beneficiary will be distributed in accordance with applicable regulations over the life of such designated beneficiary, or over a period not extending beyond the life expectancy of such beneficiary, beginning not later than one year after the date of the Participant's death; or (ii) Any portion payable to or for the benefit of a designated beneficiary who is the surviving spouse of the Participant will be distributed as provided in the preceding clause (i) beginning not later than the date on which the Participant would have attained age seventy and one-half (70-1/2); provided that if the surviving spouse dies before the distributions to such spouse begin, this subsection 10.7(f) to such shall be applied as if the surviving spouse were the Participant; or (iii) If neither of the preceding clauses (i) and (ii) apply, the entire interest of the Participant will be distributed within five (5) years after the death of such Participant. 10.8 BENEFICIARY DESIGNATIONS (a) Except as provided in subsection (b) below, the Participant shall have the unrestricted right to designate, and to rescind or change any designation of, a primary and contingent Beneficiary or Beneficiaries to receive any benefit due in the event of his death. Each such rescission or change of Beneficiary(ies) must be made in writing to the Plan Administrator and must be signed by the Participant. If there is no designated Beneficiary living when the death benefit becomes payable or if no such designation of Beneficiary is on file with the Plan Administrator, or if in the sole discretion of the Plan Administrator such designation is effective, any death benefit due will be paid to any one or more of the surviving members of the Participant's relatives in the following order of preference: 48 -44- (i) to his spouse; (ii) in equal shares to his children; (iii) to his parents; or (iv) to his estate. (b) If a Participant who is married wishes to designate a primary Beneficiary who is not the spouse of such Participant, such designation shall not be effective unless the spouse of such Participant consents in writing to such designation. The written consent of the spouse must acknowledge the effect of such consent, and must be witnessed by a plan representative or a notary public. Any consent by a spouse hereunder shall be effective only with respect to that spouse. (1/l/85) 10.9 BENEFITS OF LOST PARTICIPANTS The provisions of this Section 10.9 shall apply in the event a Participant or Beneficiary fails to file an application for benefits, or in the event of the termination of the Plan or other event requiring distribution of a benefit or other Plan assets to a Participant or Beneficiary, if the Participant or Beneficiary cannot be located. (a) The Plan Administrator shall give written notice to each Participant at his last known address of his right to receive a distribution under the Plan, within a reasonable time after the happening of the event giving rise to the right to receive the distribution. (b) If the Participant cannot be located in this manner, the account of such Participant shall continue to be held in a Participant Account under the Plan until the occurrence of an event described in any of Sections 10.9(c), (d) or (e) following. (c) If proof of death of the Participant satisfactory to the Plan Administrator is received by the Plan Administrator, the benefit or other distribution shall be paid to the Participant's Beneficiary. (d) If the Plan is terminated prior to distribution of the benefit or other amount due, the Plan Administrator shall establish an interest-bearing custodial account for the benefit of the Participant or his Beneficiary in a federally-insured bank, savings and loan association, or credit union, into which the Participant's account balance shall be deposited. Such account shall be held in trust for the benefit of the Participant or his Beneficiary. (e) If no claim is made by a Participant or his Beneficiary within ten (10) years of the date the Participant became entitled to receive a benefit or other distribution, the benefit payable to or account balance of such Participant shall be forfeited; 49 -45- provided that such forfeited benefit or amount shall be reinstated in the event a valid claim for such amount is subsequently made by the Participant or his Beneficiary. Any forfeiture hereunder shall be treated as a Forfeiture under Section 3.1 of the Plan for the year in which it occurs. (1/1/85) ARTICLE XI AMENDMENTS AND ACTION BY EMPLOYER 11.1 AMENDMENTS The Employer reserves the right to make from time to time any amendment or amendments to this Plan which do not cause any part of the assets of the Plan to be used for, or diverted to, any purpose other than the exclusive benefit of Participants or their Beneficiaries; provided, however, that the Employer may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with the requirements of the Internal Revenue code or of any other pertinent provision of Federal or State law, or any regulation or ruling of any duly constituted authority in connection therewith. 11.2 ACTION BY EMPLOYER Any action by the Employer under this Plan may be made by resolution of its Board of Directors, or by any person or persons duly authorized by resolution of said Board to take such action. ARTICLE XII SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS 12.1 SUCCESSOR EMPLOYER In the event of the dissolution, merger, consolidation or reorganization of the Employer, provision may be made by which the Plan will be continued by the successor; and, in that event, such successor shall be substituted for the Employer under the Plan. The substitution of the successor shall constitute an assumption of Plan liabilities by the successor and the successor shall have all the powers, duties and responsibilities of the Employer under the Plan and Trust Agreement. 12.2 PLAN ASSETS In the event of any merger or consolidation of the Plan with, or transfer in whole or in part of the Trust Fund assets and liabilities of the Plan to another plan of deferred compensation maintained or to be established for the benefit of all or some of the 50 -46- Participants of this Plan, the Trust Fund assets applicable to such Participants shall be transferred to the other plan only if: (a) each Participant would (if either this Plan or the other plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if this Plan had then terminated); (b) resolutions of the Board of Directors of the Employer under this Plan, or of any new or successor employer of the affected Participants, shall authorize such transfer of assets; and, in the case of the new or successor employer of the affected Participants its resolutions shall include an assumption of liabilities with respect to such Participant's inclusion in the new employer's plan; and, (c) such other plan is qualified under Section 401(a) and 501(a) of the Internal Revenue Code. ARTICLE XIII PLAN TERMINATION 13.1 RIGHT TO TERMINATE In accordance with the procedures set forth in this Article, the Employer may terminate the Plan at any time. In the event of the dissolution, merger, consolidation or reorganization of the Employer, the Plan shall terminate and the Plan and Trust Fund assets shall be liquidated unless the Plan is continued by a successor to the Employer in accordance with Section 12.1. 13.2 PARTIAL TERMINATION Upon termination of the Plan with respect to a group of Participants which constitutes a partial termination of the Plan, the Plan Administrator shall allocate and segregate for the benefit of the Employees then or theretofore employed by the Employer with respect to which the Plan is being terminated the proportionate interest of such Participants in the Plan and Trust Fund assets. The assets so allocated and segregated shall be used by the Plan Administrator to pay benefits to or on behalf of Participants in accordance with Section 13.3. 13.3 LIQUIDATION OF THE PLAN Upon termination or partial termination of the Plan, the accounts of all Participants affected thereby shall become fully vested, and the Plan Administrator shall, subject to the provisions of the immediately following paragraph, cause the assets remaining in the Trust Fund (including any Forfeitures which shall not have been allocated) to be allocated 51 -47- and distributed to the remaining Participants and Beneficiaries in proportion to their respective account balances. In the event that any service charges assessed under this Plan are due and unpaid as of such Plan termination date, the payment of such charges shall be satisfied by deducting a pro rata share of the amount remaining to be paid from each Participant's Employer Contributions Account. 13.4 MANNER OF DISTRIBUTION To the extent that no discrimination in value results, any distribution after termination of the Plan may be made, in whole or in part, in cash, in securities or in nontransferable annuity contracts, as the Plan Administrator (in his discretion) may determine. All noncash distributions shall be valued at fair market value at date of distribution. ARTICLE XIV DISCHARGE OF DUTIES BY FIDUCIARIES The Employer, Plan Administrator, Plan fiduciary and any other person who, by reason of his involvement in and under this Plan and Trust Agreement shall be deemed to be a fiduciary within the meaning of Title I, Section 3 (21) of ERISA, shall discharge their Plan and Trust related duties and responsibilities solely in the interest of the Participants and their Beneficiaries and with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Any provision in any agreement or other plan document which has the effect of relieving said fiduciaries from responsibility for acts within the discretionary authority of such persons are hereby deleted and cancelled. 52 TRUST AGREEMENT FORMING A PART OF THE HADCO CORPORATION PROFIT SHARING PLAN AND TRUST AS AMENDED AND RESTATED THROUGH JANUARY 1. 1988 ARTICLE ONE -- PRELIMINARY MATTERS 1.1 NAME. This Trust Agreement is supplemental to and forms a part of the Trust embodied in the Hadco Corporation Profit Sharing Plan and Trust as amended and restated through January 1, 1988. The Trust shall be known as the Hadco Corporation Profit Sharing Trust, and is referred to in this Agreement as the Trust. 1.2 ACCOUNTING YEAR. The accounting year of the Trust shall be the same as the Plan Year. 1.3 EFFECTIVE DATE. The Effective Date of this Trust Agreement is January 1, 1988. l.4 DEFINITIONS. Any term used in this Trust Agreement which is defined in the Hadco Corporation Profit Sharing Plan and Trust shall have the meaning set forth in such Plan. unless the context clearly indicates otherwise. 1.5 TRUSTEE. The person or persons appointed to serve hereunder in accordance with Article VIII of the Plan. For convenience, this document shall use the masculine singular pronoun to refer to the Trustee or Trustees who are currently serving in that capacity. 1.6 EMPLOYER. Hadco Corporation (hereinafter referred to as the "Employer"). 53 -2- ARTICLE II -- RESPONSIBILITIES AND STANDARD OF CONDUCT FOR TRUSTEE 2.1 GENERAL DUTIES. It shall be the duty of the Trustee to receive and hold as the trust fund such funds or other property as comprise the assets of the Trust and which are transferred to him from predecessor Trustees or which are paid to him by the Employer as contributions under the Plan; to manage, invest and reinvest the trust fund held hereunder in accordance with the provisions of this Trust; to collect the income of such trust fund; and to make payments and transfers from the trust fund upon the direction of the Plan Administrator. The Trustee shall not be under any duty to compute the amount of contributions required to be paid by the Employer or to take any steps to collect such amounts as may be due to him under the Plan. The Trustee shall be responsible only for the investment and safekeeping of the trust fund transferred to and held by him as Trustee under the terms of the Trust, and any liabilities under the Plan shall be satisfied only out of such trust fund held by the Trustee hereunder. 2.2 STANDARD OF CONDUCT. The Trustee shall discharge his duties with respect to the Plan solely in the interest of the Participants and Beneficiaries (1) for the exclusive purpose of defraying reasonable expenses of administering the Plan, (2) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, (3) by diversifying the investments of the Plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so, and (4) in accordance with the Plan and Trust documents in so far as the Plan and Trust are consistent with the provisions of federal law. 54 -3- 2.3 MULTIPLE TRUSTEES. In the event that multiple Trustees are appointed by the Employer for the purpose of dividing the trust fund investments between Trustees, each Trustee shall be responsible only for that portion of the trust fund that he holds, and his responsibility, for diversification and investment of such portion shall be subject to, and may be limited by, written guidelines or investment directions issued to him by the Employer or by an investment manager or Named Fiduciary in accordance with Section 2.4 hereof. 2.4 INVESTMENT MANAGER AND NAMED FIDUCIARY. The Employer, by its Board of Directors. shall possess the authority to appoint an investment manager or managers or to designate one or more persons (hereinafter referred to as "Named Fiduciary") to manage (including the power to acquire and dispose of ) all or any of the assets of the Trust, including but not limited to the selection of investment alternatives for Salary Savings Accounts and Matching Contributions Accounts under Section 8.4 of the Plan. In the event of any such appointment, the Employer shall designate the portion of the assets of the Trust which shall be subject to the management of the investment manager or the Named Fiduciary and shall so notify the Trustee in writing. With respect to such assets over which an investment manager or Named Fiduciary has investment responsibility, the investment manager or Named Fiduciary shall possess all of the investment powers and responsibilities granted to the Trustee hereunder, and the Trustee shall invest and reinvest such assets pursuant to the written directions of the investment manager or Named Fiduciary. The Trustee shall have no investment responsibility with respect to the assets subject to the investment responsibility of an investment manager or Named Fiduciary, and shall have no duty to inquire into such directions. to solicit such directions, nor to review and follow the investments made pursuant to any such direction other than to the extent provided by law (including that any investment direction received from a Named Fiduciary shall constitute a 55 -4- proper direction within the meaning of Section 403(a) (1) of the Employee Retirement Income Security Act of 1974 and shall not be contrary to the provisions of Title I of said Act). The Trustee shall be fully protected and shall be under no liability for any loss of any kind which may result by reason of any action taken or omitted direction of any investment manager or Named Fiduciary, except for any such loss which is due to its own negligence, willful misconduct, lack of good faith or violation of ERISA. The Trustees shall be indemnified and held harmless by the Employer for any and all liability for loss and expense of any kind which may result by reason of any action taken or omitted by it in accordance with any direction of an investment manager or Named Fiduciary, except for any such loss which is due to its own negligence, willful misconduct, lack of good faith, or violation of ERISA. 2.5 EMPLOYER'S ESTABLISHMENT OF METHOD OF FUNDING. To the extent that the Employer. Named Fiduciary or an investment manager issues guidelines or directions that limit diversification by the Trustee or that limit investments to a certain type of asset, the Trustee shall not be responsible for diversification to the extent so limited, and the Employer, Named Fiduciary or investment manager, as the case may be, shall be responsible for the overall diversification of the trust fund, including selection of investment alternatives to be made available for investment of Salary Savings Accounts and Matching Contributions Accounts. 2.6 TRUSTEE AS PARTICIPANT. Nothing in this Article shall be construed to prohibit the Trustee from receiving any benefit to which he may be entitled as a Participant or Beneficiary under the Plan. so long as the benefit is computed and paid on the basis which is consistent with the terms of the Plan as applied to all other Participants and Beneficiaries. In 56 -5- addition, nothing in this Article shall be construed to prohibit the Trustee from serving as such in addition to being an officer, employee, agent or other representative of the Employer. ARTICLE III -- INVESTMENT AND ADMINISTRATIVE POWERS 3.1 INVESTMENT AND ADMINISTRATIVE POWERS. Subject to the provisions of Article Two, the Trustee shall have the following powers with respect to the investment and reinvestment of the trust fund, which shall be in addition to and not in limitation of the powers and duties enumerated in Section 8.3 of the Plan: (1) To purchase, hold, sell, invest and reinvest all or part of the trust fund, without distinction between principal and income, in securities and other property (real. personal or mixed) such as, but not limited to, common and preferred stocks. bonds, options, REIT and separate investment company shares, partnerships and limited partnership interests, bills, notes, commercial paper. debentures, mortgages. equipment trust certificates, investment trust certificates, royalties, interests and rights and equipment pertaining to the trust of deposit and interest bearing ______________________________ contracts issued by any life insurance (2) To invest and reinvest all or _____________________________ of the trust fund collectively __________________________________________ and profit-sharing trusts exempt _________________________________________ 501(a) of the Internal Revenue Code of 1954 by reason qualifying under Section 401(a) of said Code through the medium of any common, collective or commingled trust fund or funds, provided that the provisions of such common, collective or commingled trust, as 57 -6- amended from time to time, shall be adopted as part of this Trust so long as any portion of the trust fund shall be invested through the medium thereof. (3) To pool all or any of the assets of the trust fund with assets belonging to any other employee benefit trust created by the Employer, and to commingle such assets and make joint or common investments, carry joint accounts on behalf of the Trust and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or in any. Pooled assets to the two or more trusts in accordance with their respective interests. (4) To hold uninvested from time to time such sums of money as are necessary for the immediate cash requirements of the Plan or Trust, and to keep such part of the trust fund in interest bearing accounts, or equivalent investments. 5) To exchange, mortgage, or lease any such property and to convey, transfer, or dispose of any such property on such terms and conditions as the Trustee deems appropriate. (6) To exercise any subscription rights or conversion privileges with respect to any securities held in the trust fund. (7) To grant options for the sale, transfer, exchange, or disposal of any such property. (8) To exercise all voting rights pertaining to any securities, and to consent to or request any action on the part of the issuer of any such securities, and to give general or special proxies or powers of attorney with or without power of substitution. (9) To consent to or participate in amalgamations, reorganizations, recapitalizations, consolidations. mergers, liquidations, or similar transactions with 58 -7- respect to any securities. and to accept and to hold any other securities issued in connection therewith. (10) To collect and receive any and all money and other property of whatsoever kind or nature due or owing or belonging to the trust fund and to give full discharge and acquittance therefor, and to extend the time of payment of any obligation at any time owing to the trust fund, as long as such extension is for a reasonable period, and provides for reasonable interest. (11) To cause any securities or other property to be registered in, or transferred to, the individual name of the Trustee, or in the name of one or more of his nominees, or one or more nominees of any system for the centralized handling of securities, or to retain them unregistered and in form permitting transferability by delivery, but the books and records of the Trust shall at all times show that all such investments are a part of the trust fund. (12) To settle, compromise, or submit to arbitration any claims or debts due or owing to or from the Trust, to commence or defend suits or legal proceedings whenever. in his judgment, any interest of the Trust requires it, and to represent the Trust in all suits or legal proceedings in any court of law or equity or before any other body or tribunal. insofar as such suits or proceedings relate to any property forming part of the trust fund or to the administration of the trust fund. (13) To borrow money from others for the purposes of the Trust, but if the Trustee is a bank the Trustee shall not be authorized to borrow any money from its own or a related banking department. 59 -8- (14) To lend money to unrelated third parties (or to related parties who have been properly exempted) in such amounts and upon such written terms and conditions as shall be deemed advisable or proper to carry out the purposes of the Trust, and to accept and hold adequate security from the borrower until repayment of the loan, including loans to participants pursuant to Section 4.6 of the Plan. (15) To exercise all rights of ownership in any insurance company contract to which any part of the trust fund may be invested and pay premiums thereon. The Trustee shall not be responsible for the validity of any contract nor for any failure on the part of an issuing insurance company to make payments under the terms of its contract. No issuing insurance company shall be deemed a party to the Plan or Trust. (16) To acquire and hold qualifying employer real property and/or qualifying employer securities. as defined in Section 401 of ERISA, whether or not the aggregate fair market value of such property and/or securities exceeds ten (10%) percent of the fair market value of the assets of the Plan. (17) Generally to do all acts, whether or not expressly authorized, which the Trustee deems necessary or desirable, but acting at all times according to the principles of prudence expressed under Article Two of this Trust Agreement and under Articles VIII and XIV of the Plan. 3.2 BANK MAY INVEST IN ITS INSTRUMENTS. If a bank or similar institution is Trustee, it is specifically authorized to deposit and retain any part of the trust fund in savings accounts, certificates of deposit, money fund-type instruments, or equivalent investments offered by itself or its affiliates. 60 -9- 3.3 UNITED STATES LOCATION FOR TRUST ASSETS. Except as authorized by law, the Trustee shall not maintain the indicia of ownership of any trust fund assets outside the jurisdiction of the District Courts of the United States. 3.4 PAYMENTS BY TRUSTEE. The Trustee shall pay monies from the Trust for the use of the Plan, or to Participants or their Beneficiaries. or for the purpose of purchasing life insurance or annuity contracts if permitted by the Plan. The Trustee shall be protected in paying out monies from the Trust from time to time upon written orders, directions or requisitions given or authorized by the Plan Administrator and shall not be charged with any responsibility whatsoever respecting the application of monies paid by it upon such orders, directions or requisitions. if permitted by the Plan and directed by the Plan Administrator, the Trustee is hereby specifically authorized and empowered to purchase or cause to be purchased annuity contracts for retired employees by transferring money, at the direction of the Plan Administrator, to a legal reserve life insurance company authorized to do business in the state where the principal office of the Employer or Trustee is located, or in the Commonwealth of Massachusetts. 3.5 TAXES. Unless paid by the Employer, the Trustee shall pay out of the trust fund all real and personal property taxes, income taxes. and other taxes of any and all kinds levied or assessed under existing or future laws upon or with respect to the trust fund or any money, property or securities forming a part thereof, but the Employer or Plan Administrator may contest any such tax. ARTICLE FOUR -- ACCOUNTING AND REPORTS OF TRUSTEES 4.1 ACCOUNTING. The Trustee shall keep and maintain such accounts and records as he shall deem necessary and proper to record his transactions with respect to his 61 -10- administration of the Trust, or as required by the Plan. The Trustee shall permit inspection of such accounts, records, and assets of the Trust by any duly authorized representative of the Employer at any time during the usual business hours of the Trustee. 4.2 REPORTS. Unless waived by the Plan Administrator. the Trustee shall file with the Employer and/or Plan Administrator at least annually a written report containing such information as is required under the provisions of the Plan or is otherwise agreed upon between the Trustee and the Administrator with respect to the transactions effected by the Trustee during such accounting year or other period. In addition, the Trustee shall make such periodic reports to the Employer and/or Administrator as the Trustee shall deem necessary and proper and such other reports as the Administrator may reasonably request, including a valuation of the assets of the Trust at the end of each calendar quarter or upon no less than 30 days written notice. ARTICLE FIVE -- COMPENSATION PROCEDURAL RULES 5.1 COMPENSATION AND EXPENSES. The Trustee shall receive each year as compensation for his services hereunder such amount as he and the Employer agree to in writing, or in the absence of such agreement, the amount established by the Trustee's published fee schedule then in effect. In addition, the Trustee shall be entitled to reimbursement for all reasonable expenses incurred by him in the performance of his duties hereunder. including reasonable fees for legal services rendered to the Trustee (whether in connection with any litigation or otherwise) and all other proper charges and disbursements. such compensation and expenses shall be paid by the Employer: provided that, in the event of the bankruptcy of the Employer, the Trustee may recover such compensation and expenses as a charge against the trust fund. In no event shall any person serving as Trustee who already receives full-time compensation from the Employer or from any Employee organization whose members are 62 -11- Participants receive compensation as Trustee, except for reimbursement of expenses properly and actually incurred. 5.2 PROCEDURAL RULES. The following rules shall govern certain procedural matters in administering the Trust: (1) A written direction, statement or certificate to the Trustee, signed by an officer or employee of the Employer designated by its Board of Directors as authorized to act on behalf of the Employer, or by the Plan Administrator (or, if a committee is acting as Plan Administrator, by all the members of the committee then in office, or any member of the committee authorized by a resolution adopted by the committee to execute instruments on its behalf), shall be deemed to be the direction, statement, of certificate of the Employer or of the Plan Administrator, as the case may be, and the Trustee may rely upon such directions, statements, or certificates to the extent permitted by law. The Employer when requested, with instruments signed as aforesaid evidencing the designation of an officer or employee as authorized to act on behalf of the Employer, and of the appointment and termination of an individual as Plan Administrator or the members of a committee . serving as Plan Administrator, and of successors of such members, and any committee serving as the Plan Administrator shall furnish the Trustee with a copy, signed by all of its members, of any resolution adopted by it authorizing one of its members to execute instructions, notices and directions on its behalf. The Trustee shall be entitled to rely upon such instruments as evidence of the identity and authority any such officer, employee, Plan Administrator, or member of a committee serving as Plan Administrator, as the case may be, shall be furnished the Trustee with instruments relative to such change. 63 -12- (2) In the event that any dispute shall arise as to the persons to whom payment of funds or delivery of any assets shall be made by the Trustee, the Trustee may withhold such payment or delivery until such dispute shall have been determined by a court of competent jurisdiction or shall have been settled by the parties concerned. (3) The Trustee may from time to time consult with counsel, who may or may not be counsel to the Employer and shall be protected to the extent the law permits in acting upon such advice of counsel with respect to legal questions. The Trustee may also from time to time employ agents and expert assistants and delegate to them such ministerial duties as it sees f it. In the event that the Trustee does delegate such ministerial duties, it shall .periodically review the performance of the person(s) to whom these duties have been delegated. (4) Whenever more than two persons are serving as Trustee, any power, discretion or authority may be authorized by a majority. ARTICLE SIX -- RESIGNATION, REMOVAL AND APPOINTMENT OF SUCCESSOR TRUSTEE 6.1 RESIGNATION AND REMOVAL. The Trustee may be removed by the Board of Directors of the Employer at any time by delivery of Written notice of such action to the Trustee. The Trustee may resign at any time upon 60 days notice in writing to the Employer, provided that the Employer may waive such notice in writing. Within 60 days after such removal or resignation of the Trustee, the Trustee shall file with the Employer a written account, to the date of such removal or resignation, in the form similar to, and containing information similar to that required to be set forth in, the reporting provided for under Section 4.1 of this Agreement. 64 -13- 6.2 SUCCESSOR TRUSTEE. Upon the death. removal or resignation of any person or entity acting as Trustee, the Board of Directors of the Employer shall designate a successor Trustee to act hereunder, who shall have the same powers and duties as those conferred upon the predecessor Trustee. upon such designation, and upon the written acceptance of the successor Trustee, the assets then constituting the trust fund shall be assigned, transferred and paid over to such successor Trustee, provided, however, that the predecessor Trustee is authorized to reserve such sum of money (and for that purpose to liquidate such property as may be necessary to produce such sum), as he may deem advisable for payment of all proper charges against the trust fund, including expenses in connection with such resignation or removal, and any balance of such reserve remaining after the payment of such charges shall be paid over to the successor Trustee. In the event that more than one party shall be acting as Trustee, the death, resignation or removal of any party shall not affect the duties of the remaining party or parties continuing to act as Trustee hereunder, who shall have full authority to act until such vacancy is filled. ARTICLE SEVEN -- AMENDMENT AND TERMINATION OF TRUST 7.1 AMENDMENT. The Employer may at any time by resolution of its Board of Directors amend, in whole or in part, any or all of the provisions of this Trust Agreement, or of the Plan or Trust, provided that no such amendment may affect the rights, duties, or responsibilities of the Trustee without his written consent and, provided further, that no such amendment may permit any part of the corpus or income of the trust fund to be used for or diverted to purposes other than for the exclusive benefit of the Participants and their Beneficiaries at any time prior to the satisfaction of all liabilities under the Plan with respect to such persons, except as otherwise provided in the Plan or by law. Any such amendment shall become effective when received by the Trustee. 65 -14- 7.2 TERMINATION. This Trust shall continue for such time as may be necessary to accomplish the purposes for which it was created, but may be terminated at any time by the Employer by action of its Board of Directors. Upon termination of the Trust, provided that the Trustee has received instructions from the Plan Administrator. the Trustee shall liquidate the Trust and. after paying the reasonable expenses of the Trust, including expenses involved in the termination. distribute the balance thereof according to written directions from the Plan Administrator. ARTICLE EIGHT -- MISCELLANEOUS PROVISIONS 8.1 HEADINGS. The headings are for reference only. In the event of a conflict between a heading and the content of a section, the content of the section shall control. 8.2 CONSTRUCTION. This Trust shall in all respects be construed and regulated by the laws of the Commonwealth of Massachusetts, except where such laws are superseded by the Internal Revenue Code of 1986 or the Employee Retirement Income Security Act of 1974 (as the same may be amended or reenacted). 8.3 SUCCESSORS. This Agreement shall be binding upon, and the powers herein granted to the Employer and the Trustee shall be exercisable by the respective successors and assigns of the Employer and the Trustee. 8.4 AGENCY. The Employer may engage the Trustee as its agent in the performance of any duties required of the Employer under the Plan. but such agency employment shall not be deemed to increase the responsibility or liability of the Trustee under this Trust Agreement. 8.5 SIGNATURE REQUIREMENT. If. applicable, the Trustee may designate any one or more of them to execute or sign any instruments, including checks or policy contracts, on behalf of all the Trustees under the Trust. 66 -15- 8.6 IRREVOCABILITY OF TRUST. No part of the corpus of the Trust Fund nor any income therefrom shall revert to the Employer or be used for or diverted to purposes other than for the exclusive benefit of the Participants or former Participants and their Beneficiaries. except as the Plan shall otherwise specifically provide in accordance with the provisions of federal law regulating tax qualified retirement plans. 8.7 EXEMPT TRUST. It is the intent of the parties hereto that this Trust be a trust exempt from income taxation under the Federal income tax laws, and any ambiguities in construction shall be resolved in favor of interpretations which will effectuate such intention. IN WITNESS WHEREOF, this Trust Agreement has been executed on the _____ day of December, 1987. HADCO CORPORATION By: ------------------------------------- RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, TRUSTEE By: ------------------------------------- EX-10.8 7 FIRST AMENDMENT AND MODIFICATION AGREEMENT 1 FIRST AMENDMENT AND MODIFICATION AGREEMENT FIRST AMENDMENT AND MODIFICATION AGREEMENT dated as of February 21, 1997 (this "Amendment") by and among HADCO CORPORATION, a Massachusetts corporation (the "Company"); the direct and indirect subsidiaries of the Company listed on the signature pages hereto (collectively, the "Hadco Subsidiaries"); THE FIRST NATIONAL BANK OF BOSTON individually; and THE FIRST NATIONAL BANK OF BOSTON, as Agent (the "Agent") for the Banks, amending certain provisions of the Revolving Credit Agreement dated as of January 8, 1997 (as amended and in effect from time to time, the "Agreement") among the Company, the Banks and the Agent. Terms not otherwise defined herein which are defined in the Agreement shall have the respective meanings assigned to such terms in the Agreement. WHEREAS, the Company has requested that the Agent and the Banks amend certain provisions of the Agreement; and WHEREAS, upon the terms and subject to the conditions contained herein, the Agent and the Banks are willing to amend such provisions of the Credit Agreement; NOW, THEREFORE, in consideration of the mutual agreements contained in the Agreement, the other Loan Documents and this Amendment and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: sec.1. AMENDMENT TO AGREEMENT. With effect from the Effective Date (as defined in ss.2 below), the Agreement shall be amended as follows' sec.1.1. Section 1.1 of the Agreement is hereby amended by changing the section referenced in the definition of "Agent's Side Letter" from 5.2 to 5.1. sec.1.2. Section 1.1 of the Agreement is hereby further amended by changing the section referenced in the definition of "Assignment and Acceptance" from 20.1 to 19.1. sec.1.3. Section 1.1 of the Agreement is hereby further amended by changing the sections referenced in the definitions of "CERCLA", "Environmental Laws", and "Hazardous Substances" from 7.18 to 7.17. 2 -2- sec.1.4. Section 1.1 of the Agreement is hereby further amended by inserting the words "(and including any purchase, redemption, prepayment or other retirement, in whole or in part, of the Subordinated Notes or any of them)" between the words "capital stock" and ", of the Borrower" in line 6 of the definition of "Distribution", and by inserting the following text at the end of such definition: "PROVIDED, HOWEVER, that (a) any issuances of common stock or other "junior securities" (as such term is defined in Section 4.8 of the Indenture) of the Borrower upon conversion of any of the Subordinated Notes in accordance with their terms and the terms of the Indenture and (b) any payment by the Borrower of cash in lieu of the issuance of fractional shares in connection with any such conversion shall not be deemed to be "Distributions" hereunder." sec.1.5. Section 1.1 of the Agreement is hereby further amended by changing the word "account" referenced in line 5 of the definition of "Earnings Before Interest and Taxes or EBIT" to "accounting". sec.1.6. Section 1.1 of the Agreement is hereby amended by deleting the definition of "Guarantors" in its entirety and substituting in lieu thereof the following new definition: "GUARANTORS. (i) Hadco Acquisition, which term shall refer immediately following the consummation of the Merger to Zycon Corporation, a Delaware corporation, being the survivor of the merger of Hadco Acquisition Corp. with and into Zycon Corporation; (ii) immediately following the consummation of the Merger, Zycon Alternate Circuits, Inc.; and (iii) any other direct or indirect Subsidiary of the Borrower (other than Hadco FSC and Zycon Corp. SDN BHD)." sec.1.7. Section 1.1 of the Agreement is hereby further amended by inserting the following new definition in alphabetical order therein: "INDENTURE. The Indenture between or to be between the Borrower and State Street Bank and Trust Company, as Trustee, with respect to the Subordinated Notes, substantially in the form of the draft dated February , 1997 previously delivered to the Agent and each of the Banks, with such modifications as are appropriate or necessary to complete such form (including without limitation, changes to reflect the specific maturity date in 2004 or thereafter, the interest payment dates, the record dates, the interest rate, the initial conversion price, the redemption prices and such other terms as are related to the "pricing" of the securities to be represented by the Subordinated Notes) and such other changes as are either non- 3 -3- substantive or as shall have been approved by the Agent on behalf of the Banks. The Indenture is to be entered into by the parties thereto as of the closing of the issuance of the Subordinated Notes." sec.1.8. Section 1.1 of the Agreement is hereby further amended by changing the section referenced in the definition of "Permitted Acquisitions" to from 9.5.1 to 9.5.2(c). sec.1.9. Section 1.1 of the Agreement is hereby further amended by inserting the following new definition in alphabetical order therein: "SUBORDINATED NOTES. The Borrower's Convertible Subordinated Notes due 2004 or thereafter, in an aggregate principal amount of up to $138,000,000, issued or to be issued under and pursuant to the Indenture." sec.1.10. Section 2.3 of the Agreement is hereby amended by inserting the words "or sec.9.1(l)" after the words "permitted by sec.9.1(k)" in lines 2 and 16 thereof, deleting the words "in sec.9.1(k)(i)" in line 6 thereof and substituting therefor the words "in sec.9.1(k) or sec.9.1(l)(i)", inserting the word "cumulative" between the words "a" and "maximum" in line 6 thereof, changing the section referenced in line 7 thereof from 9.1(k)(ii) to 9.1(1)(ii), and changing the section referenced in the sixth line from the end thereof from 2.3.2 to 2.3. sec.1.11. Section 3.2 of the Agreement is hereby amended by inserting the words "or sec.9.1(l)" after the words "permitted by sec.9.1(k)" in line 2 thereof, deleting the words "in sec.9.1(k)(i)" in line 6 thereof and substituting therefor the words "in sec.9.1(k) or sec.9.1(1)(i)", inserting the word "cumulative" between the words "a" and "maximum" in line 7 thereof, and changing the section referenced in line 8 thereof from 9.1(k)(ii) to 9.1(l)(ii). sec.1.12. Section 5.3 of the Agreement is hereby amended by changing the phrase "records on each Bank" in line 12 thereof to "records of each Bank". sec.1.13. Section 8.4(d) of the Agreement is hereby amended by inserting the word "by" after the word "filed" in line 3 of such subsection. sec.1.14. Section 9.1 of the Agreement is hereby amended by deleting subsections 9.1(k) and 9.1(1) in their entirety and inserting the following new subsections 9.1(k), 9.1(l) and 9.1(m): "(k) the Subordinated Notes; 4 -4- (1) 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 its Subsidiaries up to an aggregate amount (the "ADDITIONAL AMOUNT") equal to the sum of $175,000,000 LESS the outstanding aggregate principal amount of the Subordinated Notes, if any. Such Indebtedness shall consist of: (i) up to an amount equal to $150,000,000 LESS the aggregate outstanding principal amount of the Subordinated Notes (but not to exceed, when combined with amounts of Indebtedness incurred pursuant to clause (ii) of this sec.9.1(l), the Additional Amount) of Indebtedness which is expressly subordinated and made junior to the payment and performance in full of the Obligations on terms and conditions satisfactory to the Agent and the Majority Banks in their sole and absolute discretion, and evidenced as subordinate by a Subordination and Intercreditor Agreement or another 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 (ii) up to $100,000,000 (but not to exceed, when combined with amounts of Indebtedness incurred pursuant to clause (i) of this sec.9.1(l), the Additional Amount) of Indebtedness which may rank PARI PASSU with the Obligations; PROVIDED, HOWEVER, that the terms of Indebtedness permitted pursuant to this sec.9.1(l) shall include the following: (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 sec.9.1(l), 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 sec.9.1(1), 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 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 secs.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 sec.9.1(l), 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; 5 -5- (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 sec.9.1(l), such default provisions may cross-default to a Default or Event of Default under sec.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; and (H) such other terms and conditions as the Agent and the Majority Banks may reasonably require; 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 (m) Indebtedness not otherwise set forth in clauses (a) - (1) of this sec.9.1 in an amount not to exceed $2,000,000 in the aggregate." sec.1.15. Section 9.5.2 of the Agreement is hereby amended by changing the word "writtent" in line 12 thereof to "written", deleting the second "shall" in line 13 thereof, and changing the reference "Exhibit E-1" in line 31 thereof to "Exhibit C". sec.1.16. Section 9.9 of the Agreement is hereby amended by adding the following at the end thereof: "The Borrower will not, and will not permit the other parties thereto to, (i) amend, modify or supplement the Subordinated Notes or the Indenture in any way which would materially adversely affect the rights or interests of the Agent or any of the Banks as holders of "Senior Indebtedness" or "Designated Senior Indebtedness" thereunder, or (ii) enter into a supplemental indenture pursuant to Sections 11.1(b) and 11.1(d) of the Indenture, unless in each case the form of such proposed amendment, modification, supplement or supplemental indenture shall have first been approved in writing by the Agent and the Majority Banks, and, in the absence of such approval, in addition to and without limitation of such other rights as the Agent and the Banks may have hereunder, no such amendment, modification, supplement or supplemental indenture shall be effective to modify the rights or interests of the Agent or any of the Banks as holders of "Senior Indebtedness" or "Designated Senior Indebtedness" under the Indenture." sec.1.17. The Agreement is hereby amended by inserting the following new Section 9.12 therein: 6 -6- "9.12. DESIGNATION OF INDEBTEDNESS UNDER INDENTURE. The Borrower will not designate, declare or identify any Indebtedness as "Designated Senior Indebtedness" under and pursuant to the Indenture, unless the amount and terms of such Designated Senior Indebtedness shall first have been approved by the Agent and the Majority Banks in writing." sec.1.18. Section 11.4 of the Agreement is hereby amended by inserting the phrase "each Transaction Party" after the word "from" in line 2 thereof. sec.1.19. Section 14 of the Agreement is hereby amended by inserting the phrase "notify the Agent thereof and" prior to the phrase "make such disposition" in line 23 thereof. sec.1.20. Section 15.1(a) of the Agreement is hereby amended by inserting the phrase "(including the approval by the Agent of the final form of the Indenture as contemplated by the definition of the term "Indenture") following the words "reasonably incident thereto" in line 4 thereof. sec.1.21. The Agreement is hereby amended by deleting the portion of Section 26 selected below, and substituting for the deleted text the replacement text set forth below: Delete the following: "Notwithstanding the foregoing, the rate of interest on the Notes (other than interest accruing pursuant to sec.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 without the written consent of the Borrower and the written consent of each Bank affected thereby; the definition of Majority Banks may not be amended without the written consent of all of the Banks;" Replace with the following: "Notwithstanding the foregoing, the rate of interest on the Notes (other than interest accruing pursuant to sec.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;" 7 -7- sec.1.22. Exhibit A (Form of Revolving Credit Note) of the Agreement is hereby amended as follows: (a) The second paragraph (section (a)) is amended by changing the words "the date hereof" in lines 4 and 5 thereof to "January 8, 1997"; and (b) The fourth paragraph (section (c)) is amended by changing the words "Closing Date under the Credit Agreement" in line 2 thereof to "date hereof." sec.1.23. Exhibit D (Form of Assignment and Acceptance) of the Agreement is hereby amended as follows: (a) Section 1 of the Assignment and Acceptance is amended by inserting the text "(except for the specific representations in Section 2 hereof)" after the words "without recourse to the Assignor" in line 4 thereof: and (b) Section 2 of the Assignment and Acceptance is amended by adding the word "and" prior to the phrase "the aggregate amount" in line 5 thereof, and by adding the text "and that it has no knowledge that a Default or Event of Default has occurred and is continuing" after the words "free and clear of any claim or encumbrance" in lines 20-21 thereof. sec.2. CONDITIONS TO EFFECTIVENESS. This Amendment shall be deemed to be effective as of February 21, 1997 (the "Effective Date"), upon the Agent's receipt of facsimile copies of original counterparts (to be followed promptly by original counterparts) or original counterparts of this Amendment, duly executed by each of the Company, the Hadco Subsidiaries, the Agent and The First National Bank of Boston. sec.3. REPRESENTATIONS AND WARRANTIES; NO DEFAULT; AUTHORIZATION. Each of the Company and the Hadco Subsidiaries hereby represents and warrants to each of the Agent and the Banks as follows: (a) Each of the representations and warranties of the Company and the Hadco Subsidiaries contained in the Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with the Agreement, the other Loan Documents or this Amendment was true as of the date as of which it was made, and no Default or Event of Default has occurred and is continuing as of the date of this Amendment; and 8 -8- (b) This Amendment has been duly authorized, executed and delivered by the Company and each of the Hadco Subsidiaries, and shall be in full force and effect upon the satisfaction of the conditions set forth in sec.2 hereof, and the agreements of the Company and each of the Hadco Subsidiaries contained herein, in the Agreement as herein amended, or in the other Loan Documents respectively, constitute the legal, valid and binding obligations of the Company and each of the Hadco Subsidiaries party hereto or thereto, enforceable against the Company or such Hadco Subsidiary, in accordance with their respective terms, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. sec.4. RATIFICATION, ETC. Except as expressly amended hereby, the Agreement, the other Loan Documents and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. All references in the Agreement or such other Loan Documents or in any related agreement or instrument to the Agreement or such other Loan Documents shall hereafter refer to such agreements as amended hereby, pursuant to the provisions of the Agreement. sec.5. NO IMPLIED WAIVER, ETC. Except as expressly provided herein, nothing contained herein shall constitute a waiver of, impair or otherwise affect any of the Obligations, any other obligations of the Company or any of the Hadco Subsidiaries or any right of the Agent or the Banks consequent thereon. The waivers and consents provided herein are limited strictly to their terms. Neither the Agent nor any of the Banks shall have any obligation to issue any further waiver or consent with respect to the subject matter hereof or any other matter. sec.6. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. sec.7. GOVERNING LAW. THIS AMENDMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CHOICE OR CONFLICTS OF LAWS). 9 -9- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a document under seal as of the date first above written. THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: ------------------------------------ Title: HADCO CORPORATION By: ------------------------------------ Title: 10 -10- Each of the undersigned hereby acknowledges the foregoing Amendment as of the Effective Date and agrees that its obligations under the Guaranty will extend to the Agreement, as so amended, and the other Loan Documents, as so amended. ZYCON CORPORATION By: ------------------------------------ Title: ZYCON ALTERNATE CIRCUITS, INC. By: ------------------------------------ Title: EX-10.9 8 ASSIGNMENT AND ACCEPTANCE OF REVOLVING CREDIT AGRE 1 ASSIGNMENT AND ACCEPTANCE ------------------------- Dated as of February 27, 1997 Reference is made to the Revolving Credit Agreement, dated as of January 8, 1997 (as from time to time amended and in effect, the "Credit Agreement"), by and among HADCO CORPORATION, (the "Borrower"), the banking institutions referred to therein as Banks (collectively, the "Banks"), and THE FIRST NATIONAL BANK OF BOSTON, as agent (in such capacity, the "Agent") for the Banks. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement. THE FIRST NATIONAL BANK OF BOSTON (the "Assignor") and each of ABN AMRO Bank N.V., individually and as Documentation Agent, The Bank of Nova Scotia, Bank of Tokyo-Mitsubishi Trust Company, CIBC, Inc., The Chase Manhattan Bank, CoreStates Bank, N.A., The First National Bank of Chicago, The Fuji Bank, Limited, The Industrial Bank of Japan, Limited, KeyBank National Association, State Street Bank and Trust Company, The Sumitomo Bank, Limited, and SunTrust Bank, Atlanta (each, an "Assignee" and collectively, the "Assignees") hereby agree as follows: 1. ASSIGNMENT. Subject to the terms and conditions of this Assignment and Acceptance, the Assignor hereby sells and assigns to the Assignees, and each of the Assignees hereby purchases and assumes without recourse to the Assignor (except for the specific representations in Section 2 hereof), an interest in and to the rights, benefits, indemnities and obligations of the Assignor under the Credit Agreement in the dollar amount set forth opposite such Assignee's name in the table below and equal to the percentage in respect of the Total Commitment immediately prior to the Effective Date (as hereinafter defined) set forth opposite such Assignee's name in the table below:
Commitment Commitment Assignee Amount Percentage - -------- ----------- ---------- ABN AMRO Bank, N.V $25,000,000 10.0% The Bank of Nova Scotia $12,000,000 4.8% Bank of Tokyo-Mitsubishi Trust Company $20,000,000 8.0% CIBC, Inc. $12,000,000 4.8% The Chase Manhattan Bank $20,000,000 8.0% CoreStates Bank, N.A $12,000,000 4.8% The First National Bank of Chicago $20,000,000 8.0% The Fuji Bank, Limited $12,000,000 4.8% The Industrial Bank of Japan, Limited $20,000,000 8.0% KeyBank National Association $20,000,000 8.0%
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Commitment Commitment Assignee Amount Percentage - -------- ----------- ---------- State Street Bank and Trust Company $12,000,000 4.8% The Sumitomo Bank, Limited $12,000,000 4.8% SunTrust Bank, Atlanta $12,000,000 4.8%
2. ASSIGNOR'S REPRESENTATIONS. The Assignor (i) represents and warrants that (A) it is legally authorized to enter into this Assignment and Acceptance, and (B) as of the date hereof, after giving effect to the assignments contemplated hereby, its Commitment is $41,000,000, its Commitment Percentage is 16.4%, the aggregate outstanding principal balance of its Loans equals $35,260,000, AND the aggregate amount of its Letter of Credit Participations equals $0, (ii) 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 the Credit Agreement or any of the other Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant thereto or the attachment, perfection or priority of any security interest or mortgage, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder free and clear of any claim or encumbrance and that it has no knowledge that a Default or Event of Default has occurred and is continuing; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any of 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 or any of the other Transaction Parties or any other Person primarily or secondarily liable in respect of any of the Obligations or any of its obligations under the Credit Agreement or any of the other Loan Documents or any other instrument or document delivered or executed pursuant thereto; and (iv) attaches hereto the Note delivered to it under the Credit Agreement. The Assignor requests that the Borrower exchange the Assignor's Note for new Notes payable to the Assignor and the Assignees as follows:
Notes Payable to Amount of Revolving the Order of: Credit Note ------------- ------------------- Assignor $41,000,000
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Notes Payable to Amount of Revolving the Order of: Credit Note ------------- ------------------- Assignees: ABN AMRO Bank, N.V. $25,000,000 The Bank of Nova Scotia $12,000,000 Bank of Tokyo-Mitsubishi Trust Company $20,000,000 CIBC, Inc. $12,000,000 The Chase Manhattan Bank $20,000,000 CoreStates Bank, N.A. $12,000,000 The First National Bank of Chicago $20,0O0,000 The Fuji Bank, Limited $12,000,000 The Industrial Bank of Japan, Limited $20,000,000 KeyBank National Association $20,000,000 State Street Bank and Trust Company $12,000,000 The Sumitomo Bank, Limited $12,000,000 SunTrust Bank, Atlanta $12,000,000
3. ASSIGNEES' REPRESENTATIONS. Each of the Assignees (i) represents and warrants that (A) it is duly and legally authorized to enter into this Assignment and Acceptance, (B) the execution, delivery and performance of this Assignment and Acceptance do not conflict with any provision of law or of the charter or by-laws of the Assignee, or of any agreement binding on the Assignee, (C) all acts, conditions and things required to be done and performed and to have occurred prior to the execution, delivery and performance of this Assignment and Acceptance, and to render the same the legal, valid and binding obligation of the Assignee, enforceable against it in accordance with its terms, have been done and performed and have occurred in due and strict compliance with all applicable laws; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to sec.8.4 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (iii) agrees that it will, independently and without reliance upon the Assignor, 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 the Credit Agreement; (iv) represents and warrants that it is an Eligible Assignee; (v) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (vi) agrees that it will perform in accordance with their terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank; and (vii) acknowledges that it has made arrangements with the Assignor satisfactory to 4 -4- the Assignee with respect to its PRO RATA share of Letter of Credit Fees in respect of outstanding Letters of Credit. 4. EFFECTIVE DATE. The effective date for this Assignment and Acceptance shall be February 27, 1997 (the "Effective Date"). Following the execution of this Assignment and Acceptance and, so long as no Default or Event of Default has occurred and is continuing, the consent of the Borrower hereto having been obtained, each party hereto shall deliver its duly executed counterpart hereof to the Agent for acceptance by the Agent and recording in the Register by the Agent. SCHEDULE 1 to the Credit Agreement shall thereupon be replaced as of the Effective Date by the SCHEDULE 1 annexed hereto. 5. RIGHTS UNDER CREDIT AGREEMENT. Upon such acceptance and recording, from and after the Effective Date, (i) each of the Assignees shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder, and (ii) the Assignor shall, with respect to that portion of its interest under the Credit Agreement assigned hereunder, relinquish its rights and be released from its obligations under the Credit Agreement; PROVIDED, HOWEVER, that the Assignor shall retain its rights to be indemnified pursuant to sec.17 of the Credit Agreement with respect to any claims or actions arising prior to the Effective Date. 6. PAYMENTS. Upon such acceptance of this Assignment and Acceptance by the Agent and such recording, from and after the Effective Date, the Agent shall make all payments in respect of the rights and interests assigned hereby (including payments of principal, interest, fees and other amounts) to the Assignees, as applicable. The Assignor and each Assignee shall make any appropriate adjustments in payments for periods prior to the Effective Date by the Agent or with respect to the making of this assignment directly between themselves. 7. GOVERNING LAW. THIS ASSIGNMENT AND ACCEPTANCE IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT TO BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). 8. COUNTERPARTS. This Assignment and Acceptance may be executed in any number of counterparts which shall together constitute but one and the same agreement. 5 -5- IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned has caused this Assignment and Acceptance to be executed on its behalf by its officer thereunto duly authorized, as of the date first above written. ASSIGNOR: THE FIRST NATIONAL BANK OF BOSTON By: ------------------------------------ Title: ASSIGNEES: ABN AMRO Bank, N.V., individually and as Documentation Agent By: ------------------------------------ Title: THE BANK OF NOVA SCOTIA By: ------------------------------------ Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: ------------------------------------ Title: 6 -6- CIBC, INC. By: ------------------------------------ Title: THE CHASE MANHATTAN BANK By: ------------------------------------ Title: CORESTATES BANK, N.A. By: ------------------------------------ Title: THE FIRST NATIONAL BANK OF CHICAGO By: ------------------------------------ Title: THE FUJI BANK, LIMITED By: ------------------------------------ Title: 7 -7- THE INDUSTRIAL BANK OF JAPAN, LIMITED By: ------------------------------------ Title: KEYBANK NATIONAL ASSOCIATION By: ------------------------------------ Title: STATE STREET BANK AND TRUST COMPANY By: ------------------------------------ Title: THE SUMITOMO BANK, LIMITED By: ------------------------------------ Title: By: ------------------------------------ Title: 8 -8- SUNTRUST BANK, ATLANTA By: ------------------------------------ Title: By: ------------------------------------ Title: CONSENTED TO: - ------------- HADCO CORPORATION By: --------------------------------- Title: THE FIRST NATIONAL BANK OF BOSTON, as Agent By: --------------------------------- Title: 9 SCHEDULE 1 ----------
Bank Commitment Commitment ---- ----------- ---------- Amount Percentage ----------- ---------- DOMESTIC AND EURODOLLAR LENDING OFFICE: THE FIRST NATIONAL BANK OF BOSTON $41,000,000 16.4% 100 Federal Street New England Corporate Banking, 01-07-05 Boston, MA 02110 Attn: Jeffrey G. Millman Tel: 617-434-7944 Fax: 617-434-8102 DOMESTIC AND EURODOLLAR LENDING OFFICE: ABN AMRO BANK, N.V. $25,000,000 10.0% One Post Office Square, 39th Floor Boston, MA 02109 Attn: Chip Wahle Tel: 617-988-7935 Fax: 617-988-7910 with copies of correspondence to: ABN AMRO Bank, N.V. 135 S. LaSalle Street, Legal Dept. Chicago, IL 60603 Attn: Janet Knutel Tel: 312-904-2225 Fax: 312-904-2340 DOMESTIC AND EURODOLLAR LENDING OFFICE: THE BANK OF NOVA SCOTIA $12,000,000 4.8% 101 Federal Street, 16th Floor Boston, MA 02110 Attn: Michael Bradley Tel: 617-737-6312 Fax: 617-951-2177
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Bank Commitment Commitment ---- ----------- ---------- Amount Percentage ----------- ---------- DOMESTIC AND EURODOLLAR LENDING OFFICE: BANK OF TOKYO-MITSUBISHI TRUST COMPANY $20,000,000 8.0% 1251 Avenue of the Americas New York, NY 10020-1104 Contacts: Robert J. Diloff (Credit Matters) Tel: 617-330-7419 Fax: 617-330-7422 Rolando Uy (Operations) Tel: 201-413-8576 Fax: 201-413-8225 with all correspondence sent to: Bank of Tokyo-Mitsubishi Trust Company 125 Summer Street, Suite 1170 Boston, MA 02110 Attn: Robert J. Diloff Tel: 617-330-7419 Fax: 617-330-7422 and to: Bank of Tokyo-Mitsubishi Trust Company Legal Department 1251 Avenue of the Americas New York, NY 10020-1104 Attn: Frederick Leone Tel: 212-782-4637 Fax: 212-782-6420 DOMESTIC AND EURODOLLAR LENDING OFFICE: CIBC, INC. $12,000,000 4.8% 425 Lexington Avenue New York, NY 10017 Attn: Cyd Petre Tel: 212-856-4165 Fax: 212-856-3991
11 -3-
Bank Commitment Commitment ---- ----------- ---------- Amount Percentage ----------- ---------- DOMESTIC AND EURODOLLAR LENDING OFFICE: THE CHASE MANHATTAN BANK $20,000,000 8.0% 999 Broad Street Bridgeport, CT 06604 Attn: Fred Loder Tel: 203-382-6493 Fax: 203-382-6573 with copies of correspondence to: The Chase Manhattan Bank Legal Department 270 Park Avenue, 40th Floor New York, NY 10017 Attn: David Struss Tel: 212-270-5038 Fax: 212-270-7429 DOMESTIC AND EURODOLLAR LENDING OFFICE: CORESTATES BANK, N.A. $12,000,000 4.8% 1345 Chestnut Street FC 1-8-3-16 Philadelphia, PA 19102 Attn: John Fessick Tel: 215-786-2162 Fax: 215-973-6745 DOMESTIC AND EURODOLLAR LENDING OFFICE: THE FIRST NATIONAL BANK OF CHICAGO $20,000,000 8.0% 153 W. 51st Street, 8th Floor New York, NY 10019 Attn: Thomas Knoff Tel: 212-373-1181 Fax: 212-373-1388 with copies of correspondence to: The First National Bank of Chicago 1 First National Plaza Chicago, IL 60670 Attn: Leane Cerven Tel: 312-732-8191 Fax: 312-732-6037
12 -4-
Bank Commitment Commitment ---- ----------- ---------- Amount Percentage ----------- ---------- DOMESTIC AND EURODOLLAR LENDING OFFICE: THE FUJI BANK, LIMITED $12,000,000 4.8% 2 World Trade Center, 79th Floor New York, NY 10022 Attn: Mark Hanslin Tel: 212-898-2073 Fax: 212-912-0516 DOMESTIC AND EURODOLLAR LENDING OFFICE: THE INDUSTRIAL BANK OF JAPAN, LIMITED $20,000,000 8.0% 1251 Avenue of the Americas New York, NY 10020-1104 Attn: Wayne Right Tel: 212-282-3462 Fax: 212-282-4488 DOMESTIC AND EURODOLLAR LENDING OFFICE: KEYBANK NATIONAL ASSOCIATION $20,000,000 8.0% 127 Public Square Mail Code: 01-27-0606 Cleveland, Ohio 44114 Attn: Michael Landini Tel: 216-689-5562 Fax: 216-689-4981 DOMESTIC AND EURODOLLAR LENDING OFFICE: STATE STREET BANK AND TRUST COMPANY $12,000,000 4.8% 225 Franklin Street Boston, MA 02110-2804 Attn: Bruce Daniels Tel: 617- 654-3611 Fax: 617- 654-4176
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Bank Commitment Commitment ---- ----------- ---------- Amount Percentage ----------- ---------- DOMESTIC AND EURODOLLAR LENDING OFFICE: THE SUMITOMO BANK, LIMITED $12,000,000 4.8% 233 S. Wacker Drive, Suite 5400 Chicago, IL 60606 Attn: Richard Bailey, Vice President Operations Tel: 312-993-6214 Fax: 312-876-1995 with copies of correspondence to: The Sumitomo Bank Limited One Post Office Square, Suite 820 Boston, MA 02109 Attn: A1 DeGemmis Tel: 617-451-3200 Fax: 617-423-4884 DOMESTIC AND EURODOLLAR LENDING OFFICE: SUNTRUST BANK, ATLANTA $12,000,000 4.8% 711 Fifth Avenue, 5th Floor Mail Code 0122 New York, NY 10022 Attn: Susan Boyd Tel: 212-583-2612 Fax: 212-371-9386 with copies of correspondence to: SunTrust Bank, Atlanta 25 Park Place, 18th Floor Atlanta, GA 30303 Attn: John Bettex Tel: 404-588-7084 Fax: 404-230-5387
EX-23.2 9 CONSENT OF ARTHUR ANDERSEN LLP/ BOSTON 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Boston, Massachusetts April 15, 1997 EX-23.3 10 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.3 The Board of Directors Hadco Corporation We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. KPMG Peat Marwick LLP San Jose, California April 15, 1997 EX-23.4 11 CONSENT OF ARTHUR ANDERSEN LLP/ SAN JOSE 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. ARTHUR ANDERSEN LLP San Jose, California April 15, 1997 -----END PRIVACY-ENHANCED MESSAGE-----