-----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, LJuOwqxRx/n+JuTX2LOIjLekegkV89WJ+snMOH7HKRHsRO8YKMhU88WDLkKloPqP jdORazMOu3mOImV5vSi5fA== 0000950135-00-000032.txt : 20000107 0000950135-00-000032.hdr.sgml : 20000107 ACCESSION NUMBER: 0000950135-00-000032 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991030 FILED AS OF DATE: 20000106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HADCO CORP CENTRAL INDEX KEY: 0000729533 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 042393279 STATE OF INCORPORATION: MA FISCAL YEAR END: 1030 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-15335 FILM NUMBER: 502137 BUSINESS ADDRESS: STREET 1: 12A MANOR PKWY CITY: SALEM STATE: NH ZIP: 03079 BUSINESS PHONE: 6038988000 MAIL ADDRESS: STREET 1: 12A MONOR PARKWAY CITY: SALEM STATE: NH ZIP: 03079 10-K 1 FORM 10-K 10/30/99 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 30, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-12102 ------------------------ HADCO CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2393279 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 12A MANOR PARKWAY, SALEM, NEW HAMPSHIRE 03079 (Address of principal executive offices) (Zip Code)
(603) 898-8000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.05 par value Securities registered pursuant to Section 12(g) of the Act: None ------------------------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __. The aggregate market value of voting Common Stock held by non-affiliates of the registrant was $607,651,635 based on the price of the last reported sale on the New York Stock Exchange on January 3, 2000 as reported by the NYSE. As of January 3, 2000, there were 13,726,100 shares of Common Stock, $.05 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Company intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended October 30, 1999. Portions of such proxy statement are incorporated by reference into Part III of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 Except for the historical information contained herein, the matters discussed in this Annual Report on Form 10-K are forward-looking statements that involve risks and uncertainties. Hadco Corporation makes such forward-looking statements under the provision of the "Safe Harbor" section of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements should be considered in light of the factors described below in Item 7 under "Factors That May Affect Future Results." Actual results may vary materially from those projected, anticipated or indicated in any forward-looking statements. In this Annual Report on Form 10-K, the words "anticipates," "believes," "expects," "intends," "future," "could," and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements. As used herein, the terms "Company" and "Hadco," unless otherwise indicated or the context otherwise requires, refer to Hadco Corporation and its subsidiaries, including Hadco Phoenix, Inc. ("Hadco Phoenix") (formerly Continental Circuits Corp. ("Continental")) and Hadco Santa Clara, Inc. ("Hadco Santa Clara") (formerly Zycon Corporation ("Zycon")). Hadco Santa Clara holds the assets formerly held by Zycon, and Hadco Phoenix holds the assets formerly held by Continental. Zycon Corporation and Continental Circuits Corp. are currently wholly owned subsidiaries of the Company and are merely name holding entities. References herein to a fiscal year-end relate to a year ending on the last Saturday in October (for example, fiscal 1999 refers to the Company's fiscal year ended October 30, 1999). On March 20, 1998, the Company acquired all of the outstanding capital stock of Continental (the "Continental Acquisition"), and on January 10, 1997, the Company acquired all of the outstanding capital stock of Zycon (the "Zycon Acquisition"). The Continental Acquisition and the Zycon Acquisition are collectively referred to herein as the "Acquisitions." Unless otherwise indicated or the context otherwise requires, the results of Zycon's operations and other financial information relating to Zycon since January 10, 1997 are included in the Company's historical consolidated financial information presented herein. Similarly, unless otherwise indicated or the context otherwise requires, the results of Continental's operations and other financial information relating to Continental since March 20, 1998 are included in the Company's historical consolidated financial information presented herein. PART I ITEM 1. BUSINESS 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 multilayer rigid printed circuits and backplane and systems assemblies. Printed circuits are the basic platforms used to interconnect microprocessors, integrated circuits and other components essential to the functioning of electronic systems. Backplane assemblies are generally larger and thicker printed circuits on which connectors are mounted to receive and interconnect printed circuits, integrated circuits and other electronic components. Systems assemblies include the backplane, power supply, fan card, cabling and system chassis. 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 are characterized by high growth rates, rapid technological advances and short product life cycles. Through the office of the Chief Technology Officer (CTO), the Company coordinates the activities of the development groups at each production facility. The CTO and production site development groups work closely with customers during the early stages of the product life-cycle in an effort to develop process changes and refinements required for volume production. The development projects include increased printed circuit density, embedded passive components, advanced materials, laser direct imaging, fine pitch assembly and new product offerings. 1 3 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 at the time) and substantially expanded the Company's manufacturing capabilities and geographic reach. These acquired manufacturing capabilities include state-of-the-art West Coast facilities for volume production of complex printed circuits and backplane and system assemblies, a quick-turn prototype and design facility on the East Coast, and a volume production facility in Malaysia. Hadco acquired Continental Circuits on March 20, 1998. This acquisition also increased Hadco's net sales significantly, added approximately 305,000 square feet of manufacturing space, and further expanded the Company's manufacturing capabilities and geographic reach. These acquired manufacturing capabilities include a facility in Phoenix, Arizona for the volume production of complex printed circuits, a quick-turn prototype facility in Austin, Texas, a flexible printed circuit facility in California, and printed circuit engineering and design sites in Texas, California, and Colorado. On April 30, 1999, the Company sold substantially all of the assets of its flexible printed circuit facility (Dynaflex division) for approximately $2.7 million. Dynaflex's assets, liabilities and operations were not significant to the Company. Accordingly, pro forma information has not been presented. The Acquisitions have broadened the Company's customer base, expanded its involvement in various industry sectors, added new proprietary technologies and increased its sales force. The Company was incorporated in Massachusetts in 1966. The Company's principal executive offices are located at 12A Manor Parkway, Salem, New Hampshire 03079; its telephone number is (603) 898-8000, and its internet site is http://www.hadco.com. PRODUCTS AND SERVICES The Company's products and services are designed to meet its customers' interconnect needs for dense multilayer printed circuits and backplane and system assemblies. See Note 14 of Notes to Consolidated Financial Statements for financial segment information concerning printed circuits and backplane and system assemblies. Hadco offers complementary processes and capabilities that span the product life cycle. The Company's offering includes the following products and services: Development. Through the office of the CTO and the development groups located at various facilities, Hadco identifies, develops and markets new technologies that benefit its customers. The CTO and the 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 CTO and the development groups also focus on the special requirements of the Company's customers, including increasing printed circuit densities, embedded passive components and advanced materials and products. 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 facilities in Massachusetts, Texas and California. Prototype development at these facilities has included multilayer printed circuits of up to 50 layers, embedded discrete components, heavy copper substrates, sequential lamination, cavity substrates, thermal 2 4 management products, Single Chip Carriers (SCC), planar magnetics, advanced surface finishes and various high performance substrates for the high frequency microwave market. These facilities also support advanced attachment technologies such as Direct Chip Attach (DCA) and High Density Interconnect (HDI). In combining the design of a printed circuit with the manufacture of the prototype, Hadco can reduce the length of the design/manufacture cycle. By working closely with customers at the design and prototype stage, the Company believes it strengthens long-term relationships with its customers and gains an advantage in securing a preferred vendor status when customers begin volume production. Pre-Production. Pre-production is the manufacture of limited quantities of electronic interconnects during the transition period from prototype to volume production. Pre-production generally requires quick-turn delivery to accommodate time-to-volume pressures or as a temporary solution for unforeseen customer demands. Pre-production is done both in the quick-turn prototype and 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 20 or more layers in the volume provided by Hadco's larger facilities. The Company operates six facilities located in California, New York, New Hampshire, Arizona and Malaysia for medium-and high-volume printed circuit production. Backplane and System Assembly. Backplanes are generally larger and thicker printed circuits on which connectors are mounted to interconnect printed circuits, integrated circuits and other electronic components. System assemblies include the backplane, power supply, fan card, cabling and system chassis. Hadco incorporates its own printed circuits in backplane and system assemblies to provide customers with a high level of printed circuit technology on a quick-turn and volume basis. Net sales of backplane and system assemblies accounted for approximately 11%, 16%, and 18% of total Company net sales during fiscal 1997, 1998 and 1999, respectively. See Note 14 of Notes to Consolidated Financial Statements. With its backplane and system assembly operations, Hadco is one of a few companies that provides its customers with the advantage of an integrated offering to meet their needs from development and design through volume production to backplane and system assembly. The Company's advanced process capabilities enhance each of the above services and include: Manufacture of High Performance Printed Circuits. At its quick-turn prototype and volume production facilities, the Company produces technologically advanced printed circuits primarily for the high performance market. These printed circuits, used principally in the data communications and telecommunications industries, are designed to function at high frequencies with excellent reliability. Materials used by the Company for these products include high T(g), epoxy, Teflon(R), cyanate ester, GETEK(R), epoxy/polyphenylene oxide, polyimides, 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) is an advanced material developed by the Company to provide improved electrical performance and greater interconnect densities. The Company receives revenue from sales of products containing this technology, as well as net royalty income from licensing its use. In addition, the Company is developing various microvia processes, which include horizontal plating, plasma etching and laser drilling. Microvias provide a significant increase in printed circuit interconnect density and performance. The Continental Acquisition added PCA Design's microvia design methodology. The Company also produces rigid flex printed circuit products utilizing licensed HVRFlex(TM) technology. These products enable customers to fold a printed circuit and reduce the need for cable connectors in the portable computer and telecommunications markets. See Item 2, "Manufacturing and Facilities." 3 5 MARKETS AND CUSTOMERS Hadco's customers are a diverse group of electronic manufacturing services (EMS) providers and original equipment manufacturers (OEMs) in the computing (mainly workstations, servers, mainframes, storage and notebooks), data communications/telecommunications and industrial automation industries, including process controls, automotive, medical and instrumentation. The following table shows, for the periods indicated, the Company's net sales and percentage of its net sales to the principal end-user markets it serves. The information reflected in the table includes the combined operations of Zycon and the Company since January 10, 1997 and of Continental and the Company since March 20, 1998.
FISCAL YEAR ENDED ---------------------------------------------- OCTOBER 25, OCTOBER 31, OCTOBER 30, MARKETS 1997 1998 1999 - ------- ------------ ------------ -------------- (DOLLARS)IN MILLIONS Electronic Manufacturing Services................ $289.2 44% $341.8 41% $ 507.5 51% Computing........................................ 205.0 32 278.3 34 218.1 22 Data Communications/Telecommunications........... 119.1 18 146.7 18 214.9 21 Industrial Automation............................ 24.8 4 40.1 5 40.7 4 Other............................................ 10.6 2 19.5 2 24.8 2 ------ --- ------ --- -------- --- Total Net Sales........................ $648.7 100% $826.4 100% $1,006.0 100% ====== === ====== === ======== ===
The Company supplied its products and services to a diverse base of approximately 740 customers in fiscal 1999, including 77 customers with purchases in excess of $1 million. The Company attempts to market its products to customers that currently have, or have the potential to achieve, significant market share in their respective industries. The following were the Company's largest customers in fiscal 1999: *Avex Electronics *Hewlett Packard *Cabletron Systems *Lucent Technologies *Celestica *Nortel *Cisco Systems *SCI Systems *Compaq Computer *Solectron
During fiscal 1997, 1998 and 1999, one customer, Solectron, accounted for approximately 15%, 17% and 15%, respectively, of Hadco's net sales. The Company's ten largest customers together accounted for approximately 47%, 51% and 56% of the Company's net sales, respectively, during the same periods. See Note 13 of Notes to Consolidated Financial Statements. 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. See Item 7, "Factors That May Affect Future Results -- Risks Relating to Variability of Orders from Customers; Backlog." During fiscal 1999, 22.7% of the Company's net sales were attributable to sales outside of the United States, principally in Singapore, Canada and Europe. The Company intends to expand its sales efforts outside of the United States. See Note 14 of Notes to Consolidated Financial Statements. SALES AND MARKETING The Company markets its products through its own sales and marketing organization and independent manufacturers' representatives. The Company is represented by independent manufacturers' representatives located in North America, South America, Europe, Mexico, South Africa, Asia, Australia, New Zealand and the Middle East. Regional direct sales offices are located throughout North America, and in Ireland and Singapore. In addition, the Miami, Florida sales office provides sales support for Latin America. The Company's sales organization also has a support staff of sales engineers and technical service personnel responsible for technical liaison and problem solving, market research and marketing communications. 4 6 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 identifies, develops and markets new technologies that benefit its customers and are intended to position the Company as an important source for these solutions. The Company hosts regional technology symposiums at which the Company's technical capabilities are presented to, and industry technical trends are discussed with, its customers. SUPPLIER RELATIONSHIPS Historically, the majority of raw materials used in the Company's manufacture of printed circuits and components used in backplane and system assemblies have been readily available. However, product changes and the overall demand for electronic interconnect products could increase the industry's use of new laminate materials, multilayer blanks, laser drilling, mechanical drilling, non-standard surface finishes, electronic components and other materials and services, and therefore such materials and services may not be readily available to the Company in the future. The Company believes that the potential exists for a shortage of materials and services in the printed circuit and electronic assembly industries which could have a material adverse effect on the Company's manufacturing operations and future unit costs. In response to such concerns, the Company engages in the normal industry practice of maintaining primary and secondary vendors. There can be no assurance that shortages of certain types of raw materials, manufacturing services, or components or price fluctuations will not occur in the future. See Item 7, "Factors That May Affect Future Results -- Risks of Inability to Obtain Raw Materials and Components." 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. 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. 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 to backplane and system assembly. During periods of recession or economic slowdown in the electronics industry and other periods when excess capacity exists, EMS providers and OEMs are able to negotiate lower prices, which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company believes that price competition from printed circuit manufacturers in Asia and other locations with lower production costs may play an increasing role in the printed circuit markets in which the Company competes. This price competition from Asian printed circuit manufacturers may intensify as a result of economic turmoil, currency devaluations or financial market instability that many Asian countries have experienced in the past. 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 5 7 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. PRODUCT PROTECTION The Company has obtained 13 United States patents and 33 foreign patents directed to printed circuit boards and methods of manufacturing printed circuit boards which expire between the years 2009 through 2014. Although Hadco seeks to protect certain proprietary technology and other intangible assets through patents and trademark filings, it has relatively few patents and relies primarily on trade secret protection. There can be no assurance that the Company will be able to protect its trade secrets or that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets. The future success of the Company will depend on the continued development of processes and capabilities. The Company believes that its accumulated experience with respect to materials and process technology is also important to its operations. See Item 3, "Legal Proceedings and Claims." RELEASED BACKLOG The Company's released backlog as of October 30, 1999 was $148.7 million, compared with $140.1 million as of October 31, 1998. Released backlog consists of orders for which artwork has been received, a delivery date has been scheduled and which the Company anticipates it will manufacture and deliver. The Company anticipates delivering approximately 92% of its released backlog during the first quarter of fiscal 2000. Cancellation and postponement charges, to the extent they exist with respect to released backlog, generally vary depending upon the time of cancellation or postponement, and a significant portion of the Company's released backlog at any time may be subject to cancellation or postponement without penalty. Variations in the size, timing and delivery schedules of purchase orders received by the Company, as well as changes in customers' delivery requirements, may result in substantial fluctuations in released backlog from period to period. Accordingly, the Company believes that released backlog is not a meaningful indicator of future quarterly or annual financial results. EMPLOYEES As of October 30, 1999, the Company had 7,850 employees compared to 7,673 employees as of October 31, 1998. 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 has executed a Modification of the Order on Consent to implement the approved ROD. Capital 6 8 equipment for this remediation has already been acquired by the Company, and future operation and maintenance costs, which will be incurred and expended over the estimated life of the program of the next 28 years, are estimated at between $40,000 and $100,000 per year. In the summer of 1998, NYSDEC took additional samples from a wetland area near the Company's Owego facility. Analytical reports of earlier sediment samples indicated the presence of certain inorganics. The new samples showed elevated levels of certain metals, but NYSDEC has not made a determination as to the potential source of such metals, the remedial action to be taken, or the persons to undertake and/or pay for any remediation. 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 fourth paragraph of this "--Environmental Matters" section. See Item 3, "Legal Proceedings and Claims" for a discussion of certain environmental matters relating to a printed circuit manufacturing facility formerly operated by the Company in Florida. The Company commenced the operation of a groundwater extraction system at its Derry, New Hampshire facility to address certain groundwater contamination and groundwater migration control issues. Further investigation is underway to determine the areal extent of the groundwater contaminant plume. Because of the uncertainty regarding both the quantity of contaminants beneath the building at the site and the long-term effectiveness of the groundwater migration control system the Company has installed, it is not possible to make a reliable estimate of the length of time remedial activity will have to be performed. However, it is anticipated that the groundwater extraction system will be operated for at least 30 years. There can be no assurance that the Company will not be required to conduct additional investigations and remediation relating to the Derry facility. The total costs of such groundwater extraction system and of conducting any additional investigations and remediation relating to the Derry facility are not fully determinable due to the numerous variables described in the next paragraph. The Company accrues estimated costs associated with known environmental matters when such costs can be reasonably estimated. The cost estimates relating to future environmental clean-up are subject to numerous variables, the effects of which can be difficult to measure, including the stage of the environmental investigations, the nature of potential remedies, possible joint and several liability, the magnitude of possible contamination, the difficulty of determining future liability, the time over which remediation might occur, and the possible effects of changing laws and regulations. Management believes the ultimate disposition of above known environmental matters described in this "--Environmental Matters" section will not have a material adverse effect upon the liquidity, capital resources, business or consolidated financial position of the Company. However, one or more of such environmental matters could have a significant negative impact on the Company's consolidated financial results for a particular reporting period. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 9 of Notes to the Company's Consolidated Financial Statements. The Company plans additional capital expenditures during fiscal 2000 to further reduce air emissions and reduce waste generation. See discussion under Item 2, "Manufacturing and Facilities" concerning the Company's capital expenditures relating to environmental control facilities and equipment, and under Item 3, "Legal Proceedings and Claims" relating to lawsuits regarding environmental matters. ITEM 2. MANUFACTURING AND FACILITIES The need for high volume production of dense multilayer printed circuits requires complex manufacturing processes and necessitates high levels of investment in facilities, materials, production processes and product design capabilities. The Company employs numerous advanced manufacturing techniques and systems including Computer Aided Manufacturing (CAM) systems, Computer Integrated Manufacturing (CIM) systems, computer controlled laser and mechanical drilling, routing and scoring systems, dry film and laser direct imaging, automated optical inspection, computer-controlled high-volume lamination in high pressure and temperature presses, computer-controlled horizontal and vertical plating systems, direct current and reverse pulse plating, high-volume liquid photoimageable solder mask surface coating, various specialty finishes, and high-density electrical testers. These techniques enable Hadco to manufacture multilayer printed 7 9 circuits of consistent quality, in high volume and on a timely basis. All of the Company's production facilities are ISO9002 certified. See Item 1, "Business -- Products and Services." In the backplane and system assembly segment, Hadco utilizes sophisticated automated connector placement equipment and high-capability surface mount systems to meet the escalating demand for high mix, prototype and volume assemblies. The Company has also invested in the resources to facilitate materials acquisition and logistics requirements, both of which the Company considers important to maintaining competitive service levels. In total, the Company leases or owns approximately 1.8 million square feet of manufacturing space. The Company's significant facilities are as follows:
FUNCTION LOCATION SQUARE FEET -------- ---------------------------------- ----------- Printed Circuit-Volume............. Santa Clara and San Jose, CA 365,000 Owego, NY 292,000 Phoenix, AZ 275,000 Derry, NH 200,000 Kuching, Malaysia 180,000 Hudson, NH 67,000 Printed Circuit-Quick-Turn Prototype........................ Haverhill, MA 71,000 Watsonville, CA 46,000 Austin, TX 59,000 Backplane and System Assembly...... Salem, NH 60,000 San Jose, CA 37,000 Engineering and Administrative..... Salem, NH 53,000 Santa Clara, CA 30,000 Limerick, Ireland 3,700 Warehouse.......................... San Jose, CA 51,000
The Company owns its volume production facilities in Owego, New York, Derry, New Hampshire, Hudson, New Hampshire and Phoenix, Arizona. The Company leases its volume production and backplane and system assembly facilities in Santa Clara and San Jose, California. These facilities 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 leases the land on which the volume production facility in Kuching, Malaysia is located for a period of 60 years, expiring in November 2055. The Hudson, New Hampshire operations are located in two separate buildings, one of which, containing 41,300 square feet, is owned by the Company, and the second of which, containing 25,400 square feet, is leased with the lease expiring in December 2000, with options to extend through December 2009. The Company's quick-turn prototype facility in Haverhill, Massachusetts is located in three separate buildings, two of which are covered by leases expiring in December 2003 with options to extend until December 2008, and the third of which is covered by a lease expiring in December 2003 with an option to extend until December 2013. The lease for the Watsonville, California quick-turn prototype facility expires in December 2002, with options to extend until December 2011. The lease for the quick-turn prototype facility in Austin, Texas expires in March 2004, with options to extend until March 2014. The lease for the backplane and system assembly facility in Salem, New Hampshire expires in May 2005, with options to extend until May 2011. The leases for the Santa Clara, California buildings include the 37,000 square feet of backplane and system assembly operations. The administrative and corporate offices in Salem, New Hampshire are located in three separate buildings, one of which is covered by a lease expiring in May 2003 with options to extend until May 2006, the second of which is covered by a lease expiring in May 2008 with options to extend until May 2014, and the third of which is covered by a lease expiring in July 2003, with options to extend until July 2009. The leases for the Santa Clara, California buildings include the 30,000 square feet of administrative space. 8 10 The lease for the warehouse space in San Jose, California extends for ten years from commencement of the lease term for the entire area subject to the lease, and commencement of the lease term has not yet occurred. The Company is currently in early occupancy of 51,000 square feet of warehouse space. The lease includes one option to extend for an additional five-year term. Additionally, the Company owns approximately six acres of land in Salem, New Hampshire, approximately five acres of land in Derry, New Hampshire, approximately 29 acres of land in Owego, New York and approximately four acres of land in Phoenix, Arizona. The Company believes its facilities are currently adequate for its operating needs. In fiscal 1999, the Company's capital expenditures relating to its environmental control facilities and equipment totaled approximately $3.6 million. The Company estimates that it will make capital expenditures with respect to its environmental control facilities and equipment of approximately $3 million and $2 million in fiscal 2000 and 2001, respectively. ITEM 3. LEGAL PROCEEDINGS AND CLAIMS 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. In June 1999, the Company entered into a Consent Decree with 30 of the defendants and third-party defendants. The Consent Decree was approved by the federal and state governments in December 1999, and lodged with the Court. The Court must still approve the Consent Decree. Under the terms of the Consent Decree, the Company is a cash-out party and does not have responsibility for performance of ongoing remedial or monitoring work at the site. From 1974 to 1980, the Company operated a printed circuit manufacturing facility in Florida as a lessee. This property is the subject of a pending lawsuit in the circuit court for Broward County, Florida (the "Florida Lawsuit") and an investigation by the Florida Department of Environmental Protection ("FDEP"). In connection with the investigation, Hadco and others have participated in alternative dispute resolution regarding the site with an independent mediator. Mediation sessions began in 1992 and continued over the next several years through May 1998. In June 1995, Hadco and Gould, Inc., another prior lessee of the site, were joined as third-party defendants in the 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. As a result of the mediation, a Settlement Agreement was entered into among Hadco, Gould and the FDEP in March 1999. The third-party complaints against Hadco and Gould in the pending Florida lawsuit were dismissed. The Settlement Agreement provides that Hadco and Gould will undertake remedial action based on a Supplemental Contamination Assessment Report and a later Feasibility Study, which has been prepared by a consultant to Hadco and Gould and approved by the FDEP. The estimated cost of the recommended source removal described in the Feasibility Study is approximately $165,000, and for ongoing monitoring and remediation is approximately $2.1 million. Actual remedial activities have not yet commenced but are expected to begin in the near future. In March 1993, the EPA notified Hadco Santa Clara of its potential liability for maintenance and remediation costs in connection with a hazardous waste disposal facility operated by Casmalia Resources, a California Limited Partnership, in Santa Barbara County, California. The EPA identified Hadco Santa Clara as one of the 65 generators which had disposed of the greatest amounts of materials at the site. Based on the total tonnage contributed by all generators, Hadco Santa Clara's share is estimated at approximately 0.2% of the total weight. The Casmalia site was regulated by the EPA during the period when the material was accepted. There is no allegation that Hadco Santa Clara violated any law in the disposal of material at the sites. Rather the 9 11 EPA's actions stemmed from the fact that Casmalia Resources may not have the financial means to implement a closure plan for the site and because of Hadco Santa Clara's status as a generator of hazardous waste. In June 1997, the United States District Court in Los Angeles, California approved and entered a Consent Decree among the EPA and 49 entities (including Hadco Santa Clara) acting through the Casmalia Steering Committee (CSC). The Consent Decree sets forth the terms and conditions under which the CSC will carry out work aimed at final closure of the site. Certain closure activities will be performed by the CSC. Later work will be performed by the CSC, if funded by other parties. Under the Consent Decree, the settling parties will work with the EPA to pursue the non-settling parties to ensure they participate in contributing to the closure and long-term operation and maintenance of the facility. The EPA will continue as the lead regulatory agency during the final closure work. Because long-term maintenance plans for the site will not be determined for a number of years, it has not yet been decided which regulatory agency will oversee this phase of the work plan or how the long-term costs will be funded. However, the Consent Decree provides a mechanism for ensuring that an appropriate federal, state or local agency will assume regulatory responsibility for long-term maintenance. On January 12, 1998, Hadco Santa Clara received notice of the filing of a lawsuit, before the Superior Court (County of Santa Clara, California), against it by Jackie Riley, Keith Riley and Richard Riley for damages (including punitive damages) for alleged injuries suffered, including Richard Riley's cancer, as a result of the alleged emission at the Hadco Santa Clara facility of effluent from allegedly toxic and hazardous chemical substances. In October 1999, the court approved a settlement of this litigation. The Company has performed all its obligations under the settlement. The future costs in connection with the lawsuits described in the preceding paragraphs, which arise under state and federal laws that impose legal liability that may be joint and several, 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. See Note 9 of Notes to the Company's Consolidated Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended October 30, 1999. 10 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange under the symbol "HDC." Prior to October 14, 1999, the Company's Common Stock was 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 or the New York Stock Exchange, as appropriate.
HIGH LOW ---- ---- Fiscal 1998 First Quarter............................................. 65 1/4 37 1/2 Second Quarter............................................ 54 35 1/2 Third Quarter............................................. 40 17 1/2 Fourth Quarter............................................ 33 3/4 19 1/4 Fiscal 1999 First Quarter............................................. 40 1/8 28 23/32 Second Quarter............................................ 37 3/8 24 7/16 Third Quarter............................................. 47 1/2 27 1/4 Fourth Quarter............................................ 45 1/8 36 3/4
The Company has never declared or paid a cash dividend on its Common Stock, and it is anticipated that the Company will continue to retain its earnings for use in its business and not pay cash dividends. Declaration of dividends is within the discretion of the Company's Board of Directors, which will review such dividend policy from time to time. The Company's credit facility with various banks (the "Credit Facility") currently contains a covenant prohibiting the Company from paying a cash dividend. See Note 7 of Notes to the Company's Consolidated Financial Statements. As of January 3, 2000, there were approximately 308 holders of record of the Common Stock. On January 3, 2000, the last sale price reported on the New York Stock Exchange for the Company's Common Stock was $47.50 per share. Under the Company's Outside Directors Compensation Plan of 1998 (the "Outside Directors Plan"), the non-employee directors ("Non-Employee Directors") of the Company receive payment of an annual fee in the form of restricted Common Stock of the Company. Non-Employee Directors may elect to defer receipt of any such payment. Shares issued and deferred under this plan during fiscal 1999 were as follows:
FAIR MARKET FAIR MARKET NUMBER NUMBER NET VALUE PER VALUE OF OF SHARES OF SHARES SHARES SHARE AT SHARES ISSUE DATE ISSUED DEFERRED RECEIVED ISSUE DATE ISSUED ---------- --------- --------- -------- ----------- ----------- March 1999........................... 2,289 654 1,635 $30.56 $ 69,952 September 1999....................... 1,452 484 968 41.31 59,982 ----- ----- ----- -------- 3,741 1,138 2,603 $129,934 ===== ===== ===== ========
Each of the shares of Common Stock of the Company referenced above was issued by the Company in reliance on the exemption from registration provided by Section 4(2) of the Securities Act for an offering to a small number of knowledgeable persons. 11 13 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected consolidated financial data for Hadco and subsidiaries. The selected consolidated financial data for each of the years ended October 28, 1995, October 26, 1996, October 25, 1997, October 31, 1998 and October 30, 1999 have been derived from the Company's audited Consolidated Financial Statements. The selected consolidated financial data should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto appearing elsewhere in this Annual Report on Form 10-K and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
FISCAL YEAR ENDED --------------------------------------------------------------- OCT. 28, OCT. 26, OCT. 25, OCT. 31, OCT. 30, 1995 1996 1997(1) 1998(2) 1999 -------- ----------- ----------- ----------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENTS OF OPERATIONS: Net sales............................... $265,168 $350,685 $648,705 $826,359 $1,005,970 Gross profit............................ 67,440 90,455 141,392 123,690 156,870 Restructuring and other non-recurring charges............................... -- -- -- 7,053 -- Amortization of goodwill and acquired intangible assets..................... -- -- 5,215 9,750 12,226 Write-off of acquired in-process research and development.............. -- -- 78,000 63,050 -- Income (loss) from operations........... 33,906 51,532 (1,194) (28,040) 65,966 Net income (loss)....................... $ 21,374 $ 32,014 $(36,493) $(54,110) $ 21,964 Net income (loss) per share: Basic................................. $ 2.18 $ 3.12 $ (3.18) $ (4.09) $ 1.62 Diluted............................... $ 1.98 $ 2.89 $ (3.18) $ (4.09) $ 1.60 Weighted average shares outstanding: Basic................................. 9,805 10,245 11,458 13,216 13,533 Diluted............................... 10,806 11,084 11,458 13,216 13,751
AS OF ---------------------------------------------------- OCT. 28, OCT. 26, OCT. 25, OCT. 31, OCT. 30, 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Working capital.......................... $ 41,043 $ 43,561 $ 53,693 $ 91,830 $ 47,781 Total assets............................. 162,991 219,501 502,517 743,825 724,823 Long-term debt and capital lease obligations............................ 2,387 1,515 109,716 354,291 278,309 Stockholders' investment................. 100,774 138,841 239,912 191,549 219,009
- --------------- (1) Net loss for the year ended October 25, 1997 includes a non-recurring write-off of $78.0 million relating to the Zycon Acquisition for acquired in-process research and development. Excluding the non-recurring write-off, income from operations was $76.8 million, net income was $41.5 million and diluted net income per share was $3.48 (based on weighted average shares outstanding of approximately 11,942,000). (2) Net loss for the year ended October 31, 1998 includes restructuring and other non-recurring charges amounting to $7.1 million pre-tax, and $4.2 million after tax, and a non-recurring write-off of $63.0 million, pre-tax and after tax, relating to the Continental Acquisition for acquired in-process research and development. Excluding the non-recurring write-offs, income from operations was $42.1 million, net income was $13.2 million and diluted net income per share was $0.97 (based on weighted average shares outstanding of approximately 13,537,000). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements which involve risks and uncertainties. Hadco makes such forward-looking statements under the provision of the "Safe Harbor" section of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements should be considered in light of the factors described below in this Item 7 under "Factors That May Affect Future Results." Actual results may vary materially from those projected, anticipated or indicated in any forward-looking statements. In this Item 7, the words "anticipates," "believes," "expects," "intends," "future," "could," and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements. 12 14 ACQUISITIONS On January 10, 1997, the Company acquired all of the outstanding capital stock of Zycon. The acquisition added facilities for volume production of multilayer printed circuits and backplane and system assemblies in the Silicon Valley area, a quick-turn prototype and design facility in Massachusetts, and a newly constructed facility for volume production of printed circuits in Malaysia. Hadco acquired Zycon for approximately $212 million (including acquisition costs) and recorded the acquisition under the purchase method of accounting. As a result, a purchase price premium of approximately $182 million was recorded on the transaction. A significant portion of the purchase price was identified in an independent appraisal, using proven valuation procedures and techniques, as intangible assets. These intangible assets included approximately $78 million for acquired in-process research and development ("in-process R&D") for projects that did not have future alternative uses. This allocation represents the estimated fair market value based on risk-adjusted cash flows related to the in-process R&D projects. At the date of acquisition, the development of these projects had not yet reached technological feasibility, and the in-process R&D had no alternative future uses. Accordingly, these costs were written off in the fiscal quarter ended January 25, 1997. The remaining premium of approximately $104 million was allocated to identifiable intangibles and goodwill, and is being written off over 12 to 30 years, with an average amortization period of 17 years. The acquisition was financed with borrowings under the Credit Facility, plus existing cash and equivalents. On March 20, 1998, the Company acquired all of the outstanding capital stock of Continental, further broadening Hadco's product and service capabilities. The acquisition added a facility for volume production of multilayer printed circuits in Phoenix, Arizona, a quick-turn prototype facility in Austin, Texas, a flexible printed circuit facility in California (which was sold on April 30, 1999) and printed circuit engineering and design sites in California, Texas and Colorado. Hadco acquired Continental for approximately $190 million (including acquisition costs) and recorded the acquisition under the purchase method of accounting. As a result, a purchase price premium of $165 million was recorded on the transaction. A significant portion of the purchase price was identified in an independent appraisal, using proven valuation procedures and techniques, as intangible assets. These intangible assets included approximately $63 million for in-process R&D for projects that did not have future alternative uses. This allocation represents the estimated fair market value based on risk-adjusted cash flows related to the in-process R&D projects. At the date of acquisition, the development of these projects had not yet reached technological feasibility, and the in-process R&D had no alternative future uses. Accordingly, these costs were written off in the fiscal quarter ended May 2, 1998. The remaining premium of $101.9 million was allocated to identifiable intangibles and goodwill, and is being written off over 12 to 20 years, with an average amortization period of 17 years. The acquisition was financed from borrowings under the Credit Facility. RESULTS OF OPERATIONS The following table sets forth certain Consolidated Statements of Operations data and other data as a percentage of net sales. The table and the discussion below should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto that appear elsewhere in this Annual Report on Form 10-K.
FISCAL YEAR ENDED ---------------------------------- OCT. 25, OCT. 31, OCT. 30, 1997(1) 1998(2) 1999 -------- -------- -------- CONSOLIDATED STATEMENTS OF OPERATIONS: Net sales................................................... 100.0% 100.0% 100.0% Cost of sales............................................... 78.2 85.0 84.4 ----- ----- ----- Gross profit................................................ 21.8 15.0 15.6 Operating expenses.......................................... 9.2 8.7 7.8 Amortization of goodwill and acquired intangible assets..... 0.8 1.2 1.2 Restructuring and other non-recurring charges............... -- 0.9 -- Write-off of acquired in-process research and development... 12.0 7.6 -- ----- ----- ----- Income (loss) from operations............................... (0.2) (3.4) 6.6
13 15
FISCAL YEAR ENDED ---------------------------------- OCT. 25, OCT. 31, OCT. 30, 1997(1) 1998(2) 1999 -------- -------- -------- Interest income (expense) and other, net.................... (1.2) (2.4) (3.0) ----- ----- ----- Income (loss) before provision for income taxes............. (1.4) (5.8) 3.6 Provision for income taxes.................................. 4.2 0.7 1.4 ----- ----- ----- Net income (loss)........................................... (5.6)% (6.5)% 2.2% ===== ===== =====
- --------------- (1) Net loss for the year ended October 25, 1997 includes a non-recurring write-off relating to the Zycon Acquisition for acquired in-process research and development. As a percentage of net sales, income from operations was 11.8%, income before provision for income taxes was 10.7%, and net income was 6.4%, all before deducting the non-recurring write-off. (2) Net loss for the year ended October 31, 1998 includes a non-recurring write-off relating to the Continental Acquisition for acquired in-process research and development and for restructuring and other non-recurring expenses. As a percentage of net sales for the year ended October 31, 1998, income from operations was 5.1%, income before provision for income taxes was 2.6%, and net income was 1.6%, all before deducting the non-recurring write-off and restructuring charges. Fiscal Years Ended October 30, 1999 and October 31, 1998 Net sales for fiscal 1999 increased 21.7%, or $179.6 million over net sales for fiscal 1998. The increase resulted from several factors including a full year of sales from the Continental Acquisition, which added $71.7 million to printed circuit net sales. Excluding the Continental Acquisition, printed circuit net sales increased $60.0 million in fiscal 1999 due to higher unit shipments and a shift in mix towards higher priced printed circuits with more layers and greater densities. This increase was partially offset by a 3.7% decline in average pricing for printed circuits. Backplane and system assembly net sales increased $47.9 million to $178.5 million. Backplane and system assembly net sales increased due to higher production volumes and shipments. The gross profit margin increased to 15.6% for fiscal 1999 from 15.0% in fiscal 1998. Improved capacity utilization from both printed circuit and assembly operations caused gross margins to increase 3.4 percentage points, and improved production efficiencies in printed circuit operations caused gross margins to increase by 0.3 percentage points. These increases in gross margin were offset by lower pricing on printed circuits, which decreased gross margins by 2.7 percentage points, and a shift in mix in assembly operations to products with higher material content which caused gross margins to decrease by 0.4 percentage points. Operating expenses increased by $9.3 million for fiscal 1999 over fiscal 1998. The increase was due to a full year of amortization of goodwill and purchased intangibles from the Continental Acquisition, and higher selling expenses from expanded sales coverage. Operating expenses as a percent of net sales decreased to 9.0% for fiscal 1999 versus 9.9% for fiscal 1998 due to increased net sales and the relatively fixed nature of the Company's operating expenses. Income from operations for the year ended October 30, 1999 increased by $94.0 million over fiscal 1998. However, fiscal 1998 income from operations was reduced by $63.0 million due to a non-recurring write-off of acquired in-process research and development recorded in connection with the Continental Acquisition. In addition, income from operations for the year ended October 31, 1998 was reduced by approximately $7.1 million for restructuring and other non-recurring charges related to the consolidation of the Company's East Coast Tech Center operations and a limited restructuring of the Company's workforce. Excluding the non-recurring write-off and restructuring charges during fiscal 1998, income from operations increased as a percent of net sales to 6.6% for the year ended October 30, 1999 from 5.1% in fiscal 1998. The increase resulted primarily from the same factors affecting gross profit margins plus increased leverage of operating expenses. 14 16 Interest income decreased for the year ended October 30, 1999 as compared to the prior fiscal year due to lower average cash balances available for investing. Interest expense increased in the year ended October 30, 1999 as compared to the year ended October 31, 1998 due to a full year of interest expense on outstanding debt to finance the Continental Acquisition. The Company includes in operating expenses charges for actual expenditures and accruals, based on estimates, for environmental matters. To the extent and in amounts Hadco believes circumstances warrant, it will continue to accrue and charge to operating expenses cost estimates relating to known environmental matters. See Item 1, "Business -- Environmental Matters" and Item 3, "Legal Proceedings and Claims." The Company's effective annual income tax rate for 1998 and 1999 was 39.75%. The provision for income taxes is calculated on income before provision for taxes without taking into account the write-off of acquired in-process R&D of $63.0 million. Income before the provision for income taxes excluding the write-off would have been $14.8 million for 1998. The effective rate for both years is approximately equal to the combined federal and state statutory rates. The effective rate was increased by amortization of goodwill, which is not tax deductible, and was offset by the tax benefit of the Company's foreign sales corporation and various state investment tax credits. Fiscal Years Ended October 31, 1998 and October 25, 1997 Net sales for fiscal 1998 increased 27.4%, or $177.7 million, over net sales for fiscal 1997. The increase resulted from several factors including the Continental Acquisition, which added $80.4 million to printed circuit net sales. Excluding the Continental Acquisition, printed circuit net sales increased $36.6 million, due to higher production volume and shipments as well as the shift towards printed circuits with more layers and greater densities. This increase in printed circuit net sales was partially offset by a 10.3% decrease in average pricing. Backplane and system assembly net sales increased $60.7 million to $130.6 million. Backplane and system assembly net sales increased due to higher production volume and shipments. The gross profit margin decreased to 15.0% in 1998 from 21.8% in 1997. Lower pricing on printed circuits caused margins to decrease by 5.8 percentage points. Lower capacity utilization from printed circuit operations caused margins to decrease by 1.7 percentage points. The effect of lower overall gross margins from Hadco Santa Clara and Hadco Phoenix operations caused margins to decrease by 2.0 percentage points. All of these decreases were partially offset by lower unit costs achieved through improved production efficiencies resulting in an overall decrease in the gross margin of 6.8 percentage points. Operating expenses, as a percent of net sales, decreased slightly to 9.9% in fiscal 1998 from 10.0% in fiscal 1997. This decrease was partially offset by goodwill and purchased intangibles amortization of $9.7 million in fiscal 1998 as compared to $5.2 million in 1997. For additional information regarding the factors affecting gross and operating margins, please see "Factors That May Affect Future Results -- Risks Relating to Fluctuations in Quarterly Operating Results," "Factors That May Affect Future Results -- Dependence on Electronics Industry" and "Factors That May Affect Future Results -- Risks Relating to the Acquisitions and the Company's Acquisition Strategy." Income from operations for 1998 and 1997 was reduced by $63.0 million and $78.0 million, respectively, due to non-recurring write-offs of acquired in-process R&D recorded in connection with the Acquisitions. The remaining goodwill and purchased intangibles are being amortized over 12 to 30 years, with an average amortization period of 17 years, which will reduce income from operations by approximately $12.2 million per fiscal year. In addition, income from operations for 1998 was reduced by approximately $7.1 million for restructuring and other non-recurring charges related to the consolidation of the Company's East Coast quick-turn prototype operations and limited restructuring of the Company's workforce. The limited restructuring in the third fiscal quarter temporarily reduced the Company's workforce by approximately 3%. Included in the restructuring and other charges is $2.5 million, which represents the write-down of existing assets to their net realizable value, in accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. See Note 15 of Notes to the Company's Consolidated Financial Statements. Additionally, the general economic slowdown in the broad electronics industry, the economic 15 17 situation in Asia, inventory levels in the end user market, customer inventory adjustments and customer product transitions negatively affected net income for fiscal 1998. Interest income decreased in 1998 as compared to 1997, due to lower average daily cash balances available for investing. Interest expense increased in 1998 as compared to 1997, due to an increase in outstanding debt as a result of the Acquisitions. The provision for income taxes is calculated on income before provision for taxes without taking into account the write-off of acquired in-process R&D. This write-off was $63.0 million and $78.0 million for 1998 and 1997, respectively. Income before the provision for income taxes excluding the write-off would have been $14.8 million and $69.2 million for 1998 and 1997, respectively. The Company's effective annual income tax rate for 1998 and 1997 was 39.75% and 40.0%, respectively. The effective rate for both years is approximately equal to the combined federal and state statutory rates. The effective rate was increased by amortization of goodwill, which is not tax deductible, and was offset by the tax benefit of the Company's foreign sales corporation and various state investment tax credits. LIQUIDITY AND CAPITAL RESOURCES Net cash flow from operations for fiscal 1999 was $146.2 million, an increase of $83.3 million from the prior year. This increase resulted from an increase of $22.1 million in earnings before non-cash items, the receipt of $17.5 million in income tax refunds, and improved working capital management. The increased earnings were attributable to higher net sales and increased production efficiencies. Improvements in working capital management include faster collections of accounts receivable, increased turnover of inventory, and extended credit terms with suppliers. Cash used in investing activities in fiscal 1999 was $71.6 million, a decrease of $204.5 million from fiscal 1998. Reduced investing activities combined with increased cash flow from operations resulted in increased cash available to reduce debt incurred to finance the Acquisitions. Debt reductions during fiscal 1999 were $77.8 million. At October 30, 1999, the Company had working capital of $47.8 million and a current ratio of 1.30, as compared to working capital of $91.8 million and a current ratio of 1.71 at October 31, 1998. The decrease in working capital resulted from the collection of $17.5 million in income tax refunds and improvements in working capital management that accelerated the conversion of working capital into cash, which was, in turn, used to reduce debt. Net cash flow from operations for fiscal 1998 was $62.9 million, an increase of $12.3 million from the prior year. This increase resulted from improved working capital management, including faster collection of accounts receivable. This increase was partially offset by a reduction in earnings before non-cash items of $4.6 million. The reduction in earnings was attributable to lower pricing and lower capacity utilization for printed circuit operations, as a result of the slowdown of the electronics industry experienced during fiscal 1998. Cash used in investing activities in fiscal 1998 was $276.0 million, a decrease of $0.7 million from the prior year. Fiscal 1998 investing activities included capital expenditures of $83.5 million and the Continental Acquisition for $192.5 million. These investing activities were financed from cash flow from operations plus a net increase in indebtedness of $200.9 million. The Company seeks to reduce reliance on debt financing and to reduce the costs associated with maintaining its Credit Facility. The Credit Facility commitment was reduced from the lesser of $288.8 million or the Borrowing Base (as defined in the Credit Facility) to the lesser of $198.8 million or the Borrowing Base, on May 14, 1999. As of October 30, 1999, the Company had $75.0 million in outstanding borrowings under the Credit Facility at a weighted average interest rate of 6.31%, with up to a maximum of $123.8 million of the Credit Facility unused and available. For a further discussion of the Credit Facility see Note 7 of Notes to the Company's Consolidated Financial Statements. 16 18 On May 18, 1998, the Company sold $200 million aggregate principal amount of its 9 1/2% Senior Subordinated Notes due 2008 (the "Notes") to certain purchasers. The Notes were sold at a price equal to 99.66% of their principal amount. The net proceeds received by the Company from the issuance and sale of the Notes was used to repay outstanding indebtedness under the Credit Facility previously incurred to, among other things, finance the Acquisitions. On November 12, 1998, the Company consummated an exchange offer pursuant to which the Notes were exchanged for notes (with terms identical in all material respects) that were registered with the Securities and Exchange Commission. For a further discussion of the Notes, see Note 8 to the Company's Consolidated Financial Statements. The Company currently anticipates that its capital expenditures for fiscal 2000 will be between $90 and $100 million. At October 30, 1999, the Company had $10.6 million of future commitments to purchase manufacturing equipment and leasehold improvements. The amount of these anticipated capital expenditures may change based on future changes in business plans and conditions of the Company and changes in economic conditions. The Company believes its current borrowing capacity, coupled with the funds generated from the Company's operations will be sufficient to fund its anticipated working capital, capital expenditure and debt payment requirements through fiscal year 2000. 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 security holders, including the holders of the Notes. 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. YEAR 2000 READINESS DISCLOSURE STATEMENT The Company has completed an internal assessment of its operations to determine the extent to which the Company may be adversely affected by Year 2000 issues. This internal assessment has included both Information Technology (IT) systems and non-IT systems. The critical software systems used by the Company to run its business include MFG/PRO, PeopleSoft, Oracle, and Corsair. The Company believes that none of these applications have date-related processing issues. The Company has experienced and may continue to experience interfacing problems when upgrades are received from the vendors of these software programs. The Company has completed testing of its various IT systems, running programs with dates including and after the Year 2000. During these tests the Company has not experienced problems processing data or effecting transactions. The Company's internal assessment of its manufacturing equipment for Year 2000 compliance was done on a plant-by-plant basis and was completed in May 1999. Thereafter, software upgrades were installed in certain manufacturing systems. The Company has tested the new software and has not encountered date-related processing issues. There can be no assurance, however, that the Company's testing of its various IT systems and manufacturing equipment and software was sufficient to discover all Year 2000 issues. Year 2000 issues not discovered by the Company could have a material adverse effect on the Company's business, results of operation and financial condition. In fiscal 1999, the Company developed business continuity/contingency plans for all facilities. Such plans cover Year 2000 issues and potential disruptions. There can be no assurance that the implementation of business continuity/contingency plans developed by the Company will result in alleviation or remediation of any business interruption or disruption that the Company may experience. The Company has surveyed most of its suppliers, including all of its active suppliers, to determine their Year 2000 compliance status. The Company has worked with its key suppliers to obtain more detailed information about their compliance status, and has performed on-site assessment of certain critical suppliers. The Company has also completed contingency plans for addressing potential supply disruptions. There can be 17 19 no assurance that the Company will not experience disruption in its supply chain, or that its contingency plans will alleviate or remedy any disruption experienced. To date, approximately 29,400 hours of employee time have been devoted to Year 2000 issues and approximately $5.8 million has been expended in systems upgrades directly relating to Year 2000. The source of these funds has been the working capital of the Company. Present estimates for further expenditures of both employee time and expenses to address Year 2000 matters, which include but are not limited to year-end coverage and equipment upgrades, are between 1,000 and 1,500 hours and between $75,000 and $100,000. There can be no assurance that the Company's costs relating to its Year 2000 compliance will not be greater than that currently expected. A software or system Year 2000 compliance failure, with respect to the Company's internal systems, software and equipment or that of third party service providers, major customers or suppliers, could prevent the Company from fulfilling customer orders. Any such failure, if not quickly remedied, would have a material adverse effect on the Company's business, results of operations, and financial condition. The lost revenues that would result from the Company's inability to operate even one of its major volume manufacturing plants for any significant period of time would have a material adverse effect on the Company. The Company could face an even greater risk of significant damages if the Company were to be found responsible for the shutdown of one of its customers' facilities. This could occur if the Company was unable to supply parts integral to the end products manufactured by the Company's customer. In such circumstances, the legal liability of the Company could have a material adverse effect on the Company's business, results of operations, and financial condition. NEW ACCOUNTING STANDARDS In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133, which defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires entities to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company does not anticipate the adoption of these Statements will have a material impact on its financial position or results of operations. FACTORS THAT MAY AFFECT FUTURE RESULTS This Annual Report on Form 10-K contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, without limitation, those set forth in the following risk factors and elsewhere in this Annual Report on Form 10-K. In addition to the other information included or incorporated by reference in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating the Company and its business. Dependence on Electronics Industry The Company's principal customers are EMS providers and OEMs 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 18 20 would likely result in intensified price competition, reduced gross margins and a decrease in unit volume, all of which would have a material adverse effect on the Company's business, financial condition and results of operations. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Item 1, "Business -- Markets and Customers." Risks Relating to Fluctuations in Quarterly Operating Results The Company's quarterly operating results have varied and may continue to fluctuate significantly from period to period, including on a quarterly basis. 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 and shipments relative to the Company's manufacturing capacity, product and price competition, product mix, number of working days in a particular quarter, manufacturing process yields, the timing of expenditures in anticipation of future sales, timing of customer requests for delivery from consignment stocks, raw material and component availability, the length of sales cycles, trends in the electronics industry and general economic factors. In recent years, the Company's gross margins have varied primarily as a result of pricing, 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 will maintain or improve gross margins. 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. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Risks Relating to Variability of Orders from Customers; Backlog 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 variations in demand for customer products due to, among other things, technological changes, 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 sales are currently made through consignment stocking programs which afford the Company's customers greater flexibility on timing of delivery of product. The Company may experience sudden drops in shipment of product from consignment stock and a corresponding decline in current revenues. 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 deliveries from consignment stocks or in orders by a customer or group of customers could materially adversely affect the Company's business, financial condition and results of operations. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 1, "Business -- Released Backlog." Competition The electronic interconnect industry is highly fragmented and characterized by intense competition. The Company believes its major competitors are the large U.S. and international independent producers that manufacture multilayer printed circuits and provide backplane and other electronic system assemblies. Some of these competitors have significantly greater financial, technical and marketing resources, greater name 19 21 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, EMS providers and OEMs are able to negotiate lower prices, which could have a material adverse effect on the Company. In addition, the Company believes that price competition from printed circuit manufacturers in Asia and other locations with lower production costs plays a significant role in the printed circuit markets in which the Company competes. The price competition from Asian printed circuit manufacturers may intensify from time to time as a result of economic turmoil, currency devaluations or financial market instability in Asian economies. Moreover the Company's basic interconnect technology is generally not subject to significant proprietary protection, and companies with significant resources or international operations may enter the market. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations. The demand for printed circuits has continued to be affected by the development of smaller, more powerful electronic components requiring less printed circuit area. Expansion of the Company's existing products or services could expose the Company to new competition. Moreover, new developments in the electronics industry could render existing technology obsolete or less competitive and could potentially introduce new competition into the industry. There can be no assurance that the Company will continue to compete successfully against present and future competitors or that competitive pressures faced by the Company will not have a material adverse effect on the Company's business, financial condition and results of operations. See Item 1, "Business -- Competition." Risks Relating to the Acquisitions and the Company's Acquisition Strategy 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 its acquired businesses profitably in the future. The Company expects that its gross profit margin may be lower in future fiscal quarters than has historically been the case due, in part, to the Acquisitions. Operating expenses associated with the acquired businesses may have a material adverse effect on the Company's business, financial condition and results of operations in the future. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 1, "Business -- General." The Company may from time to time pursue the acquisition of other companies, assets, products or technologies. The Company may incur additional indebtedness and additional charges against earnings in connection with future acquisitions. Acquisitions involve a number of operating risks that could materially adversely affect the Company's operating results, including the diversion of management's attention to assimilate the operations, products and personnel of the acquired companies, the amortization of acquired intangible assets, and the potential loss of key employees of the acquired companies. Furthermore, acquisitions may involve businesses in which the Company lacks experience. There can be no assurance that the Company will be able to manage one or more acquisitions successfully, or that the Company will be able to integrate the operations, products or personnel gained through any such acquisitions without a material adverse effect on the Company's business, financial condition and results of operations. Risks of Inability to Manage Significant Growth In recent years, the Company significantly expanded its operations, including geographically, which placed, and will continue to place, significant demands on the Company's management, operational, technical and financial resources. The Acquisitions have intensified these demands. The Company expects that expansion will require additional management personnel and the development of further expertise by existing management and supervisory personnel, in order to train, motivate and manage its employees. The Company's ability to manage growth effectively, particularly given the increasing scope of its operations, will require it to 20 22 continue to implement and improve its operational, financial and management information systems. The Company's failure to effectively manage future growth could have a material adverse effect on the Company's business, financial condition and results of operations. See "Factors That May Affect Future Results -- Risks Relating to the Acquisitions and the Company's Acquisition Strategy" and "Factors That May Affect Future Results -- Dependence on Key Personnel." Risks Relating to Operation of Malaysian Facility and Asian Economic Turmoil Hadco Santa Clara completed construction of a volume manufacturing facility for printed circuits in Malaysia in fiscal 1997. Hadco's management has limited experience in operating foreign manufacturing facilities, and there can be no assurance that the Company will operate the facility on a profitable basis. 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. In recent years, Malaysia and other Asian countries have experienced economic turmoil and a significant devaluation of their local currencies. There can be no assurance that this period of Asian economic turmoil will not result in increased price competition, reduced sales by the Company's customers in Asia with a concomitant reduction in such customers' orders for the Company's products, restrictions on the transfer of funds overseas, employee turnover, labor unrest, the reversal of current policies encouraging foreign investment and trade, or other domestic Asian economic problems that could materially adversely affect the Company's business, financial condition and results of operations. Rapid Technological Change, Continuing Process Development and Potential 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 in the future could 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, and there can be no assurance that failures or disruptions will not occur in the future. In addition, the Company has a large manufacturing facility in Santa Clara, California, an area of the United States that is subject to significant natural disasters, including earthquakes, fires and flooding. 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 in California or other locations where the Company has facilities could have a material adverse effect on the Company's business, financial condition and results of operations. See Item 1, "Business -- Products and Services" and Item 2, "Manufacturing and Facilities." 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 1997, 1998 and 1999, the Company's ten largest customers accounted for approximately 47%, 51% and 56% of net sales, respectively. In fiscal 1998 and 1999, Solectron accounted for approximately 17% and 15% of the net sales of the Company. The 21 23 Company has one customer that accounted for approximately 13% and 11% of consolidated accounts receivable at October 31, 1998 and October 30, 1999, respectively. Another customer accounted for 10% of consolidated accounts receivable at October 30, 1999. The Company generally does not obtain long-term purchase orders or commitments from its customers, and the orders received by the Company generally require delivery within 90 days. Given the Company's strategy of developing long-term purchasing relationships with high growth companies, the Company's dependence on a number of its most significant customers may increase. There can be no assurance that the Company will be able to identify, attract and retain customers with high growth rates or that the customers that it does attract and retain will continue to grow. Although there can be no assurance that the Company's principal customers will continue to purchase products and services from the Company at current levels, the Company expects to continue to depend upon its principal customers for a significant portion of its net sales. The loss of or decrease in orders from one or more major customers or the inability or refusal of such customer to pay for such orders could have a material adverse effect on the Company's business, financial condition and results of operations. See Item 1, "Business -- Markets and Customers" and "Factors That May Affect Future Results -- Risks Relating to Variability of Orders from Customers; Backlog." 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. Although the Company has historically needed to increase its manufacturing capacity, the Company believes that excess capacity may exist in the printed circuit industry. In addition, growth rates in the electronics industry as a whole have fluctuated historically. These factors could have a material adverse effect on future orders and pricing. 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 when needed 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. See "Factors That May Affect Future Results -- Rapid Technological Change, Continuing Process Development and Potential Process Disruption" and Item 2, "Manufacturing and Facilities." 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, permitting requirements or processes, 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 22 24 not have a material adverse effect on the Company's business, financial condition and results of operations. See Item 1, "Business -- Environmental Matters," Item 3, "Legal Proceedings and Claims" and Note 9 of Notes to the Company's Consolidated Financial Statements. Risks of Inability to Obtain Raw Materials and Components Although the Company does not have guaranteed sources of raw materials, production services and components utilized in its operations, it does have supply agreements with a limited number of key suppliers, and it routinely purchases raw materials, services and components from several material suppliers. Although alternative material and services suppliers are currently available, a significant unplanned event at a major supplier could have a material adverse effect on the Company's operations. The Company believes that the potential exists for shortages of materials and services in the printed circuit and electronic assembly industries, which could have a material adverse effect on the Company's manufacturing operations and future unit costs. Product changes and the overall demand for electronic interconnect products could increase the industry's use of new laminate materials, multilayer blanks, laser drilling, mechanical drilling, non-standard surface finishes, electronic components and other materials and services, and therefore such materials and services may not be readily available to the Company in the future. Electronic components used by the Company in producing backplane and system 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 and system assembly business, thereby materially adversely affecting the Company's business, financial condition and results of operations. See Item 1, "Business -- Supplier Relationships." Dependence on Key Personnel The Company's future success depends to a large extent upon the continued services of key managerial and technical employees. Most of the executive officers of the Company are bound by employment or non-compete agreements. The non-compete restrictions expire one year or, under certain circumstances, up to two years, after the termination of the executive officer's employment with the Company. Certain other key employees of the Company also have employment or non-compete agreements. 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. Investments in Intellectual Property; Intellectual Property Protection The Company's success depends in part on its proprietary techniques and manufacturing expertise, particularly in the area of dense multilayer printed circuits. As of October 30, 1999, the Company had capitalized approximately $179.3 million of acquired intangible assets, consisting primarily of developed technology, customer relationships and goodwill. These intangible assets are being amortized over lives ranging from 12 to 30 years. The Company assesses the realizability and valuation of intangible assets based on the estimated cash flows to be generated by such assets. Based on its most recent analyses, the Company believes that no material impairment of intangible assets exists as of October 30, 1999. Impairment occurs when actual cash flows generated do not equal or exceed estimated cash flows. The estimated cash flows are based on assumptions the Company believes to be reasonable, but which are inherently uncertain and unpredictable. The Company's assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual cash flows may vary from the projected cash flows. In such event, the Company may be required to write-off or write-down the value of assets which are impaired. Any such write-off or write-down may result in a material adverse effect on the 23 25 financial condition and results of operations of the Company. See Notes 2 and 5 of Notes to the Company's Consolidated Financial Statements. 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. See Item 1, "Business Product Protection." Anti-Takeover Provisions The Company's Stockholder Rights Plan and certain provisions of the Company's Restated Articles of Organization and By-Laws and of Massachusetts Law, including Massachusetts General Laws Chapter 110D, entitled "Regulation of Control Share Acquisitions" and Chapter 110F, the so-called Business Combination Statute, could discourage potential acquisition proposals and could delay or prevent a change in control or sale of the Company. Each and all of the above provisions and statutes could diminish the opportunities for a stockholder to participate in tender offers, including tender offers at a price above the then current market value of Common Stock and may render more difficult or discourage a merger, consolidation or tender offer (even if such transaction is supported by the Company's Board of Directors or is favorable to the stockholders), the assumption of control by a holder of a large block of the Company's shares, and the removal of incumbent management. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments. SFAS No. 107 requires disclosure about fair value of financial instruments. Financial instruments consist of cash equivalents, accounts receivable, accounts payable and long-term debt obligations. The fair value of these financial instruments approximates their carrying amount, except for the 9 1/2% Senior Subordinated Notes (the Notes) at October 30, 1999. The fair market value of the Notes was $191 million with a carrying amount of $199.4 million at October 30, 1999. Although the fair market value of the Notes is less than the carrying amount, settlement at the reported fair value is not possible due to cost-prohibitive redemption premiums. Primary Market Risk Exposures. The Company's primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. The Company incurs interest expense on loans made under the Credit Facility at interest rates which are fixed for a maximum of six months. At October 30, 1999, the Company's outstanding borrowings under the Credit Facility were $75.0 million, at a weighted average interest rate of 6.31%. This interest rate is a combination of three Eurodollar rate loans. The interest rates on the three Eurodollar rate loans will expire during the first quarter of fiscal 2000, at which time the Company may fix these rates for periods of one, two, three or six months. The Eurodollar Rate is subject to market risks and will fluctuate. Substantially all of the Company's business outside the United States is conducted in U.S. dollar denominated transactions. The Company does operate a volume manufacturing facility in Malaysia. Some of the expenses of this facility are denominated in Malaysian ringgits. Expenses denominated in ringgits include local salaries and wages, utilities and some operating supplies. The Company also funds a small sales office in Ireland, where expenses are paid in British Pounds, Irish Punts and Eurodollars. However, the Company believes that these operating expenses will not have a material adverse effect on the Company's business, results of operations or financial condition. 24 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements and the Report of Independent Public Accountants thereon are presented in the following pages. The Consolidated Financial Statements filed in Item 8 are as follows:
PAGE ---- Report of Independent Public Accountants.................... 25 Consolidated Balance Sheets as of October 31, 1998 and October 30, 1999.......................................... 26 Consolidated Statements of Operations for the years ended October 25, 1997, October 31, 1998 and October 30, 1999... 27 Consolidated Statements of Stockholders' Investment for the years ended October 25, 1997, October 31, 1998 and October 30, 1999.................................................. 28 Consolidated Statements of Cash Flows for the years ended October 25, 1997, October 31, 1998 and October 30, 1999... 29 Notes to Consolidated Financial Statements.................. 30
25 27 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 31, 1998 and October 30, 1999, and the related consolidated statements of operations, stockholders' investment and cash flows for each of the three years in the period ended October 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hadco Corporation and subsidiaries as of October 31, 1998 and October 30, 1999, and the results of their operations and their cash flows for each of the three years in the period ended October 30, 1999, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein, in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts November 18, 1999 26 28 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, OCTOBER 30, 1998 1999 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents.............................. $ 7,169 $ 9,078 Accounts receivable, net of allowance of $2,129 in 1998 and $1,478 in 1999.................................... 111,094 116,580 Inventories............................................ 67,017 63,926 Deferred tax asset..................................... 17,156 11,480 Prepaid expenses and other current assets.............. 18,666 7,688 -------- -------- Total current assets.............................. 221,102 208,752 Property, Plant and Equipment, net.......................... 322,887 328,181 Acquired Intangible Assets, net............................. 191,421 179,319 Other Assets................................................ 8,415 8,571 -------- -------- $743,825 $724,823 ======== ======== LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Current portion of long-term debt...................... $ 4,377 $ 2,515 Accounts payable....................................... 79,350 100,100 Accrued payroll and other employee benefits............ 26,529 36,419 Other accrued expenses................................. 19,016 21,937 -------- -------- Total current liabilities......................... 129,272 160,971 -------- -------- Long-Term Debt, net of current portion...................... 354,291 278,309 -------- -------- Deferred Tax Liability...................................... 59,521 57,342 -------- -------- Other Long-Term Liabilities................................. 9,192 9,192 -------- -------- Commitments and Contingencies (Note 9) Stockholders' Investment: Common stock, $.05 par value; Authorized -- 50,000 shares Issued and outstanding -- 13,366 in 1998 and 13,631 in 1999.................................................. 669 683 Paid-in capital............................................. 173,906 179,528 Deferred compensation....................................... (44) (184) Retained earnings........................................... 17,018 38,982 -------- -------- Total stockholders' investment.................... 191,549 219,009 -------- -------- $743,825 $724,823 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 27 29 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED ----------------------------------------- OCTOBER 25, OCTOBER 31, OCTOBER 30, 1997 1998 1999 ----------- ----------- ----------- Net Sales................................................ $648,705 $826,359 $1,005,970 Cost of Sales............................................ 507,313 702,669 849,100 -------- -------- ---------- Gross Profit............................................. 141,392 123,690 156,870 Operating Expenses....................................... 59,371 71,877 78,678 Restructuring and Other Non-Recurring Charges (Note 15).................................................... -- 7,053 -- Amortization of Goodwill and Acquired Intangible Assets................................................. 5,215 9,750 12,226 Write-off of Acquired In-Process Research and Development (Note 2)............................................... 78,000 63,050 -- -------- -------- ---------- Income (Loss) from Operations............................ (1,194) (28,040) 65,966 Interest and Other Income, net........................... 3,296 2,295 1,384 Interest Expense......................................... (10,923) (22,468) (30,895) -------- -------- ---------- Income (Loss) Before Provision for Income Taxes.......... (8,821) (48,213) 36,455 Provision for Income Taxes............................... 27,672 5,897 14,491 -------- -------- ---------- Net Income (Loss)........................................ $(36,493) $(54,110) $ 21,964 ======== ======== ========== Net Income (Loss) per Share: Basic............................................... $ (3.18) $ (4.09) $ 1.62 ======== ======== ========== Diluted............................................. $ (3.18) $ (4.09) $ 1.60 ======== ======== ========== Weighted Average Shares Outstanding: Basic............................................... 11,458 13,216 13,533 ======== ======== ========== Diluted............................................. 11,458 13,216 13,751 ======== ======== ==========
The accompanying notes are an integral part of these consolidated financial statements. 28 30 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT (IN THOUSANDS)
COMMON STOCK -------------------- NUMBER OF $.05 PAR PAID-IN DEFERRED RETAINED SHARES VALUE CAPITAL COMPENSATION EARNINGS --------- -------- -------- ------------ -------- Balance, October 26, 1996................ 10,382 $521 $ 30,939 $(240) $107,621 Terminated stock options............... -- -- (2) 2 -- Exercise of stock options.............. 263 12 1,291 -- -- Sale of common stock, net of offering costs of $1,033..................... 2,441 122 130,966 -- -- Compensation expense associated with granting nonqualified stock options............................. -- -- -- 121 -- Tax benefit of exercise of nonqualified stock options....................... -- -- 5,052 -- -- Net loss............................... -- -- -- -- (36,493) ------ ---- -------- ----- -------- Balance, October 25, 1997................ 13,086 655 168,246 (117) 71,128 Exercise of stock options.............. 179 9 1,073 -- -- Sale of common stock................... 40 2 1,478 -- -- Proceeds from employee stock purchase plan................................ 61 3 1,110 -- -- Compensation expense associated with granting nonqualified stock options............................. -- -- -- 73 -- Tax benefit of exercise of nonqualified stock options....................... -- -- 1,999 -- -- Net loss............................... -- -- -- -- (54,110) ------ ---- -------- ----- -------- Balance, October 31, 1998................ 13,366 669 173,906 (44) 17,018 Exercise of stock options.............. 117 6 614 -- -- Proceeds from employee stock purchase plan................................ 136 7 3,251 -- -- Director and executive officer stock grants.............................. 12 1 540 (276) -- Compensation expense associated with granting nonqualified stock options............................. -- -- -- 136 -- Tax benefit of exercise of nonqualified stock options....................... -- -- 1,217 -- -- Net income............................. -- -- -- -- 21,964 ------ ---- -------- ----- -------- Balance, October 30, 1999................ 13,631 $683 $179,528 $(184) $ 38,982 ====== ==== ======== ===== ========
The accompanying notes are an integral part of these consolidated financial statements. 29 31 HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED ----------------------------------------- OCTOBER 25, OCTOBER 31, OCTOBER 30, 1997 1998 1999 ----------- ----------- ----------- Cash Flows from Operating Activities: Net income (loss)......................................... $(36,493) $(54,110) $ 21,964 Adjustments to reconcile net income (loss) to net cash provided by operating activities -- Write-off of acquired in-process research and development........................................... 78,000 63,050 -- Depreciation and amortization.......................... 41,845 67,164 77,934 Deferred compensation and deferred taxes............... (873) (1,955) (2,043) Director and executive officer stock grants............ -- -- 265 Loss (Gain) on disposal of fixed assets................ (1,862) 1,840 (51) Changes in assets and liabilities, net of acquisitions in 1997 and 1998 -- Increase in accounts receivable........................ (26,762) (2,406) (3,502) Decrease (Increase) in inventories..................... (12,824) (9,488) 2,939 Decrease (Increase) in prepaid expenses and other current assets........................................ 308 1,836 (4,523) Decrease (Increase) in refundable taxes................ 3,296 (8,348) 21,137 Decrease (Increase) in other assets.................... 385 2,811 (1,463) Increase in accounts payable and accrued expenses...... 5,577 2,565 33,561 Increase (Decrease) in long-term liabilities........... 70 (22) -- -------- -------- --------- Net Cash Provided by Operating Activities............ 50,667 62,937 146,218 -------- -------- --------- Cash Flows from Investing Activities: Purchases of property, plant and equipment................ (69,851) (83,508) (71,791) Proceeds from sale of property, plant and equipment....... 2,760 -- 231 Acquisition of Zycon Corporation in 1997 and Continental Circuits Corp. in 1998, net of cash acquired........... (209,661) (192,532) -- -------- -------- --------- Net Cash Used in Investing Activities................ (276,752) (276,040) (71,560) -------- -------- --------- Cash Flows from Financing Activities: Principal payments of long-term debt...................... (164,766) (258,424) (107,144) Net proceeds from issuance of long-term debt.............. 224,954 459,289 29,300 Proceeds from exercise of stock options................... 1,303 1,082 620 Proceeds from employee stock purchase plan................ -- 1,113 3,258 Proceeds from the sale of common stock, net of issuance costs.................................................. 131,088 1,480 -- Tax benefit from exercise of nonqualified stock options... 5,052 1,999 1,217 -------- -------- --------- Net Cash (Used in) Provided by Financing Activities.......................................... 197,631 206,539 (72,749) -------- -------- --------- Net Increase (Decrease) in Cash, Cash Equivalents and Short-Term Investments.................................... (28,454) (6,564) 1,909 Cash, Cash Equivalents and Short-Term Investments, Beginning of Period................................................. 42,187 13,733 7,169 -------- -------- --------- Cash, Cash Equivalents and Short-Term Investments, End of Period.................................................... $ 13,733 $ 7,169 $ 9,078 ======== ======== ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest............................................... $ 10,270 $ 11,520 $ 29,317 ======== ======== ========= Income taxes (net of refunds).......................... $ 21,099 $ 11,786 $ 7,749 ======== ======== ========= Acquisition of Zycon Corporation in 1997 and Continental Circuits Corp. in 1998: Fair value of assets acquired............................. $206,009 $137,623 $ -- Liabilities assumed....................................... (110,503) (66,381) -- Cash paid................................................. (204,885) (186,083) -- Acquisition costs incurred................................ (7,600) (4,073) -- Write-off of acquired in-process research and development............................................ 78,000 63,050 -- -------- -------- --------- Goodwill.................................................. $(38,979) $(55,864) $ -- ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 30 32 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Hadco Corporation (the "Company" or "Hadco") was incorporated in Massachusetts in 1966. Principal products and services of the Company include: PRINTED CIRCUITS: Printed circuits are the basic platform used to interconnect microprocessors, integrated circuits and other components essential to the functioning of electronic systems. The Company provides customers with printed circuit designs and fabricates the printed circuit for the customer. The design and fabricated printed circuits are sold either separately or as a complete package. The majority of printed circuits fabricated by the Company are based on designs provided by the customer. VALUE ADDED MANUFACTURING: Value Added Manufacturing (VAM) consists of backplane and system assemblies. Backplane assemblies are generally larger and thicker printed circuits on which connectors are mounted to receive and interconnect printed circuits, integrated circuits and other electronic components. System assemblies include the backplane, power supply, fan card, cabling and system chassis. 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 and Uncertainties 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. The Company is subject to a number of risks and uncertainties similar to those of other companies of the same size within the electronics industry, including, without limitation, dependence on the electronics industry, variability of customer orders, competition, rapid technological changes, environmental matters and dependence on key individuals. Financial Instruments Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure about fair value of financial instruments. Financial instruments consist of cash equivalents, accounts receivable, accounts payable and long-term debt obligations. The fair value of these financial instruments approximates their carrying amount, except for the 9 1/2% Senior Subordinated Notes (the Notes) at October 30, 1999. The fair market value of the Notes was $191 million with a carrying amount of $199.4 million at October 30, 1999. Although the fair market value of the Notes is less than the carrying amount, settlement at the reported fair value is not possible due to prohibitive redemption premiums. See Note 8 of the Notes to the Consolidated Financial Statements. 31 33 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents The Company considers all highly liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of investments in money market funds and were approximately $5,850,000 and $5,881,000 as of October 31, 1998 and October 30, 1999, respectively. Concentration of Credit Risk SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. As of October 30, 1999, the Company had no significant off-balance-sheet 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, trade accounts receivable and long-term debt obligations. The Company maintains the majority of its cash and cash equivalent 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 recurring losses related to receivables from individual customers or groups of customers in the high technology and electronics industry or by geographic region, although the Company has and may in the future incur a significant loss in a particular reporting period. Due to these factors, no additional credit risk beyond amounts provided for 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 on a straight-line basis over the following estimated useful lives:
ESTIMATED ASSET CLASSIFICATION USEFUL LIFE - -------------------- ----------- Land betterments............................................ 10-18 Years Buildings and improvements.................................. 10-40 Years Machinery and equipment..................................... 3-10 Years Furniture and fixtures...................................... 5-7 Years Computer software........................................... 3 Years Vehicles.................................................... 3-5 Years Capital leases.............................................. Lease term
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 1997, 1998 and 1999, research and development expenses were approximately $6,929,000, $6,111,000 and $5,924,000, respectively, and are included in operating expenses. Net Income (Loss) per Share The Company applies SFAS No. 128, Earnings per Share. Under SFAS No. 128, basic net income (loss) per common share is computed based on net income (loss) available to common stockholders and the weighted average number of common shares outstanding during the period. The diluted net income (loss) per 32 34 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) share is computed including the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. A reconciliation of basic and diluted shares outstanding is as follows:
OCTOBER 25, OCTOBER 31, OCTOBER 30, 1997 1998 1999 ----------- ----------- ----------- (IN THOUSANDS) Basic weighted average shares outstanding............................... 11,458 13,216 13,533 Weighted average common equivalent shares.................................. -- -- 218 ------ ------ ------ Diluted weighted average shares outstanding............................. 11,458 13,216 13,751 ====== ====== ======
Diluted weighted average shares outstanding does not include 1,070,000, 1,308,000 and 655,000 common equivalent shares at October 25, 1997, October 31, 1998 and October 30, 1999, respectively, as their effect would be anti-dilutive. Stock-Based Compensation The Company applies SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 defines a fair-value-based method of accounting for employee stock options and other stock-based compensation. The compensation expense arising from this method of accounting can be reflected in the financial statements or, alternatively, the pro forma net income (loss) and per share amounts effect of the fair-value-based accounting can be disclosed in the financial footnotes. The Company has adopted the disclosure-only alternative. (See Note 10, "Stockholders' Investment.") Foreign Currency Translation The financial statements of the Company's Malaysian and Irish subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency Translation. The functional currency of the Company's Malaysian and Irish subsidiaries is the U.S. dollar. Accordingly, all assets and liabilities of the foreign subsidiaries are translated using the exchange rate at the balance sheet date, except for prepaid expenses, equipment and improvements and stockholders' investment, which are translated at historical rates. Revenues and expenses are translated at historical rates. Translation gains and losses arising from the translations were not material to the financial statements taken as a whole. These gains and losses are included in the consolidated statements of operations, since the functional currency is the U.S. dollar for all operations. Reclassification The Company has reclassified certain prior year information to conform with the current year's presentation. Comprehensive Income (Loss) As of November 1, 1998, Hadco adopted SFAS No. 130, Reporting Comprehensive Income. This Statement established standards for reporting and display of comprehensive income (loss) and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Hadco's comprehensive income (loss) is equal to net income (loss) for all periods presented. 33 35 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) New Accounting Standards In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133, which defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires entities to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company does not anticipate the adoption of these Statements to have a material impact on its financial position or results of operations. (2) ACQUISITIONS On January 10, 1997 the Company acquired all of the outstanding common stock of Zycon Corporation ("Zycon") (the "Zycon Acquisition"), and on March 20, 1998, the Company acquired all of the outstanding common stock of Continental Circuits Corp. ("Continental") (the "Continental Acquisition," and together with the Zycon Acquisition, the "Acquisitions"). These Acquisitions were financed by the Company's unsecured senior revolving credit facility with a group of banks. The Company borrowed approximately $215,000,000 upon consummation of the Zycon Acquisition and approximately $220,000,000 upon consummation of the Continental Acquisition. The Acquisitions were accounted for as purchases in accordance with Accounting Principles Board Opinion (APB) No. 16 and accordingly, Zycon's and Continental's operating results since the respective dates of acquisition are included in the accompanying consolidated financial statements. In accordance with APB Opinion No. 16, the Company allocated the purchase price of the Acquisitions based on the fair value of the assets acquired and liabilities assumed. Significant portions of the purchase price of both were identified in independent appraisals, using proven valuation procedures and techniques, as intangible assets. These intangible assets include approximately $78,000,000 and $63,050,000 for Zycon and Continental, respectively, for acquired in-process research and development ("in-process R&D") for projects that did not have future alternative uses. This allocation represents the estimated fair value based on risk-adjusted cash flows related to the in-process R&D projects. At the date of each acquisition, the development of these projects had not yet reached technological feasibility, and the R&D in progress had no alternative future uses. Accordingly, these costs were expensed as of the respective acquisition date. The aggregate purchase prices of $212,485,000 and $190,156,000, including acquisition costs, for the Zycon Acquisition and Continental Acquisition, respectively, were allocated as follows:
ZYCON CONTINENTAL -------- ----------- (IN THOUSANDS) Current assets........................................ $ 41,790 $ 24,056 Property, plant and equipment......................... 95,193 67,144 Acquired intangibles.................................. 65,500 46,190 In-process R&D........................................ 78,000 63,050 Other assets.......................................... 3,526 233 Goodwill.............................................. 38,979 55,864 Liabilities assumed................................... (110,503) (66,381) -------- -------- $212,485 $190,156 ======== ========
34 36 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Unaudited pro forma operating results for the Company, assuming the Zycon Acquisition occurred on October 27, 1996 and the Continental Acquisition occurred on October 26, 1997, are as follows:
YEAR ENDED -------------------------- OCTOBER 25, OCTOBER 31, 1997 1998 ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales......................................... $837,650 $878,311 Net income........................................ 37,544 1,519 Basic net income per share........................ 3.28 0.11 Diluted net income per share...................... 3.14 0.11
For purposes of these pro forma operating results, the in-process R&D for Zycon and Continental was assumed to have been written off prior to October 27, 1996 and October 26, 1997, respectively, so that the operating results presented include only recurring costs. (3) INVENTORIES Inventories are stated at the lower of cost or market on a first-in, first-out (FIFO) basis, and consist of the following:
1998 1999 ------- ------- (IN THOUSANDS) Raw materials........................................... $25,856 $18,679 Work-in-process and finished goods...................... 41,161 45,247 ------- ------- $67,017 $63,926 ======= =======
The work-in-process consists of materials, labor and manufacturing overhead. (4) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
1998 1999 --------- --------- (IN THOUSANDS) Land betterments.................................... $ 5,562 $ 5,562 Buildings and improvements.......................... 139,164 146,435 Machinery and equipment............................. 447,340 492,318 Furniture and fixtures.............................. 12,439 12,522 Computer software................................... 7,012 9,426 Vehicles............................................ 668 622 Construction-in-progress............................ 21,985 36,667 --------- --------- 634,170 703,552 Accumulated depreciation and amortization........... (311,283) (375,371) --------- --------- $ 322,887 $ 328,181 ========= =========
(5) INTANGIBLE ASSETS The Company assesses the realizability of long-lived and intangible assets in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Under SFAS No. 121, the Company is required to assess the valuation of its long-lived assets, including intangible assets, based on the estimated cash flows to be generated by such assets. Based on its most recent analysis, the Company believes that no material impairment of long-lived and intangible assets exists as of 35 37 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) October 30, 1999. Intangible assets are amortized on a straight-line basis, based on their estimated lives, as follows:
ESTIMATED LIFE OCTOBER 31, 1998 OCTOBER 30, 1999 -------------- ---------------- ---------------- (IN THOUSANDS) Developed technology................... 12 years $ 52,190 $ 52,190 Customer relationships............... 20-25 years 37,000 37,000 Assembled workforce.................. 12-15 years 16,000 16,000 Trade names/trademarks............... 30 years 6,500 6,500 Goodwill............................. 20 years 94,719 94,843 -------- -------- 206,409 206,533 Less -- Accumulated amortization..... (14,988) (27,214) -------- -------- $191,421 $179,319 ======== ========
(6) INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. The provision for income taxes shown in the accompanying consolidated statements of operations is comprised of the following:
YEAR ENDED OCTOBER ---------------------------- 1997 1998 1999 ------- ------ ------- (IN THOUSANDS) Federal Current........................................... $24,072 $6,617 $13,495 Deferred.......................................... 1,369 (1,681) (680) ------- ------ ------- 25,441 4,936 12,815 ------- ------ ------- State Current........................................... 2,273 1,307 1,728 Deferred.......................................... (42) (346) (52) ------- ------ ------- 2,231 961 1,676 ------- ------ ------- $27,672 $5,897 $14,491 ======= ====== =======
The deferred provision for income taxes results from the following:
1997 1998 1999 ------ ------- ------ (IN THOUSANDS) Difference between book and tax depreciation............ $1,939 $ 2,559 $2,717 Deferred compensation................................... 146 66 50 Amortization of goodwill and acquired intangible assets................................................ (1,210) (2,198) (421) Reserves and expenses recognized in different periods for book and tax purposes............................. 480 (2,383) (2,849) Other, net.............................................. (28) (71) (229) ------ ------- ------ $1,327 $(2,027) $ (732) ====== ======= ======
36 38 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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:
1997 1998 1999 ----- ----- ----- Provision for statutory rate............................ 35.00% 35.00% 35.00% Increase in tax resulting from state income taxes, net of federal tax benefit................................ 4.30 4.26 2.99 Tax-exempt interest income.............................. (0.30) (0.02) (0.01) Amortization of goodwill................................ 0.89 8.71 4.55 Foreign Sales Corporation............................... (0.69) (5.97) (2.45) Other, net.............................................. 0.80 (2.23) (0.33) ----- ----- ----- Provision for income taxes.............................. 40.00% 39.75% 39.75% ===== ===== =====
The provision for income taxes in 1997 and 1998 is calculated on income before provision for taxes without taking into account the write-off of acquired in-process R&D. This write-off was $78.0 million and $63.0 million for 1997 and 1998, respectively. Income before the provision for income taxes excluding the write-off would have been $69.2 million and $14.8 million for 1997 and 1998, respectively. The tax effects of temporary differences that give rise to significant portions of the current and long-term deferred tax asset and liability at October 31, 1998 and October 30, 1999 are as follows:
1998 1999 -------- -------- (IN THOUSANDS) Deferred Tax Asset Not currently deductible reserves................. $ 11,480 $ 5,986 Not currently deductible environmental accruals... 4,125 4,029 Deferred compensation plans....................... 1,551 1,465 -------- -------- Total gross deferred tax asset............ 17,156 11,480 -------- -------- Deferred Tax Liability Acquisition related intangibles................... (39,653) (39,713) Property, plant and equipment, principally due to differences in depreciation.................... (19,868) (17,629) -------- -------- Total gross deferred tax liability........ (59,521) (57,342) -------- -------- Net deferred tax liability.......................... $(42,365) $(45,862) ======== ========
(7) LINES OF CREDIT The Company's revolving line of credit with various banks is pursuant to an Amended and Restated Revolving Credit Agreement, as amended (the "Credit Facility"). The Credit Facility provides, among other things, for direct borrowings for up to the lesser of $198,750,000 or the Borrowing Base, as defined in the Credit Facility, and expires January 8, 2002. Interest on loans outstanding under the Credit Facility is payable at the Company's option at either (i) the Base Rate (as defined in the Credit Facility) or (ii) the Eurodollar Rate, plus the Applicable Eurodollar Rate Margin (both as defined in the Credit Facility). The Company is required to pay a quarterly commitment fee ranging from .2% to .375% per annum, based on certain financial ratios of the Company, of the unused commitment under the Credit Facility. The Company is also required to pay a quarterly usage fee based on an Applicable Base Rate Usage Fee Margin and an Applicable Eurodollar Rate Usage Fee Margin (both as defined in the Credit Facility). At October 31, 1998 and October 30, 1999, borrowings of $150,000,000 and $75,000,000, respectively, were outstanding under the Credit Facility at weighted average interest rates of 6.58% and 6.31%, respectively. Borrowing availability under the Credit Facility was up to a maximum amount of $123,750,000 at October 30, 1999. 37 39 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Credit Facility contains customary representations and warranties. The Credit Facility also contains extensive affirmative and negative covenants, including, among others, certain limits on the ability of the Company and its subsidiaries to incur indebtedness, create liens, make investments, pay dividends or other distributions, engage in mergers, consolidations, acquisitions or dispositions, enter into sale and lease-back transactions, enter into guarantees, prepay subordinated indebtedness, create any new series of capital stock or amend the terms of existing capital stock. The Credit Facility also requires the Company to maintain certain financial covenants, including maximum ratio of Consolidated Funded Debt to EBITDA, minimum interest coverage, minimum consolidated net worth and minimum fixed charge coverage. At October 30, 1999, 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 $3.4 million for the purpose of acquiring land, facilities and equipment for the Company's Malaysian subsidiary. The arrangement is renewable annually. At October 30, 1999, there were no amounts outstanding under this arrangement. (8) LONG-TERM DEBT Long-term debt consists of the following:
OCTOBER -------------------- 1998 1999 -------- -------- (IN THOUSANDS) Variable rate mortgages..................................... $ 732 $ 640 Revolving credit agreement (Note 7)......................... 150,000 75,000 9 1/2% senior subordinated notes due 2008................... 199,354 199,422 Obligations under capital leases with interest rates ranging from 7% to 7.75%.......................................... 8,582 5,762 -------- -------- 358,668 280,824 Less -- Current portion..................................... 4,377 2,515 -------- -------- $354,291 $278,309 ======== ========
On May 18, 1998, the Company sold $200 million aggregate principal amount of its 9 1/2% Senior Subordinated Notes due 2008 (the "Notes") to certain purchasers. The purchasers subsequently resold the Notes to "qualified institutional buyers" in reliance upon Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and offshore purchasers pursuant to Rule 904 of Regulation S under the Securities Act. The Notes were sold at a price equal to 99.66% of their principal amount. On November 12, 1998, the Company consummated an exchange offer pursuant to which the Notes were exchanged for Notes (with terms identical in all material respects) that were registered with the Securities and Exchange Commission under a registration statement on Form S-4. Interest on the Notes is payable semi-annually on each June 15 and December 15 and commenced December 15, 1998. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after June 15, 2003, at 104.75% of their principal amount, plus accrued interest, with such percentages declining ratably to 100% of their principal amount, plus accrued interest. At any time on or prior to June 15, 2001 and subject to certain conditions, up to 35% of the aggregate principal amount of the Notes may be redeemed, at the option of the Company, with the proceeds of certain equity offerings of the Company at 109.50% of the principal amount thereof, plus accrued interest. In addition, at any time prior to June 15, 2003, the Company may redeem the Notes, at its option, in whole or in part, at a price equal to the principal amount thereof, together with accrued interest, plus the Applicable Premium (as defined in the Indenture governing the Notes). The Notes are guaranteed, on a senior subordinated basis, by each of the Company's U.S. Restricted Subsidiaries (as defined in the Indenture) (the "Guarantors"). The net proceeds received by the Company 38 40 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) from the issuance and sale of the Notes, approximately $193.8 million, were used to repay outstanding indebtedness under the Credit Facility previously incurred to, among other things, finance the Acquisitions. The Indenture under which the Notes were issued (the "Indenture") imposes certain limitations on the ability of the Company, its subsidiaries and, in certain circumstances, the Guarantors, to, among other things, incur indebtedness, pay dividends, prepay subordinated indebtedness, repurchase capital stock, make investments, create liens, engage in transactions with stockholders and affiliates, sell assets and engage in mergers and consolidations. Maturities of long-term debt and capital lease obligations are as follows as of October 30, 1999:
AMOUNT -------------- (IN THOUSANDS) Year Ending October 2000................................................... $ 2,515 2001................................................... 1,589 2002................................................... 75,092 2003................................................... 92 2004................................................... 92 Thereafter............................................. 201,444 -------- $280,824 ========
(9) COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases manufacturing space under noncancelable operating leases with terms expiring through 2009. Future minimum lease payments under these leases as of October 30, 1999 are as follows:
AMOUNT -------------- (IN THOUSANDS) Year Ending October 2000................................................... $ 6,919 2001................................................... 5,903 2002................................................... 5,614 2003................................................... 5,390 2004................................................... 4,707 Thereafter............................................. 16,771 ------- Future minimum lease payments..................... $45,304 =======
Total rental expense of approximately $6,628,000, $9,805,000 and $9,700,000 was incurred for the fiscal years ended October 1997, 1998 and 1999, respectively. Environmental Matters During March 1995, the Company received a Record of Decision ("ROD") from the New York State Department of Environmental Conservation ("NYSDEC"), regarding soil and groundwater contamination at its Owego, New York facility. Based on a Remedial Investigation and Feasibility Study ("RIFS") for apparent on-site contamination at that facility and a Focused Feasibility Study ("FFS"), each prepared by environmental consultants of the Company, the NYSDEC has approved a remediation program of groundwater withdrawal and treatment and iterative soil flushing. The Company has executed a Modification of the Order on Consent to implement the approved ROD. Capital equipment for this remediation has already been acquired by the Company, and future operation and maintenance costs, which will be incurred and expended over the estimated life of the program of the next 28 years, are estimated at between $40,000 and $100,000 per 39 41 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) year. Beginning in the summer of 1998, NYSDEC took additional samples from a wetland area near the Company's Owego facility. Analytical reports of earlier sediment samples indicated the presence of certain inorganics. The new samples showed elevated levels of certain metals, but NYSDEC has not made a determination as to the potential source of such metals, the remedial action to be taken, or the persons to undertake and/or pay for any remediation. 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. 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. 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. The Company accrues estimated costs associated with known environmental matters, when such costs can be reasonably estimated. The cost estimates relating to future environmental clean-up are subject to numerous variables, the effects of which can be difficult to measure, including the stage of the environmental investigations, the nature of potential remedies, possible joint and several liability, the magnitude of possible contamination, the difficulty of determining future liability, the time over which remediation might occur, and the possible effects of changing laws and regulations. The total reserve for environmental matters currently identified by the Company amounted to $10.6 million at October 31, 1998 and $11.1 million at October 30, 1999. The current portion of these costs amounted to approximately $1.4 million as of October 31, 1998 and $1.9 million at October 30, 1999, and is included in other accrued expenses. The long-term portion of these costs amounted to approximately $9.2 million as of October 31, 1998 and October 30, 1999, 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 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. Included in operating expenses are charges for actual expenditures and accruals, based on estimates, for environmental matters. During fiscal 1997, 1998 and 1999, the Company made, and charged to operating expenses, actual payments of approximately $296,000, $92,000, and $260,000, respectively, for environmental matters. Litigation 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. In June 1999, the Company entered into a Consent Decree with 30 of the defendants and third-party defendants. The Consent Decree was approved by the federal and state governments in December 1999, and lodged with the Court. The Court must still approve the 40 42 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Consent Decree. Under the terms of the Consent Decree, the Company is a cash-out party and does not have responsibility for performance of ongoing remedial or monitoring work at the site. From 1974 to 1980, the Company operated a printed circuit manufacturing facility in Florida as a lessee. This property is the subject of a pending lawsuit in the circuit court for Broward County, Florida (the "Florida Lawsuit") and an investigation by the Florida Department of Environmental Protection ("FDEP"). In connection with the investigation, Hadco and others have participated in alternative dispute resolution regarding the site with an independent mediator. Mediation sessions began in 1992 and continued over the next several years through May 1998. In June 1995, Hadco and Gould, Inc., another prior lessee of the site, were joined as third-party defendants in the 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. As a result of the mediation, a Settlement Agreement was entered into among Hadco, Gould and the FDEP in March 1999. The third-party complaints against Hadco and Gould in the pending Florida lawsuit were dismissed. The Settlement Agreement provides that Hadco and Gould will undertake remedial action based on a Supplemental Contamination Assessment Report and a later Feasibility Study, which has been prepared by a consultant to Hadco and Gould and approved by the FDEP. The estimated cost of the recommended source removal described in the Feasibility Study is approximately $165,000, and for ongoing monitoring and remediation is approximately $2.1 million. Actual remedial activities have not yet commenced, but are expected to begin in the near future. In March 1993, the EPA notified Hadco Santa Clara of its potential liability for maintenance and remediation costs in connection with a hazardous waste disposal facility operated by Casmalia Resources, a California Limited Partnership, in Santa Barbara County, California. The EPA identified Hadco Santa Clara as one of the 65 generators that had disposed the greatest amounts of materials at the site. Based on the total tonnage contributed by all generators, Hadco Santa Clara's share is estimated at approximately 0.2% of the total weight. In June 1997, the United States District Court in Los Angeles, California approved and entered a Consent Decree among the EPA and 49 entities (including Hadco Santa Clara) acting through the Casmalia Steering Committee ("CSC"). The Consent Decree sets forth the terms and conditions under which the CSC will carry out work aimed at final closure of the site. Certain closure activities will be performed by the CSC. Later work will be performed by the CSC, if funded by other parties. Under the Consent Decree, the settling parties will work with the EPA to pursue the non-settling parties to ensure they participate in contributing to the closure and long-term operation and maintenance of the facility. On January 12, 1998, Hadco Santa Clara received notice of the filing of a lawsuit, before the Superior Court (County of Santa Clara, California), against it by Jackie Riley, Keith Riley and Richard Riley for damages (including punitive damages) for alleged injuries suffered, including Richard Riley's cancer, as a result of the alleged emission at the Hadco Santa Clara facility of effluent from allegedly toxic and hazardous chemical substances. In October 1999, the court approved a settlement of this litigation. The Company has performed all its obligations under the settlement. 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. 41 43 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Purchase Commitments The Company had commitments to purchase approximately $9.2 million of manufacturing equipment and approximately $1.4 million of leasehold improvements as of October 30, 1999. The majority of these commitments is expected to be completed by the end of fiscal 2000. (10) STOCKHOLDERS' INVESTMENT Employee Stock Options The Company has several stock option plans that provide for the granting of stock options to employees. The plans are administered by the Compensation Committee of the Board of Directors and generally provide for the granting of options at fair market value at the date of grant. The options vest over various periods not to exceed 10 years, and expire at various times not exceeding 10 years plus 90 days from the date of grant. Substantially all employee stock options granted are nonqualified stock options. The discussion below does not include the plans pursuant to which the Board of Directors has determined not to make future grants of options. December 1991 Director Plan This plan provides for the granting of options to purchase up to 300,000 shares of common stock at a price equal to the fair market value at the date of grant. Initial options granted under this plan are exercisable ratably over a four year period and expire no later than seven years from the date of grant. This plan also provides for an annual grant of a vested option for 3,000 shares to each non-employee director who has served as a director for five years or more. 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 1998 Stock Plan This plan provides for the granting of stock rights including options, awards, and purchases up to 1,000,000 shares of common stock at a minimum price equal to the fair market value at the date of grant. Stock rights may be granted to employees, directors, and other associated parties. Stock rights will expire as specified by the Compensation Committee, but in no case longer than 10 years from the date of grant. The Company made awards of 9,085 shares under this plan in fiscal 1999. Outside Directors Compensation Plan of 1998 The Company adopted the Outside Directors Compensation Plan of 1998 (the "Directors Plan") in December 1997. The Directors Plan provides that the annual fee for the outside directors shall be paid in restricted stock, and that additional meeting fees may, at the option of the director, be paid in restricted stock. A total of 12,000 shares of common stock have been reserved for grant under the Directors Plan (as reduced by the Board of Directors from 24,000 shares). The Company issued 4,436 and 3,741 shares in fiscal 1998 and 1999, respectively, under the Directors Plan. Subject to the approval of the Outside Directors Compensation Plan of 2000 by the stockholders of the Company, the Board of Directors determined not to make future grants of shares under the Outside Directors Compensation Plan of 1998. 42 44 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Outside Directors Compensation Plan of 2000 The Company adopted the Outside Directors Compensation Plan of 2000 (the "Directors Plan of 2000') in December 1999 subject to stockholder approval. The Directors Plan of 2000 provides that the annual fee for the outside directors shall be paid in restricted stock, and that additional fees may, at the option of a director, be paid in restricted stock. A total of 50,000 shares of common stock have been reserved for grant under the Directors Plan of 2000, and no shares have been issued to date. Employee Stock Purchase Plan The Employee Stock Purchase Plan (the ESP Plan) was approved by the stockholders in March 1998 to allow eligible employees, as defined in the ESP Plan, to purchase shares of common stock during one or more six-month periods through payroll deductions. Shares are purchased at 85% of fair value, as defined. A total of 500,000 shares of common stock have been reserved for purchase under the ESP Plan. During fiscal 1998 and 1999, the Company issued 57,226 and 135,630 shares, respectively, under the ESP Plan. At October 30, 1999, the Company has 307,144 shares available for purchase under the ESP Plan. Stockholder Rights Plan The Company adopted a Stockholder Rights Plan in August 1995 pursuant to which the Company declared the distribution of one Common Stock Purchase Right ("Right") for each share of outstanding common stock. Under certain conditions, each Right may be exercised for one share of common stock at an exercise price of $130, subject to adjustment. Under circumstances defined in the Stockholder Rights Plan, the Rights entitle holders to purchase stock having a value of twice the exercise price of the Rights. Until they become exercisable, the Rights are not transferable apart from the common stock. The Rights may be redeemed by the Company at any time prior to the occurrence of certain events at $.01 per Right. The Stockholder Rights Plan will expire on September 11, 2005, unless the Rights are earlier redeemed by the Company. The following table summarizes stock option activity with respect to all stock options:
WEIGHTED AVERAGE NUMBER EXERCISE EXERCISE OF SHARES PRICE RANGE PRICE -------------- --------------- -------- (IN THOUSANDS) Outstanding, October 26, 1996............. 1,108 $ 2.00 -- $31.50 $ 9.45 Options granted...................... 267 45.31 -- 67.00 48.52 Options exercised.................... (263) 2.00 -- 31.50 4.98 Options canceled..................... (42) 2.00 -- 51.88 19.68 ----- ---------------- ------ Outstanding, October 25, 1997............. 1,070 2.10 -- 67.00 19.87 Options granted...................... 533 31.78 -- 63.50 48.47 Options exercised.................... (179) 2.10 -- 11.06 6.04 Options canceled..................... (116) 2.10 -- 67.00 38.60 ----- ---------------- ------ Outstanding, October 31, 1998............. 1,308 2.10 -- 67.00 31.72 Options granted...................... 349 29.97 -- 31.97 30.42 Options exercised.................... (117) 2.10 -- 31.50 5.54 Options canceled..................... (125) 3.60 -- 67.00 40.42 ----- ---------------- ------ Outstanding, October 30, 1999............. 1,415 $ 2.78 -- $67.00 $32.80 ===== ================ ======
43 45 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information about stock options outstanding and exercisable at October 30, 1999:
WEIGHTED WEIGHTED AVERAGE AVERAGE WEIGHTED EXERCISE REMAINING AVERAGE PRICE OF RANGE OF OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISABLE EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE OPTIONS - --------------- ----------- ------------ -------- ----------- ----------- $ 2.78--$ 4.00..... 41,665 0.60 $ 3.71 30,345 $ 3.78 4.94-- 6.69..... 22,420 2.13 5.02 22,420 5.02 8.00-- 12.00..... 273,800 4.41 8.64 169,775 8.66 27.00-- 38.13..... 687,025 8.08 32.50 70,185 31.44 44.25-- 67.00..... 390,380 7.18 54.96 94,557 52.23 --------- ------ ------- ------ October 30, 1999... 1,415,290 $32.80 387,282 $22.83 ========= ====== ======= ====== October 31, 1998... 361,368 $13.74 ======= ====== October 25, 1997... 379,000 $ 7.65 ======= ======
The Company has reserved as of October 30, 1999, a total of 2,631,325 shares of common stock for issuance under stock option plans. During fiscal 1997, 1998 and 1999, approximately $121,000, $73,000, and $136,000, respectively, were charged against income as compensation expense associated with the granting of these options. The Company has computed the pro forma disclosures required under SFAS No. 123 using the Black-Scholes option pricing model for all stock options and stock issuances under the Employee Stock Purchase Plan. The assumptions used, weighted average information and the pro forma effect of applying SFAS No. 123 for the years ended October 25, 1997, October 31, 1998 and October 30, 1999 are as follows:
1997 1998 1999 -------------- -------------- -------------- Risk-free interest rates............... 6.20% -- 6.66% 5.75% -- 6.08% 5.24% -- 6.01% Expected dividend yield................ -- -- -- Expected lives......................... 6.77 years 6.24 years 5.36 years Expected volatility.................... 43.6% 47.0% 52.7% Weighted average grant-date fair value per share of options granted during the period, net of an estimated termination rate of 32.70%........... $26.51 $24.17 $13.55 Weighted average exercise price of options granted during the period, net of an estimated termination rate of 32.70%............................ $48.15 $43.76 $28.94 Weighted average remaining contractual life of options outstanding.......... 8.66 years 8.03 years 7.01 years Pro forma net income (loss) (in thousands)........................... $(37,088) $(55,755) $18,813 Pro forma diluted net income (loss) per share................................ $(3.18) $(4.09) $1.37
(11) RETIREMENT PLAN The Hadco Corporation Retirement Plan, as amended (the "Plan") covers all employees who have completed a six-month period of service, as defined in the Plan. "Employees" exclude non-resident aliens employed outside the United States and certain leased employees. Annual profit sharing contributions are made at the discretion of the Board of Directors, but cannot exceed any of (1) the Company's current and accumulated net profit, as defined, or (2) the amount allowable as a deduction for federal income tax purposes 44 46 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) or (3) the aggregate individual contribution limitations set out in the Plan. The Company provided for profit sharing contributions of $4,016,000, $1,040,000 and $1,847,000 to the Plan for the fiscal years ended October 1997, 1998 and 1999, respectively. The Plan permits participants to elect to have contributions made to the Plan in the form of reductions in salary under Section 401(k) of the Internal Revenue Code subject to limitations set out in the Plan. Under the Plan, the Company will match employee contributions up to 50% of the first six percent of an employee's 401(k) compensation, as defined, for any Plan year. 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 amounts contributed by the Company as 401(k) matches against employee contributions were approximately $834,000, $3,798,000 and $5,119,000 during fiscal 1997, 1998 and 1999, respectively. (12) QUARTERLY RESULTS (UNAUDITED) The following summarized unaudited results of operations for the fiscal quarters in the years ended October 1998 and 1999 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.
1998 1999 ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) First Fiscal Quarter -- Net sales...................................... $198,276 $235,979 Gross profit................................... 39,068 32,433 Net income..................................... 12,127 2,014 Diluted net income per share................... 0.90 0.15 Diluted weighted average shares outstanding.... 13,505 13,651 Second Fiscal Quarter -- Net sales...................................... $209,587 $255,586 Gross profit................................... 36,730 38,377 Net income (loss).............................. (59,739) 4,622 Diluted net income (loss) per share............ (4.54) 0.34 Diluted weighted average shares outstanding.... 13,161 13,713 Third Fiscal Quarter -- Net sales...................................... $201,392 $252,361 Gross profit................................... 18,580 41,022 Net income (loss).............................. (6,880) 6,586 Diluted net income (loss) per share............ (0.52) 0.48 Diluted weighted average shares outstanding.... 13,255 13,767 Fourth Fiscal Quarter -- Net sales...................................... $217,104 $262,044 Gross profit................................... 29,312 45,038 Net income..................................... 382 8,742 Diluted net income per share................... 0.03 0.63 Diluted weighted average shares outstanding.... 13,560 13,884
(13) CUSTOMERS During fiscal years 1997, 1998 and 1999, one customer accounted for approximately 15%, 17% and 15% of consolidated net sales, respectively. The Company's five largest customers accounted for approximately 34%, 37% and 40% of consolidated net sales during fiscal 1997, 1998 and 1999, respectively. The Company has one customer that accounted for approximately 16%, 13% and 11% of consolidated accounts receivable at 45 47 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) October 25, 1997, October 31, 1998 and October 30, 1999, respectively. Another customer accounted for 10% of consolidated accounts receivable at October 30, 1999. (14) BUSINESS SEGMENTS AND GEOGRAPHIC AREAS During the fourth quarter of fiscal 1999, the Company adopted SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. The Company's businesses are internally reported as two segments. These segments, which are based on differences in products, technologies, and services, are Printed Circuits and Value Added Manufacturing (VAM). See Note 1 for a description of the products and services provided by these segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies described in Note 1. Hadco evaluates performance of these segments based on profit or loss from operations, not including non-recurring charges. Transactions between segments are recorded at fair market value. Costs of centralized sales, marketing and administration are allocated to the segments receiving benefits of the centralized function. Unallocated general corporate expenses include the elimination of inter-segment profits, the costs of executive management for the Company, plus the amortization of acquired intangibles and goodwill relating to the Acquisitions. Management does not represent that these segments, if operated independently, would report the operating income and other financial information shown.
1997 1998 1999 -------- -------- ---------- (IN THOUSANDS) Net Sales: Printed Circuits............................ $598,429 $728,709 $ 859,874 VAM......................................... 69,971 130,637 178,505 Elimination................................. (19,695) (32,987) (32,409) -------- -------- ---------- $648,705 $826,359 $1,005,970 ======== ======== ========== Operating Income*: Printed Circuits............................ $ 86,229 $ 53,376 $ 86,743 VAM......................................... 4,719 7,149 7,545 Unallocated general corporate............... (14,142) (18,462) (28,322) -------- -------- ---------- $ 76,806 $ 42,063 $ 65,966 ======== ======== ========== Identifiable Assets: Printed Circuits............................ $333,741 $442,972 $ 462,211 VAM......................................... 34,299 50,306 48,608 Unallocated general corporate............... 134,477 250,547 214,004 -------- -------- ---------- $502,517 $743,825 $ 724,823 ======== ======== ========== Depreciation and Amortization: Printed Circuits............................ $ 34,725 $ 54,113 $ 60,803 VAM......................................... 1,045 2,424 3,235 Unallocated general corporate............... 6,075 10,627 13,896 -------- -------- ---------- $ 41,845 $ 67,164 $ 77,934 ======== ======== ==========
46 48 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 1998 1999 -------- -------- ---------- (IN THOUSANDS) Capital Expenditures: Printed Circuits............................ $ 65,076 $ 74,664 $ 66,207 VAM......................................... 2,569 6,969 2,182 Unallocated general corporate............... 2,206 1,875 3,402 -------- -------- ---------- $ 69,851 $ 83,508 $ 71,791 ======== ======== ==========
- --------------- * Excludes non-recurring charges in fiscal 1997 for the write-off of acquired in-process research and development ($78.0 million), and excludes non-recurring charges in fiscal 1998 for restructuring ($7.1 million) and the write-off of acquired in-process research and development ($63.0 million.) The following is a reconciliation of segment operating income to consolidated income (loss) before provision for income taxes:
1997 1998 1999 ------- -------- ------- (IN THOUSANDS) Total operating income for reportable segments....... $76,806 $ 42,063 $65,966 Unallocated amounts: Write-off of in-process R&D..................... (78,000) (63,050) -- Restructuring and non-recurring charges......... -- (7,053) -- Interest and other income, net.................. 3,296 2,295 1,384 Interest expense................................ (10,923) (22,468) (30,895) ------- -------- ------- Income (loss) before provision for income taxes...... $(8,821) $(48,213) $36,455 ======= ======== =======
The following summarizes financial information by geographic areas:
1997 1998 1999 -------- -------- ---------- (IN THOUSANDS) Net Sales United States............................... $554,778 $648,953 $ 777,414 Canada...................................... 62,224 89,224 105,109 Europe...................................... 29,703 48,623 64,637 Asia........................................ -- 35,372 49,374 Other....................................... 2,000 4,187 9,436 -------- -------- ---------- $648,705 $826,359 $1,005,970 ======== ======== ========== Long-lived assets United States............................... $300,520 $473,694 $ 466,434 Asia........................................ 35,314 49,029 49,420 Europe...................................... -- -- 217 -------- -------- ---------- $335,834 $522,723 $ 516,071 ======== ======== ==========
(15) RESTRUCTURING AND OTHER NON-RECURRING CHARGES On April 6, 1998, the Company announced the planned consolidation of its two East Coast quick-turn prototype facilities into the larger of the two facilities located at Haverhill, MA. The Company incurred and recorded in the fiscal quarter ended May 2, 1998 non-recurring charges in connection with the consolidation totaling $5.9 million. Non-recurring costs include costs associated with the abandonment of assets at one of the facilities. On July 31, 1998, the Company announced a limited restructuring, which temporarily reduced the Company's workforce by approximately 3%. This restructuring was in addition to the consolidation of the East Coast quick-turn prototype facilities. The cost of this limited restructuring is comprised of severance and related benefits for the terminated employees. As of October 31, 1998 the Company had recorded a liability 47 49 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for both restructurings totaling $897,000, which relates to severance and other payroll related costs, as well as lease termination costs. As of October 30, 1999, all amounts accrued for each restructuring had been paid. The component of the charges classified as restructuring-related met the criteria set forth in Emerging Issues and Task Force Issue ("EITF") 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The components of the restructuring and other non-recurring costs during the year ended October 31, 1998 are as follows:
EAST COAST COMPANY- FACILITY WIDE CONSOLIDATION RESTRUCTURING TOTAL ------------- ------------- ------ (IN THOUSANDS) Loss on abandonment of assets........................ $1,965 $ -- $1,965 Severance benefits and associated costs.............. 130 1,105 1,235 Lease termination loss............................... 1,336 -- 1,336 ------ ------ ------ Total restructuring charges................ 3,431 1,105 4,536 Other non-recurring charges.......................... 2,517 -- 2,517 ------ ------ ------ Total restructuring and other charges...... $5,948 $1,105 $7,053 ====== ====== ======
Included in the restructuring and other charges is $2.5 million, which represents the write-down of existing assets to their net realizable value, in accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. (16) SALE OF ASSETS On April 30, 1999, the Company sold substantially all of the assets of its Dynaflex division for approximately $2.7 million. Dynaflex's assets, liabilities and operations were not significant to the Company. Proceeds from the sale were received on May 3, 1999. (17) SUPPLEMENTAL GUARANTORS CONSOLIDATING CONDENSED FINANCIAL STATEMENTS Basis of presentation. In connection with the Continental Acquisition, which was financed with approximately $184 million of borrowings from the Credit Facility, the Company on May 18, 1998 sold $200 million aggregate principal amount of 9 1/2% Senior Subordinated Notes due in 2008 (the "Notes"). The Notes are fully and unconditionally guaranteed on a senior subordinated basis, jointly and severally, by certain of the Company's wholly-owned domestic subsidiaries (the "Guarantors"). The Guarantors are Hadco Santa Clara, Inc., Hadco Phoenix, Inc., CCIR of Texas Corp. and CCIR of California Corp. The condensed consolidating financial statements of the Guarantors are presented below and should be read in connection with the Consolidated Financial Statements of the Company. Separate financial statements of the Guarantors are not presented because (i) the Guarantors are wholly-owned and have fully and unconditionally guaranteed the Notes on a joint and several basis and (ii) the Company's management has determined such separate financial statements are not material to investors and believes the condensed consolidating financial statements presented are more meaningful in understanding the financial position of the Guarantors. There are no significant restrictions on the ability of the Guarantors to make distributions to the Company. 48 50 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS CONSOLIDATING CONDENSED BALANCE SHEET
AS OF OCTOBER 31, 1998 ----------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents........ $ 836 $ 2 $ 6,331 $ -- $ 7,169 Accounts receivable, net......... 54,092 6,382 50,620 -- 111,094 Inventories...................... 24,984 5,560 36,473 -- 67,017 Deferred tax asset............... -- -- 17,156 -- 17,156 Prepaid and other current assets......................... 999 227 17,440 -- 18,666 -------- ------- -------- --------- -------- Total current assets........ 80,911 12,171 128,020 -- 221,102 Property, Plant and Equipment, net.... 138,912 49,029 134,946 -- 322,887 Intercompany Receivable............... -- 160 91,463 (91,623) -- Investments in Subsidiaries........... 17,895 -- 267,882 (285,777) -- Acquired Intangible Assets, net....... 191,421 -- -- -- 191,421 Other Assets.......................... 686 -- 7,729 -- 8,415 -------- ------- -------- --------- -------- $429,825 $61,360 $630,040 $(377,400) $743,825 ======== ======= ======== ========= ======== LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Current portion of long-term debt........................... $ 3,417 $ 158 $ 802 $ -- $ 4,377 Accounts payable................. 34,249 4,941 40,160 -- 79,350 Intercompany payable............. 54,523 37,100 -- (91,623) -- Accrued payroll and other employee benefits.............. 3,465 160 22,904 -- 26,529 Other accrued expenses........... 18,427 265 324 -- 19,016 -------- ------- -------- --------- -------- Total current liabilities... 114,081 42,624 64,190 (91,623) 129,272 -------- ------- -------- --------- -------- Long-Term Debt, net of current portion............................. 3,796 230 350,265 -- 354,291 -------- ------- -------- --------- -------- Deferred Tax Liability................ 44,677 -- 14,844 -- 59,521 -------- ------- -------- --------- -------- Other Long-Term Liabilities........... -- -- 9,192 -- 9,192 -------- ------- -------- --------- -------- Stockholders' Investment: Common stock, $0.05 par value; Authorized -- 50,000 shares Issued and outstanding -- 13,366.......... 11 29,654 669 (29,665) 669 Paid-in capital.................. 400,616 -- 173,906 (400,616) 173,906 Deferred compensation............ -- -- (44) -- (44) Retained earnings................ (133,356) (11,148) 17,018 144,504 17,018 -------- ------- -------- --------- -------- Total stockholders' investment................ 267,271 18,506 191,549 (285,777) 191,549 -------- ------- -------- --------- -------- $429,825 $61,360 $630,040 $(377,400) $743,825 ======== ======= ======== ========= ========
49 51 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS CONSOLIDATING CONDENSED BALANCE SHEET
AS OF OCTOBER 30, 1999 --------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents............ $ (2,679) $ 1,378 $ 10,379 $ -- $ 9,078 Accounts receivable, net.................... 49,926 7,566 59,088 -- 116,580 Inventories.............. 28,085 6,590 29,251 -- 63,926 Deferred tax asset....... -- -- 11,480 -- 11,480 Prepaid and other current assets................. 2,221 244 5,223 -- 7,688 -------- ------- -------- --------- -------- Total current assets............ 77,553 15,778 115,421 -- 208,752 Property, Plant and Equipment, net......................... 141,510 49,638 137,033 -- 328,181 Intercompany Receivable....... 24,783 3,122 46,365 (74,270) -- Investments in Subsidiaries... 12,162 -- 280,444 (292,606) -- Acquired Intangible Assets, net......................... 179,319 -- -- -- 179,319 Other Assets.................. 29 -- 8,542 -- 8,571 -------- ------- -------- --------- -------- $435,356 $68,538 $587,805 $(366,876) $724,823 ======== ======= ======== ========= ======== LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Current portion of long-term debt......... $ 2,114 $ 73 $ 328 $ -- $ 2,515 Accounts payable......... 41,842 5,583 52,675 -- 100,100 Intercompany payable..... 28,089 46,181 -- (74,270) -- Accrued payroll and other employee benefits...... 1,628 300 34,491 -- 36,419 Other accrued expenses... 37,355 97 (15,515) -- 21,937 -------- ------- -------- --------- -------- Total current liabilities....... 111,028 52,234 71,979 (74,270) 160,971 -------- ------- -------- --------- -------- Long-Term Debt, net of current portion..................... 3,307 43 274,959 -- 278,309 -------- ------- -------- --------- -------- Deferred Tax Liability........ 44,676 -- 12,666 -- 57,342 -------- ------- -------- --------- -------- Other Long-Term Liabilities... -- -- 9,192 -- 9,192 -------- ------- -------- --------- -------- Stockholders' Investment: Common stock, $0.05 par value; Authorized -- 50,000 shares Issued and outstanding -- 13,631.. 11 29,655 683 (29,666) 683 Paid-in capital.......... 400,616 -- 179,528 (400,616) 179,528 Deferred compensation.... -- -- (184) -- (184) Retained earnings........ (124,282) (13,394) 38,982 137,676 38,982 -------- ------- -------- --------- -------- Total stockholders' investment........ 276,345 16,261 219,009 (292,606) 219,009 -------- ------- -------- --------- -------- $435,356 $68,538 $587,805 $(366,876) $724,823 ======== ======= ======== ========= ========
50 52 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 25, 1997 --------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) Net Sales...................... $195,411 $26,411 $426,883 $ $648,705 Cost of Sales.................. 164,069 18,773 324,471 -- 507,313 -------- ------- -------- -------- -------- Gross Profit.............. 31,342 7,638 102,412 -- 141,392 Operating Expenses............. 7,606 7,696 44,069 -- 59,371 Amortization of Goodwill and Acquired Intangible Assets... 5,215 -- -- 5,215 Write-off of Acquired In-Process Research and Development.................. 78,000 -- -- -- 78,000 -------- ------- -------- -------- -------- Income (Loss) From Operations................... (59,479) (58) 58,343 -- (1,194) Interest and Other Income, net.......................... 655 -- 2,641 -- 3,296 Interest Expense............... (2,003) (557) (8,363) -- (10,923) -------- ------- -------- -------- -------- Income (Loss) Before Provision for Income Taxes................... (60,827) (615) 52,621 -- (8,821) Provision for Income Taxes..... 6,860 275 20,537 -- 27,672 Equity in Loss of Subsidiary... (2,852) -- (68,577) 71,429 -- -------- ------- -------- -------- -------- Net Loss.................. $(70,539) $ (890) $(36,493) $ 71,429 $(36,493) ======== ======= ======== ======== ========
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998 --------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) Net Sales...................... $341,974 $35,378 $449,007 $ -- $826,359 Cost of Sales.................. 306,752 35,776 360,141 -- 702,669 -------- ------- -------- -------- -------- Gross Profit.............. 35,222 (398) 88,866 -- 123,690 Operating Expenses............. 8,189 3,828 59,860 -- 71,877 Amortization of Goodwill and Acquired Intangible Assets... 9,750 -- -- -- 9,750 Restructuring and Other Non- Recurring Charges............ -- 7,053 -- 7,053 Write-off of Acquired In-Process Research and Development.................. 63,050 -- -- -- 63,050 -------- ------- -------- -------- -------- Income (Loss) From Operations.............. (45,767) (4,226) 21,953 -- (28,040) Interest and Other Income, net.......................... (419) 2,752 (3,250) 3,212 2,295 Interest Expense............... (852) (404) (21,212) -- (22,468) -------- ------- -------- -------- -------- Loss Before Provision for Income Taxes............ (47,038) (1,878) (2,509) 3,212 (48,213) Provision for Income Taxes..... 10,240 450 (4,793) -- 5,897 Equity in Loss of Subsidiary... (5,540) -- (59,606) 65,146 -- -------- ------- -------- -------- -------- Net Loss.................. $(62,818) $(2,328) $(57,322) $ 68,358 $(54,110) ======== ======= ======== ======== ========
51 53 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 30, 1999 --------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) Net Sales...................... $459,088 $48,875 $498,007 $ -- $1,005,970 Cost of Sales.................. 403,965 48,102 397,033 -- 849,100 -------- ------- -------- ------- ---------- Gross Profit.............. 55,123 773 100,974 -- 156,870 Operating Expenses............. 9,116 2,995 66,567 -- 78,678 Amortization of Goodwill and Acquired Intangible Assets... 12,226 -- -- -- 12,226 -------- ------- -------- ------- ---------- Income (Loss) From Operations.............. 33,781 (2,222) 34,407 -- 65,966 Interest and Other Income...... (774) 469 (1,798) 3,487 1,384 Interest Expense............... (365) (17) (30,513) -- (30,895) -------- ------- -------- ------- ---------- Income (Loss) Before Provision for Income Taxes................... 32,642 (1,770) 2,096 3,487 36,455 Provision for Income Taxes..... 17,835 476 (3,820) -- 14,491 Equity in Income (Loss) of Subsidiary................... (5,733) -- 12,561 (6,828) -- -------- ------- -------- ------- ---------- Net Income (Loss)......... $ 9,074 $(2,246) $ 18,477 $(3,341) $ 21,964 ======== ======= ======== ======= ==========
52 54 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 25, 1997 ----------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities................. $44,591 $ 9,978 $ (3,902) $-- $ 50,667 ------- ------- --------- -- --------- Cash Flows from Investing Activities: Investments in subsidiaries...... 9,496 726 (10,222) -- -- Purchases of property, plant and equipment...................... (19,976) (4,092) (45,783) -- (69,851) Proceeds from sale of property, plant and equipment............ -- -- 2,760 -- 2,760 Foreign Sales Corp. dividend..... -- (1,962) 1,962 -- -- Acquisition of Zycon Corporation, net of cash acquired........... -- -- (209,661) -- (209,661) ------- ------- --------- -- --------- Net cash used in investing activities................ (10,480) (5,328) (260,944) -- (276,752) ------- ------- --------- -- --------- Cash Flows from Financing Activities: Principal payments of long-term debt........................... (35,714) (2,505) (126,547) -- (164,766) Proceeds from issuance of long-term debt................. -- -- 224,954 -- 224,954 Proceeds from exercise of stock options........................ -- -- 1,303 -- 1,303 Sale of common stock, net of issuance costs................. -- -- 131,088 -- 131,088 Tax benefit from exercise of non- qualified stock options........ -- -- 5,052 -- 5,052 ------- ------- --------- -- --------- Net cash (used in) provided by financing activities... (35,714) (2,505) 235,850 -- 197,631 ------- ------- --------- -- --------- Net Increase (Decrease) in Cash, Cash Equivalents and Short-Term Investments......................... (1,603) 2,145 (28,996) -- (28,454) Cash, Cash Equivalents and Short-Term Investments, Beginning of Period.... -- 104 42,083 -- 42,187 ------- ------- --------- -- --------- Cash, Cash Equivalents and Short-Term Investments, End of Period.......... $(1,603) $ 2,249 $ 13,087 $-- $ 13,733 ======= ======= ========= == =========
53 55 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1998 ----------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities............................. $65,020 $17,586 $(22,881) $3,212 $ 62,937 ------- ------- -------- ------ --------- Cash Flows from Investing Activities: Foreign Sales Corp. dividend....... -- (3,212) 3,212 -- -- Purchases of property, plant and equipment........................ (21,867) (19,764) (41,877) -- (83,508) Investments in subsidiaries........ -- 3,212 -- (3,212) -- Acquisition of Continental Circuits Corp., net of cash acquired...... -- -- (192,532) -- (192,532) ------- ------- -------- ------ --------- Net cash used in investing activities.................. (21,867) (19,764) (231,197) (3,212) (276,040) ------- ------- -------- ------ --------- Cash Flows from Financing Activities: Principal payments of long-term debt............................. (40,714) (69) (217,641) -- (258,424) Net Proceeds from issuance of long-term debt................... -- -- 459,289 -- 459,289 Proceeds from exercise of stock options.......................... -- -- 1,082 -- 1,082 Proceeds from employee stock purchase plan.................... -- -- 1,113 -- 1,113 Proceeds from the sale of common stock............................ -- -- 1,480 -- 1,480 Tax benefit from exercise of stock options.......................... -- -- 1,999 -- 1,999 ------- ------- -------- ------ --------- Net cash provided by (used in) financing activities........ (40,714) (69) 247,322 -- 206,539 ------- ------- -------- ------ --------- Net Increase (Decrease) in Cash, Cash Equivalents and Short-Term Investments........................... 2,439 (2,247) (6,756) -- (6,564) ------- ------- -------- ------ --------- Cash, Cash Equivalents and Short-Term Investments, Beginning of Period...... (1,603) 2,249 13,087 -- 13,733 ------- ------- -------- ------ --------- Cash, Cash Equivalents and Short-Term Investments, End of Period............ $ 836 $ 2 $ 6,331 $ -- $ 7,169 ======= ======= ======== ====== =========
54 56 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 30, 1999 ----------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) Net cash provided by operating activities............................ $26,644 $8,584 $107,503 $3,487 $146,218 ------- ------ -------- ------ -------- Cash Flows from Investing Activities: Foreign Sales Corp. dividend...... -- (3,487) 3,487 -- -- Purchases of property, plant and equipment....................... (28,496) (6,947) (36,348) -- (71,791) Proceeds from sale of property, plant and equipment............. 130 11 90 -- 231 Investments in subsidiaries....... -- 3,487 -- (3,487) -- ------- ------ -------- ------ -------- Net cash used in investing activities................. (28,366) (6,936) (32,771) (3,487) (71,560) ------- ------ -------- ------ -------- Cash Flows from Financing Activities: Principal payments of long-term debt............................ (1,793) (272) (105,079) -- (107,144) Proceeds from issuance of long-term debt.................. -- -- 29,300 -- 29,300 Proceeds from exercise of stock options......................... -- -- 620 -- 620 Proceeds from the employee stock purchase plan................... -- -- 3,258 -- 3,258 Tax benefit from exercise of stock options......................... -- -- 1,217 -- 1,217 ------- ------ -------- ------ -------- Net cash used in financing activities................. (1,793) (272) (70,684) -- (72,749) ------- ------ -------- ------ -------- Net Increase (Decrease) in Cash, Cash Equivalents and Short-Term Investments.......................... (3,515) 1,376 4,048 -- 1,909 Cash, Cash Equivalents and Short-Term Investments, Beginning of Period..... 836 2 6,331 -- 7,169 ------- ------ -------- ------ -------- Cash, Cash Equivalents and Short-Term Investments, End of Period........... $(2,679) $1,378 $ 10,379 $ -- $ 9,078 ======= ====== ======== ====== ========
55 57 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable PART III Anything herein to the contrary notwithstanding, in no event whatsoever are the sections entitled "Stock Performance Graph" and "Compensation Committee Report on Executive Compensation" to be incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on March 2, 2000. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information relating to directors and executive officers of the Company is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on March 2, 2000, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended October 30, 1999. ITEM 11. EXECUTIVE COMPENSATION Certain information relating to remuneration of directors and executive officers and other transactions involving management is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on March 2, 2000, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended October 30, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Certain information relating to security ownership of certain beneficial owners and management is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on March 2, 2000, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended October 30, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain information relating to certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on March 2, 2000, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended October 30, 1999. 56 58 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS: The following consolidated financial statements are included in Item 8: Report of Independent Public Accountants. Consolidated Balance Sheets as of October 31, 1998 and October 30, 1999. Consolidated Statements of Operations for the years ended October 25, 1997, October 31, 1998 and October 30, 1999. Consolidated Statements of Stockholders' Investment for the years ended October 25, 1997, October 31, 1998 and October 30, 1999. Consolidated Statements of Cash Flows for the years ended October 25, 1997, October 31, 1998 and October 30, 1999. Notes to Consolidated Financial Statements. (a) 2. FINANCIAL STATEMENT SCHEDULES: The following consolidated financial statement schedules are included in Item 14(d): II -- Valuation and Qualifying Accounts. Schedules other than those listed above have been omitted since they are either not required or the information is otherwise included. (a) 3. LISTING OF EXHIBITS:
EXHIBIT - ------- 3.1 -- Restated Articles of Organization of Registrant (filed as Exhibit 3.1 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 3.2 -- By-laws of Registrant, as amended (filed as Exhibit 3.2 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 3.3 -- Amendment to Restated Articles of Organization of Registrant dated March 4, 1998 (filed as Exhibit 3.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended January 31, 1998 and incorporated herein by reference). 4.0 -- Description of Capital Stock, contained in Article 4 of Registrant's Restated Articles of Organization (filed as Exhibit 3.1 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). *10.1 -- Registrant's December 5, 1986 Non-Qualified Stock Option Plan (filed as Exhibit 10.7 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). 10.2 -- Amendment dated as of January 9, 1986 to Lease between Registrant and Lupe Burgstrom dated April 30, 1984 (filed as Exhibit 10.79 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). 10.3 -- Amendment dated as of January 9, 1986 to Lease between Registrant and Freedom Associates dated May 17, 1985 (filed as Exhibit 10.80 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). 10.4 -- Amendment dated as of March 7, 1986 to Lease between Registrant and Freedom Associates dated December 23, 1980 (filed as Exhibit 10.81 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). 10.5 -- Lease dated July 15, 1988 between Registrant and C&M Associates I (filed as Exhibit 10.67 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 29, 1988 and incorporated herein by reference).
57 59
EXHIBIT - ------- *10.6 -- Form of Stock Option Agreement under Registrant's Non-Qualified Stock Option Plan of September 7, 1990 (filed as Exhibit 10.68 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 27, 1990 and incorporated herein by reference). 10.7 -- Loan Agreement by and between Registrant and New York State Urban Development Corporation ("NYSUDC"); Mortgage between Registrant and Tioga, Note between Registrant and NYSUDC; all dated as of April 10, 1991 (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1991 and incorporated herein by reference). *10.8 -- Form of Stock Option Agreement under Registrant's 1991 Non-Employee Director Stock Option Plan (filed as Exhibit 10.82 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 26, 1991 and incorporated herein by reference). 10.9 -- Lease dated March 1, 1992 between Registrant and Equity Property Associates I (filed as Exhibit 10.65 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1992 and incorporated herein by reference). 10.10 -- Lease dated January 13, 1995 between Registrant and Nash Family Investment Properties and Ballinger Properties d/b/a Sagamore Industrial Properties (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended January 28, 1995 and incorporated herein by reference). 10.11 -- Rights Agreement dated as of August 22, 1995 between the Registrant and the First National Bank of Boston (filed as Exhibit 4.1 to Current Report on Form 8-K, File No. 0-12102, dated August 22, 1995 and incorporated herein by reference). *10.12 -- Agreement dated as of August 14, 1995 between the Registrant and Patrick Sweeney (filed as Exhibit 10.49 to Annual Report on Form 10-K, File No. 0-12102, for year ended October 28, 1995 and incorporated herein by reference). 10.13 -- Amendment dated May 1, 1995 to lease dated March 1, 1992 between Registrant and Equity Property Associates I (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). 10.14 -- Lease dated November 1, 1995 between Registrant and Equity Property Associates I (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). 10.15 -- Lease dated November 1, 1995 between Registrant and Equity Property Associates I (filed as Exhibit 10.3 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). 10.16 -- Amendment dated April 1, 1996 to lease dated March 1, 1992 between Registrant and Equity Property Associates I (filed as Exhibit 10.4 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). *10.17 -- Amended and Restated 1991 Non-Employee Director Stock Option Plan of Registrant as of December 3, 1996 (filed as Exhibit 10.43 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1997 and incorporated herein by reference). 10.18 -- Amended and Restated Revolving Credit Agreement dated as of December 8, 1997 between the Registrant and BankBoston, N.A. (filed as Exhibit 10.45 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1997 and incorporated herein by reference). 10.19 -- Leases for premises located at 435-445 El Camino Real, Santa Clara, California, by and between Zycon Corporation and University Research Center and addenda thereto dated March 1, 1988; July 8, 1988; February 27, 1989; August 30, 1989; May 19, 1993; and August 9, 1993 (filed as Exhibit 10.1 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.20 -- Provisional Lease dated November 14, 1995 for the premises located at the Muara Tebas Land of Kuching East Malaysia by and between Sudarsono Osman and Zycon Corporation Sendirian Berhad (filed as Exhibit 10.2 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.21 -- Construction Agreement dated August 3, 1995 by and between Zycon Corporation and Hiti Engineering Sdn.Bhd. (filed as Exhibit 10.3 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.22 -- Facilities Agreement dated February 9, 1996 by and among Zycon Corporation Sdn.Bhd., Bank Bumiputra Malaysia Berhad and BBMB Kewangan Berhad (filed as Exhibit 10.4 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference).
58 60
EXHIBIT - ------- 10.23 -- Corporate Guarantee dated February 9, 1996 issued by Zycon Corporation in favor of Bank Bumiputra Malaysia Berhad and BBMB Kewangan Berhad (filed as Exhibit 10.5 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.24 -- Lease for the three acre premises located in Santa Clara, California by and between Zycon Corporation and Sobrato Interests III, dated January 4, 1996 (filed as Exhibit 10.6 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.25 -- Form of Assignment and Acceptance to Revolving Credit Agreement (filed as Exhibit 10.9 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). *10.26 -- Outside Directors Compensation Plan of 1998 (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended January 31, 1998 and incorporated herein by reference). *10.27 -- Employee Stock Purchase Plan of November 17, 1997 (filed as Exhibit 10.1 to the Registration Statement No. 333-47589 on Form S-8 and incorporated herein by reference). 10.28 -- First Amendment and Modification Agreement by and among the Registrant and BankBoston, N.A. dated as of March 19, 1998 amending the Amended and Restated Revolving Credit Agreement (filed as Exhibit (b)(2) to the Amendment No. 2 to the Schedule 14D-1 filed by the Registrant on February 20, 1998 and incorporated herein by reference). 10.29 -- Guaranty dated as of March 19, 1998 by Hadco Acquisition Corp. II in favor of BankBoston, N.A. (filed as Exhibit (b)(3) to the Amendment No. 2 to the Schedule 14D-1 filed by the Registrant on February 20, 1998 and incorporated herein by reference). 10.30 -- Stock Pledge Agreement dated as of March 19, 1998 by Hadco Acquisition Corp. II in favor of BankBoston, N.A. (filed as Exhibit (b)(4) to the Amendment No. 2 to the Schedule 14D-1 filed by the Registrant on February 20, 1998 and incorporated herein by reference). *10.31 -- Form of Option Agreement under Registrant's Non-Qualified Stock Option Plan dated November 29, 1995, as amended and restated April 7, 1998 (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 2, 1998 and incorporated herein by reference). *10.32 -- Stock Purchase Agreement dated as of March 20, 1998 between Registrant and Frederick G. McNamee, III (filed as Exhibit 10.3 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 2, 1998 and incorporated herein by reference). *10.33 -- Employment Agreement dated as of February 17, 1998 between Registrant and Frederick G. McNamee, III (filed as Exhibit 10.4 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 2, 1998 and incorporated herein by reference). 10.34 -- Second Amendment and Modification Agreement among Registrant and a group of Banks dated as of May 11, 1998 (filed as Exhibit 10.5 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 2, 1998 and incorporated herein by reference). *10.35 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and Andrew E. Lietz (filed as Exhibit 10.2 to Quarterly Report Form 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). *10.36 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and John D. Caruso (filed as Exhibit 10.3 to Quarterly Report on From 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). *10.37 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and Timothy P. Losik (filed as Exhibit 10.4 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). *10.38 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and Michael K. Sheehy (filed as Exhibit 10.5 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). *10.39 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and Frederick G. McNamee, III (filed as Exhibit 10.6 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). *10.40 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and Robert E. Snyder (filed as Exhibit 10.7 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference).
59 61
EXHIBIT - ------- 10.41 -- Indenture (including Form of Exchange Note) dated as of May 18, 1998 by and among the Company, the Guarantors and State Street Bank and Trust, as Trustee (filed as Exhibit 4.1 to Form S-4, Registration No. 333-57467, and incorporated herein by reference). 10.42 -- Registration Rights Agreement dated May 13, 1998 among the Company, the Guarantors, Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancAmerica Robertson Stephens, and BT Alex Brown Incorporated, as initial purchasers (filed as Exhibit 4.2 to Form S-4, Registration No. 333-57467 and incorporated herein by reference). 10.43 -- Placement Agreement dated May 13, 1998 by and among the Company, the Guarantors, Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancAmerica Robertson Stephens, and BT Alex Brown Incorporated, as initial purchasers (filed as Exhibit 10.1 to Form S-4, Registration No. 333-57467 and incorporated herein by reference). 10.44 -- Third Amendment and Modification Agreement dated as of September 14, 1998 among Registrant and a group of Banks (filed as Exhibit 10.5 to Form S-4, Registration No. 333-57467 and incorporated herein by reference). *10.45 -- Form of Executive Agreement dated as of November 2, 1998 by and between the Company and F. Gordon Bitter (filed as Exhibit 10.57 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.46 -- Amended and Restated Non-Qualified Stock Option Plan dated September 7, 1990, dated as of April 7, 1998 (filed as Exhibit 10.58 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.47 -- Amended and Restated Non-Qualified Stock Option Plan dated November 29, 1995, dated as of July 1, 1998 (filed as Exhibit 10.59 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.48 -- Amendment dated as of July 1, 1998 to Option Agreement of Andrew E. Lietz dated April 8, 1998 (filed as Exhibit 10.60 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.49 -- Amendment dated as of July 1, 1998 to Option Agreement of Andrew E. Lietz dated February 26, 1997 (filed as Exhibit 10.61 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). 10.50 -- Amendment dated May 29, 1998 to Lease between Registrant and Equity Property Associates I dated March 1, 1992 (filed as Exhibit 10.63 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). 10.51 -- Amendment dated May 29, 1998 to Lease between Registrant and Equity Property Associates I dated November 1, 1995, for 12A Manor Parkway, Salem, New Hampshire (filed as Exhibit 10.64 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). 10.52 -- Amendment No. 2 dated October 29, 1998, for 12A Manor Parkway, Salem, New Hampshire to Lease between Registrant and Manor Parkway LLC dated November 1, 1995 (filed as Exhibit 10.65 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). 10.53 -- Amendment dated May 29, 1998 to Lease between Registrant and Equity Property Associates I dated November 1, 1995, for 12B Manor Parkway, Salem, New Hampshire (filed as Exhibit 10.66 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.54 -- Hadco Corporation Executive Incentive Compensation Deferred Bonus Plan, as amended and restated July 1, 1998 (filed as Exhibit 10.67 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.55 -- Amendment to Outside Directors Compensation Plan of 1998, dated as of November 12, 1998 (filed as Exhibit 10.68 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.56 -- Agreement dated as of November 12, 1998 by and between the Company and Andrew E. Lietz (filed as Exhibit 10.69 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference).
60 62
EXHIBIT - ------- *10.57 -- Form of Agreement dated as of November 12, 1998 by and between the Company and various employees of the Company (filed as Exhibit 10.70 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.58 -- Hadco Corporation 1998 Stock Plan as Amended and Restated March 3, 1999 (filed as Exhibit 4.4 to the Registration Statement No. 333-79029 on Form S-8 and incorporated herein by reference). *10.59 -- Form of Option Agreement under the Registrant's 1998 Stock Plan (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 1, 1999 and incorporated herein by reference). *10.60 -- Fourth Amendment and Modification Agreement dated as of April 30, 1999 among the Company and a group of Banks (filed as Exhibit 10.3 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 1, 1999 and incorporated herein by reference). *10.61 -- Executive Agreement dated May 11, 1999 between the Registrant and William M. Beckenbaugh (filed as Exhibit 10.4 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 1, 1999 and incorporated herein by reference). *10.62 -- Executive Agreement dated August 10, 1999 between the Registrant and Christopher T. Mastrogiacomo (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended July 31, 1999 and incorporated herein by reference). *10.63 -- Consulting Agreement dated June 21, 1999 between the Registrant and Patrick Sweeney. 10.64 -- Fifth Amendment and Modification Agreement dated as of November 23, 1999 among the Company and a group of Banks. 10.65 -- Hadco Corporation Retirement Plan, as Amended and Restated through March 3, 1999. 10.66 -- Hadco Corporation Retirement Trust dated June 1, 1996 between the Registrant and Fidelity Management & Trust Company. 10.67 -- First Amendment to Trust Agreement between the Registrant and Fidelity Management & Trust Company dated as of October 1, 1997. 10.68 -- Second Amendment to Trust Agreement between the Registrant and Fidelity Management & Trust Company dated as of January 15, 1998. 10.69 -- Third Amendment to Trust Agreement between the Registrant and Fidelity Management & Trust Company dated as of January 1, 1998. 21 -- Subsidiaries of the Registrant, (filed as exhibit 21 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). 23 -- Consent of Arthur Andersen LLP. 27 -- Financial Data Schedule.
- --------------- (*) Indicates a management contract or any compensatory plan, contract or arrangement required to be filed as an Exhibit pursuant to Item 14(c). (b) REPORTS ON FORM 8-K None (c) EXHIBITS The Company hereby files as part of this Form 10-K the exhibits listed in Item 14(a)(3) above. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the Commission, 450 Fifth Street, NW, Room 1024, Washington, D.C., and at the Commission's regional offices at 219 South Dearborn Street, Room 1204, Chicago, Illinois; 26 Federal Plaza, Room 1102, New York, New York and 5757 Wilshire Boulevard, Suite 1710, Los Angeles, California. Copies of such material can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. (d) FINANCIAL STATEMENT SCHEDULES The Company hereby files as part of this Form 10-K in Item 14(b) attached hereto the consolidated financial statement schedules listed in Item 14(a)(2) above. 61 63 SIGNATURES Pursuant to the requirement of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HADCO CORPORATION By: /s/ ANDREW E. LIETZ ------------------------------------ ANDREW E. LIETZ, PRESIDENT CHIEF EXECUTIVE OFFICER AND DIRECTOR Dated: December 29, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ HORACE H. IRVINE II Chairman of the Board and Director December 29, 1999 - --------------------------------------------------- (Horace H. Irvine II) /s/ ANDREW E. LIETZ President, Chief Executive Officer December 29, 1999 - --------------------------------------------------- and Director (Principal Executive (Andrew E. Lietz) Officer) /s/ F. GORDON BITTER Senior Vice President, Treasurer December 29, 1999 - --------------------------------------------------- and Chief Financial Officer (F. Gordon Bitter) (Principal Financial Officer and Principal Accounting Officer) /s/ OLIVER O. WARD Director December 29, 1999 - --------------------------------------------------- (Oliver O. Ward) /s/ JOHN F. SMITH Director December 29, 1999 - --------------------------------------------------- (John F. Smith) /s/ JOHN E. POMEROY Director December 29, 1999 - --------------------------------------------------- (John E. Pomeroy) /s/ JAMES C. TAYLOR Director December 29, 1999 - --------------------------------------------------- (James C. Taylor) /s/ MAURO J. WALKER Director December 29, 1999 - --------------------------------------------------- (Mauro J. Walker) /s/ GILBERT M. RODDY, JR. Director December 29, 1999 - --------------------------------------------------- (Gilbert M. Roddy, Jr.)
62 64 SCHEDULE II HADCO CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
BALANCE ADDITIONS AT CHARGED TO DEDUCTIONS BALANCE AT BEGINNING COSTS AND FROM END OF OF PERIOD EXPENSES RESERVES(1) PERIOD --------- ---------- ----------- ---------- (IN THOUSANDS) ALLOWANCE FOR DOUBTFUL ACCOUNTS October 25, 1997............................ $1,100 922 (322) $1,700 October 31, 1998............................ $1,700 828 (399) $2,129 October 30, 1999............................ $2,129 1,257 (1,908) $1,478 RESTRUCTURING ACCRUAL October 31, 1998............................ $ -- 4,536 (3,639) $ 897 October 30, 1999............................ $ 897 -- (897) $ --
- --------------- (1) Amounts deemed uncollectible. S-1 65 EXHIBIT INDEX
EXHIBIT - ------- 3.1 -- Restated Articles of Organization of Registrant (filed as Exhibit 3.1 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 3.2 -- By-laws of Registrant, as amended (filed as Exhibit 3.2 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 3.3 -- Amendment to Restated Articles of Organization of Registrant dated March 4, 1998 (filed as Exhibit 3.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended January 31, 1998 and incorporated herein by reference). 4.0 -- Description of Capital Stock, contained in Article 4 of Registrant's Restated Articles of Organization (filed as Exhibit 3.1 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). *10.1 -- Registrant's December 5, 1986 Non-Qualified Stock Option Plan (filed as Exhibit 10.7 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). 10.2 -- Amendment dated as of January 9, 1986 to Lease between Registrant and Lupe Burgstrom dated April 30, 1984 (filed as Exhibit 10.79 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). 10.3 -- Amendment dated as of January 9, 1986 to Lease between Registrant and Freedom Associates dated May 17, 1985 (filed as Exhibit 10.80 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). 10.4 -- Amendment dated as of March 7, 1986 to Lease between Registrant and Freedom Associates dated December 23, 1980 (filed as Exhibit 10.81 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1986 and incorporated herein by reference). 10.5 -- Lease dated July 15, 1988 between Registrant and C&M Associates I (filed as Exhibit 10.67 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 29, 1988 and incorporated herein by reference). *10.6 -- Form of Stock Option Agreement under Registrant's Non-Qualified Stock Option Plan of September 7, 1990 (filed as Exhibit 10.68 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 27, 1990 and incorporated herein by reference). 10.7 -- Loan Agreement by and between Registrant and New York State Urban Development Corporation ("NYSUDC"); Mortgage between Registrant and Tioga, Note between Registrant and NYSUDC; all dated as of April 10, 1991 (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1991 and incorporated herein by reference). *10.8 -- Form of Stock Option Agreement under Registrant's 1991 Non-Employee Director Stock Option Plan (filed as Exhibit 10.82 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 26, 1991 and incorporated herein by reference). 10.9 -- Lease dated March 1, 1992 between Registrant and Equity Property Associates I (filed as Exhibit 10.65 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1992 and incorporated herein by reference). 10.10 -- Lease dated January 13, 1995 between Registrant and Nash Family Investment Properties and Ballinger Properties d/b/a Sagamore Industrial Properties (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended January 28, 1995 and incorporated herein by reference). 10.11 -- Rights Agreement dated as of August 22, 1995 between the Registrant and the First National Bank of Boston (filed as Exhibit 4.1 to Current Report on Form 8-K, File No. 0-12102, dated August 22, 1995 and incorporated herein by reference). *10.12 -- Agreement dated as of August 14, 1995 between the Registrant and Patrick Sweeney (filed as Exhibit 10.49 to Annual Report on Form 10-K, File No. 0-12102, for year ended October 28, 1995 and incorporated herein by reference). 10.13 -- Amendment dated May 1, 1995 to lease dated March 1, 1992 between Registrant and Equity Property Associates I (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). 10.14 -- Lease dated November 1, 1995 between Registrant and Equity Property Associates I (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). 10.15 -- Lease dated November 1, 1995 between Registrant and Equity Property Associates I (filed as Exhibit 10.3 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference).
66
EXHIBIT - ------- 10.16 -- Amendment dated April 1, 1996 to lease dated March 1, 1992 between Registrant and Equity Property Associates I (filed as Exhibit 10.4 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended April 27, 1996 and incorporated herein by reference). *10.17 -- Amended and Restated 1991 Non-Employee Director Stock Option Plan of Registrant as of December 3, 1996 (filed as Exhibit 10.43 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1997 and incorporated herein by reference). 10.18 -- Amended and Restated Revolving Credit Agreement dated as of December 8, 1997 between the Registrant and BankBoston, N.A. (filed as Exhibit 10.45 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 25, 1997 and incorporated herein by reference). 10.19 -- Leases for premises located at 435-445 El Camino Real, Santa Clara, California, by and between Zycon Corporation and University Research Center and addenda thereto dated March 1, 1988; July 8, 1988; February 27, 1989; August 30, 1989; May 19, 1993; and August 9, 1993 (filed as Exhibit 10.1 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.20 -- Provisional Lease dated November 14, 1995 for the premises located at the Muara Tebas Land of Kuching East Malaysia by and between Sudarsono Osman and Zycon Corporation Sendirian Berhad (filed as Exhibit 10.2 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.21 -- Construction Agreement dated August 3, 1995 by and between Zycon Corporation and Hiti Engineering Sdn.Bhd. (filed as Exhibit 10.3 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.22 -- Facilities Agreement dated February 9, 1996 by and among Zycon Corporation Sdn.Bhd., Bank Bumiputra Malaysia Berhad and BBMB Kewangan Berhad (filed as Exhibit 10.4 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.23 -- Corporate Guarantee dated February 9, 1996 issued by Zycon Corporation in favor of Bank Bumiputra Malaysia Berhad and BBMB Kewangan Berhad (filed as Exhibit 10.5 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.24 -- Lease for the three acre premises located in Santa Clara, California by and between Zycon Corporation and Sobrato Interests III, dated January 4, 1996 (filed as Exhibit 10.6 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). 10.25 -- Form of Assignment and Acceptance to Revolving Credit Agreement (filed as Exhibit 10.9 to the Registration Statement No. 333-21977 on Form S-3 and incorporated herein by reference). *10.26 -- Outside Directors Compensation Plan of 1998 (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended January 31, 1998 and incorporated herein by reference). *10.27 -- Employee Stock Purchase Plan of November 17, 1997 (filed as Exhibit 10.1 to the Registration Statement No. 333-47589 on Form S-8 and incorporated herein by reference). 10.28 -- First Amendment and Modification Agreement by and among the Registrant and BankBoston, N.A. dated as of March 19, 1998 amending the Amended and Restated Revolving Credit Agreement (filed as Exhibit (b)(2) to the Amendment No. 2 to the Schedule 14D-1 filed by the Registrant on February 20, 1998 and incorporated herein by reference). 10.29 -- Guaranty dated as of March 19, 1998 by Hadco Acquisition Corp. II in favor of BankBoston, N.A. (filed as Exhibit (b)(3) to the Amendment No. 2 to the Schedule 14D-1 filed by the Registrant on February 20, 1998 and incorporated herein by reference). 10.30 -- Stock Pledge Agreement dated as of March 19, 1998 by Hadco Acquisition Corp. II in favor of BankBoston, N.A. (filed as Exhibit (b)(4) to the Amendment No. 2 to the Schedule 14D-1 filed by the Registrant on February 20, 1998 and incorporated herein by reference). *10.31 -- Form of Option Agreement under Registrant's Non-Qualified Stock Option Plan dated November 29, 1995, as amended and restated April 7, 1998 (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 2, 1998 and incorporated herein by reference). *10.32 -- Stock Purchase Agreement dated as of March 20, 1998 between Registrant and Frederick G. McNamee, III (filed as Exhibit 10.3 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 2, 1998 and incorporated herein by reference). *10.33 -- Employment Agreement dated as of February 17, 1998 between Registrant and Frederick G. McNamee, III (filed as Exhibit 10.4 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 2, 1998 and incorporated herein by reference). 10.34 -- Second Amendment and Modification Agreement among Registrant and a group of Banks dated as of May 11, 1998 (filed as Exhibit 10.5 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 2, 1998 and incorporated herein by reference).
67
EXHIBIT - ------- *10.35 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and Andrew E. Lietz (filed as Exhibit 10.2 to Quarterly Report Form 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). *10.36 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and John D. Caruso (filed as Exhibit 10.3 to Quarterly Report on From 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). *10.37 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and Timothy P. Losik (filed as Exhibit 10.4 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). *10.38 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and Michael K. Sheehy (filed as Exhibit 10.5 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). *10.39 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and Frederick G. McNamee, III (filed as Exhibit 10.6 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). *10.40 -- Form of Executive Agreement dated as of July 1, 1998 by and between the Company and Robert E. Snyder (filed as Exhibit 10.7 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended August 1, 1998 and incorporated herein by reference). 10.41 -- Indenture (including Form of Exchange Note) dated as of May 18, 1998 by and among the Company, the Guarantors and State Street Bank and Trust, as Trustee (filed as Exhibit 4.1 to Form S-4, Registration No. 333-57467, and incorporated herein by reference). 10.42 -- Registration Rights Agreement dated May 13, 1998 among the Company, the Guarantors, Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancAmerica Robertson Stephens, and BT Alex Brown Incorporated, as initial purchasers (filed as Exhibit 4.2 to Form S-4, Registration No. 333-57467 and incorporated herein by reference). 10.43 -- Placement Agreement dated May 13, 1998 by and among the Company, the Guarantors, Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancAmerica Robertson Stephens, and BT Alex Brown Incorporated, as initial purchasers (filed as Exhibit 10.1 to Form S-4, Registration No. 333-57467 and incorporated herein by reference). 10.44 -- Third Amendment and Modification Agreement dated as of September 14, 1998 among Registrant and a group of Banks (filed as Exhibit 10.5 to Form S-4, Registration No. 333-57467 and incorporated herein by reference). *10.45 -- Form of Executive Agreement dated as of November 2, 1998 by and between the Company and F. Gordon Bitter (filed as Exhibit 10.57 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.46 -- Amended and Restated Non-Qualified Stock Option Plan dated September 7, 1990, dated as of April 7, 1998 (filed as Exhibit 10.58 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.47 -- Amended and Restated Non-Qualified Stock Option Plan dated November 29, 1995, dated as of July 1, 1998 (filed as Exhibit 10.59 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.48 -- Amendment dated as of July 1, 1998 to Option Agreement of Andrew E. Lietz dated April 8, 1998 (filed as Exhibit 10.60 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.49 -- Amendment dated as of July 1, 1998 to Option Agreement of Andrew E. Lietz dated February 26, 1997 (filed as Exhibit 10.61 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). 10.50 -- Amendment dated May 29, 1998 to Lease between Registrant and Equity Property Associates I dated March 1, 1992 (filed as Exhibit 10.63 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). 10.51 -- Amendment dated May 29, 1998 to Lease between Registrant and Equity Property Associates I dated November 1, 1995, for 12A Manor Parkway, Salem, New Hampshire (filed as Exhibit 10.64 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). 10.52 -- Amendment No. 2 dated October 29, 1998, for 12A Manor Parkway, Salem, New Hampshire to Lease between Registrant and Manor Parkway LLC dated November 1, 1995 (filed as Exhibit 10.65 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). 10.53 -- Amendment dated May 29, 1998 to Lease between Registrant and Equity Property Associates I dated November 1, 1995, for 12B Manor Parkway, Salem, New Hampshire (filed as Exhibit 10.66 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference).
68
EXHIBIT - ------- *10.54 -- Hadco Corporation Executive Incentive Compensation Deferred Bonus Plan, as amended and restated July 1, 1998 (filed as Exhibit 10.67 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.55 -- Amendment to Outside Directors Compensation Plan of 1998, dated as of November 12, 1998 (filed as Exhibit 10.68 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.56 -- Agreement dated as of November 12, 1998 by and between the Company and Andrew E. Lietz (filed as Exhibit 10.69 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.57 -- Form of Agreement dated as of November 12, 1998 by and between the Company and various employees of the Company (filed as Exhibit 10.70 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). *10.58 -- Hadco Corporation 1998 Stock Plan as Amended and Restated March 3, 1999 (filed as Exhibit 4.4 to the Registration Statement No. 333-79029 on Form S-8 and incorporated herein by reference). *10.59 -- Form of Option Agreement under the Registrant's 1998 Stock Plan (filed as Exhibit 10.2 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 1, 1999 and incorporated herein by reference). *10.60 -- Fourth Amendment and Modification Agreement dated as of April 30, 1999 among the Company and a group of Banks (filed as Exhibit 10.3 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 1, 1999 and incorporated herein by reference). *10.61 -- Executive Agreement dated May 11, 1999 between the Registrant and William M. Beckenbaugh (filed as Exhibit 10.4 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended May 1, 1999 and incorporated herein by reference). *10.62 -- Executive Agreement dated August 10, 1999 between the Registrant and Christopher T. Mastrogiacomo (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q, File No. 0-12102, for the quarter ended July 31, 1999 and incorporated herein by reference). *10.63 -- Consulting Agreement dated June 21, 1999 between the Registrant and Patrick Sweeney. 10.64 -- Fifth Amendment and Modification Agreement dated as of November 23, 1999 among the Company and a group of Banks. 10.65 -- Hadco Corporation Retirement Plan, as Amended and Restated through March 3, 1999. 10.66 -- Hadco Corporation Retirement Trust dated June 1, 1996 between the Registrant and Fidelity Management & Trust Company. 10.67 -- First Amendment to Trust Agreement between the Registrant and Fidelity Management & Trust Company dated as of October 1, 1997. 10.68 -- Second Amendment to Trust Agreement between the Registrant and Fidelity Management & Trust Company dated as of January 15, 1998. 10.69 -- Third Amendment to Trust Agreement between the Registrant and Fidelity Management & Trust Company dated as of January 1, 1998. 21 -- Subsidiaries of the Registrant, (filed as exhibit 21 to Annual Report on Form 10-K, File No. 0-12102, for the year ended October 31, 1998 and incorporated herein by reference). 23 -- Consent of Arthur Andersen LLP. 27 -- Financial Data Schedule.
- --------------- (*) Indicates a management contract or any compensatory plan, contract or arrangement required to be filed as an Exhibit pursuant to Item 14(c). EX-10.63 2 CONSULTING AGREEMENT DATED 6-21-99 1 Exhibit 10.63 CONSULTING AGREEMENT AGREEMENT made as of this 17th day of June, 1999, by and between HADCO CORPORATION (the "Company") and PATRICK SWEENEY ("Sweeney"). WHEREAS, Sweeney has retired from his position as a member of the Board of Directors of the Company; and WHEREAS, the Company is desirous of utilizing the services of Sweeney as a consultant to the Company. NOW, THEREFORE, in consideration of the premises and other mutual covenants contained herein, the receipt and legal sufficiency of which are hereby acknowledged, Sweeney and the Company agree as follows: 1. CONSULTING ARRANGEMENT. Effective July 1, 1999 through December 31, 2000, Sweeney shall serve as a consultant to the Company. 2. COMPENSATION AS CONSULTANT. During the term of the consulting arrangement, from July 1, 1999 through December 31, 2000, Sweeney shall be paid at the rate of $36,000 per annum, payable in equal monthly installments of $3,000 on or about the 15th of each month beginning on or about July 15, 1999. Sweeney acknowledges that during the period of the consulting arrangement, he shall be an independent contractor of the Company and not an employee and, accordingly, Sweeney shall be solely responsible for payment of all federal and state withholding taxes, FICA and Medicare taxes, and all other applicable employment related fees, taxes or charges. Sweeney shall be entitled to and shall receive no fringe benefits from the Company during the term of the consulting arrangement, including without limitation, pension contributions, 401(k) contributions, health (medical, dental and vision) and disability insurance, life insurance coverage, and the like. 3. DUTIES. Sweeney shall perform such duties and responsibilities as may be reasonably requested of him by the President of the Company. Both parties anticipate that such duties may include marketing and public relation services for the Company, both domestically and internationally. 4. CONFIDENTIALITY OF COMPANY INFORMATION. Sweeney recognizes and acknowledges that he has been and will be privy to confidential information concerning the Company's business, including without limitation, financial data, personnel data, computer programs, supplier lists, technology, processes, methods, techniques, developments, inventions, improvements, apparatus, products, policies, customer lists, research data, plans, know-how, and trade secrets, as well as information relating to sales, costs, profits, organization, customers, pricing and pricing methods and other general business operations, which are valuable, special and unique assets of the Company, 2 access to and knowledge of which have been essential to the performance of Sweeney's duties at the Company (hereinafter collectively the "Confidential Information"). Sweeney agrees that he will not, during the term of his consulting relationship or thereafter at any time, disclose any of this Confidential Information to any person, firm, corporation, association or other entity, excepting the authorized employees and agents of the Company, nor make use of such Confidential Information either during the term of his consulting relationship or at any time thereafter, for any purpose other than incident to his duties with the Company. Without limiting the generality of the foregoing, Sweeney expressly agrees that such Confidential Information will not be used to compete directly or indirectly with the Company. Sweeney agrees that all materials developed or existing at the Company, all programs developed for customers or prospective customers, all files, letters, memoranda, reports, records, data, specifications, customer lists, proposals, contracts, computer programs or computer-generated data (whether hard copy or machine-readable form) and other documentation are the exclusive property of the Company. Sweeney agrees, during the term of his consulting relationship with the Company, to keep and use such materials only in connection with the performance of his duties with the Company. Sweeney agrees to return all such materials and any copies thereof and all other tangible property of the Company immediately upon termination of any specific consulting project. 5. CONFIDENTIALITY OF CUSTOMER AND SUPPLIER INFORMATION. Sweeney recognizes and acknowledges that certain confidential data of the Company's customers and suppliers may be made available to or utilized by him in the course of his consulting relationship with the Company. Sweeney further acknowledges that the Company may, in certain cases, be subject to non-disclosure or secrecy agreements with certain customers and suppliers. Accordingly, Sweeney expressly agrees and warrants that he will not, during the term of or in the course of his consulting relationship or at any time thereafter, disclose any such confidential data of any customer or supplier to others, excepting the authorized employees and agents of the Company, nor make use of such confidential data either during the term of his consulting relationship or at any time thereafter, for any purpose other than incident to his duties with the Company. Sweeney further agrees to sign any and all non-disclosure and confidentiality agreements reasonably required by the Company's customers and suppliers and approved by the Company's senior management. Sweeney agrees to return to the Company immediately upon the termination of his consulting relationship any and all copies of all confidential data with respect to the Company's customers or suppliers, including without limitation, materials secured from the Company's customers or suppliers, programs developed for customers or suppliers, all files, letters, memoranda, reports, records, data, specifications, customer lists, proposals, contracts, computer programs or computer-generated data (whether hard copy or machine-readable form) and other documentation relating to the confidential information, data or technology of the Company's customers or suppliers. 2 3 6. NON-COMPETITION. During the term of this Agreement, Sweeney agrees that he will not, without the Company's prior express written consent, engage in, have an interest in, be employed by, or be in any way, directly or indirectly, connected with as an individual proprietor, partner, stockholder, officer, employee, director, representative, agent, joint venturer, investor, lender, or in any other employment, consulting or ownership capacity whatsoever (other than as the holder of not more than one [1%] percent of the total outstanding stock of a publicly-held company) any business that is substantially similar to or competitive with that in which the Company is engaged. Without limiting the generality of the foregoing, the Company agrees that Sweeney may serve on the board of the IPC, and that such service by itself will not violate the non-competition provisions of this Agreement. 7. NON-SOLICITATION. During the term of this Agreement, Sweeney agrees that he will not, directly or indirectly, (a) employ, retain or engage any person or entity who has worked for or with the Company as an employee or consultant during the term of Sweeney's employment or during the term of Sweeney's consulting arrangement; (b) recruit, solicit or induce, or attempt to recruit, solicit or induce, any employee or consultant of the Company to terminate his, her or its employment or consultant relationship with the Company; (c) solicit, divert or take away, or attempt to solicit, divert or take away, the business or patronage of any of the customers or accounts, or prospective customers or accounts, of the Company which were contacted, solicited or served during the term of his consulting arrangement with the Company; or (d) induce or attempt to induce any customer, vendor or account of the Company to reduce its business with, or to cease its business with, the Company. 8. REMEDIES. Both parties agree that the restrictions contained in Sections 4, 5, 6 and 7 are necessary for the protection of the business and goodwill of the Company, and they are considered by Sweeney to be reasonable for such purposes. Sweeney agrees that, in the event of a breach or threatened breach by him of the provisions of Sections 4, 5, 6 or 7, the Company will suffer irreparable harm which cannot be adequately compensated by a payment of money damages. Accordingly, Sweeney agrees that, in the event of such a breach or threatened breach by him, the Company shall be entitled to injunctive relief, both preliminarily and permanently, and to specific enforcement of the provisions of Sections 4, 5, 6 and 7. Nothing contained in this section shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including recovery of monetary damages from Sweeney or others. Sweeney agrees, in addition to and not in lieu of any other remedies the Company may have, that in the event he violates any of the provisions of Sections 4, 5, 6 and 7, he shall forfeit entitlement to any consulting fee not already paid. 9. SEVERABILITY. If any restriction set forth in Sections 4, 5, 6 or 7 are found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it 3 4 shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. If any provision of this Agreement shall be held by a court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be part of this Agreement, while the remaining provisions shall continue in full force and effect. 10. PUBLICATION OF THIS AGREEMENT. Both parties agree that the terms and contents of this Agreement, and the contents of negotiations and discussions resulting in this Agreement shall be maintained in confidence by Sweeney, the Company, and their respective agents and representatives, and none of the above shall be disclosed except (i) to the extent required by federal or state law, (ii) as otherwise agreed to in writing by both parties, (iii) to enforce this Agreement, or (iv) in a press release by the Company in a form deemed by the Company in good faith to be appropriate and in any SEC filing by the Company that is deemed appropriate by the Company, including without limitation in its proxy statement, Form 8-K, Form 10-Q or Form 10-K, or any exhibits to any of the foregoing. Sweeney agrees that he will speak positively about the Company and its activities, and endorse and support the business and products of the Company whenever the opportunity arises. Sweeney further agrees that he will not in any way verbally or in writing communicate statements or opinions which would be derogatory to the reputation or the business and financial integrity of the Company, or do any other act which might be detrimental to the Company. 11. ENTIRE AGREEMENT. This Agreement contains and constitutes the sole and entire understanding and agreement between the parties with respect to Sweeney's consulting arrangement, and supersedes and terminates all previous oral or written negotiations and agreements (except that the covenants and commitments of Sweeney contained in the Agreement dated August 14, 1995 between the parties shall survive). This Agreement may not be amended or modified or waived, in whole or in part, except by a writing signed by both parties. 12. APPLICABLE LAW. This Agreement shall be governed by and construed and enforced in accordance with the substantive law of the Commonwealth of Massachusetts, without giving effect to the choice of law provisions thereof. 13. MISCELLANEOUS. This Agreement may be executed in any number of counterparts, and each executed counterpart shall have the same force and effect as the original instrument, as if all parties to the counterparts have signed the same instrument. This instrument shall not be construed for or against any party because that party's legal representative drafted the Agreement, or any portion of the Agreement. Section headings are for convenience only and should not be considered in the interpretation of this Agreement. This Agreement shall be binding upon, and inure to the benefit of and be 4 5 enforceable by each of the parties hereto, their respective heirs, legal representatives, successors and assigns. IN WITNESS WHEREOF, the parties hereto have set their hands this 17th day of June, 1999. Dated: June 17, 1999 /s/ Patrick Sweeney -------------------------------- PATRICK SWEENEY HADCO CORPORATION Dated: June 17, 1999 By: /s/ Andrew E. Lietz ---------------------------- President and CEO EX-10.64 3 AMENDMENT AND MODIFICATION AGREEMENT 1 Exhibit 10.64 FIFTH AMENDMENT AND MODIFICATION AGREEMENT FIFTH AMENDMENT AND MODIFICATION AGREEMENT dated as of November 23, 1999 (this "Amendment") by and among HADCO CORPORATION, a Massachusetts corporation (the "Borrower"); the direct and indirect subsidiaries of the Borrower listed on the signature pages hereto (collectively, the "Guarantors"); BANKBOSTON, N.A., AS AGENT (the "Agent") and BANKBOSTON, N.A., individually, and the other lending institutions (collectively, the "Banks") listed on SCHEDULE 1 to the Amended and Restated Revolving Credit Agreement dated as of December 8, 1997 (as amended and in effect from time to time, the "Credit Agreement") among the Borrower, the Banks and the Agent. Terms not otherwise defined herein which are defined in the Credit Agreement shall have the respective meanings assigned to such terms in the Credit Agreement, as amended hereby. WHEREAS, the Borrower has requested that the Agent and the Banks amend certain provisions of the Credit 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 Credit 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: SS.1. AMENDMENT OF SS.1.1 OF THE CREDIT AGREEMENT. Section 1.1 of the Credit Agreement is hereby amended by: (a) inserting the following new definitions in the proper alphabetical order: "FIFTH AMENDMENT EFFECTIVE DATE. The "Effective Date", as defined in the Fifth Amendment and Modification Agreement dated as of November 23, 1999 among the Borrower, the Guarantors, the Agent and the Banks." "SECTION 9.5.2 SUBSIDIARY. Any Subsidiary acquired pursuant to Section 9.5.2 that is organized under the laws of a jurisdiction other than the United States of America and the States (or the District of Columbia) thereof." (b) deleting the definition of "Guarantors" in its entirety and substituting in lieu thereof the following new definition: 2 -2- "GUARANTORS. (i) Hadco Santa Clara, Hadco Phoenix, CCIR of Texas, and, until the completion of the Restructuring Transaction, CCIR of California; and (ii) any other direct or indirect Subsidiary of the Borrower (other than Hadco FSC, New Zycon, Hadco Scotland, Hadco Ireland, Hadco Malaysia, Hadco Singapore, New Continental, CCIR International and any Section 9.5.2 Subsidiary)." SS.2. AMENDMENT OF SS.9.1(i) OF THE CREDIT AGREEMENT. Section 9.1(i) of the Credit Agreement is hereby deleted in its entirety and the following new ss.9.1(i) is hereby substituted in lieu thereof: "(i) Indebtedness of (i) a Guarantor, following its execution and delivery of its Guaranty to the Agent, to the Borrower; (ii) Hadco FSC to the Borrower in an aggregate amount not to exceed $2,000,000; (iii) Hadco Malaysia and the Section 9.5.2 Subsidiaries to the Borrower in an aggregate amount for all such entities not to exceed $65,000,000, PROVIDED, HOWEVER, that no more than $25,000,000 may be incurred by Hadco Malaysia in any one fiscal year of the Borrower and if during any such fiscal year the amount of such Indebtedness permitted to be incurred by Hadco Malaysia is not so utilized, such unutilized amount may be utilized in the next succeeding fiscal year; PROVIDED, FURTHER, that no more than $15,000,000 in the aggregate may be incurred by the Section 9.5.2 Subsidiaries and any such Indebtedness shall be evidenced by a duly executed promissory note (A) issued by such Section 9.5.2 Subsidiary to the Borrower and (B) duly endorsed to the Agent pursuant to the Security Agreement; (iv) New Zycon or New Continental to the Borrower in an aggregate amount, for each such company, not to exceed $50,000; (v) CCIR International to the Borrower in an aggregate amount not to exceed $2,000,000; and (vi) Hadco Scotland, Hadco Singapore and/or Hadco Ireland to the Borrower in an aggregate amount for all such entities not to exceed $5,000,000;". SS.3. AMENDMENT OF SS.9.5.2 OF THE CREDIT AGREEMENT. Section 9.5.2 of the Credit Agreement is hereby deleted in its entirety and the following new ss.9.5.2 is hereby substituted in lieu thereof: "9.5.2 ACQUISITIONS. The Borrower will not, and will not permit any of the other Transaction Parties to agree to or effect any asset acquisition or stock acquisition (other than the acquisition of assets in the ordinary course of business consistent with past practices); PROVIDED, HOWEVER, that so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower may make one or more asset or stock acquisitions in an amount not to exceed $30,000,000 in the aggregate; PROVIDED, HOWEVER, that (i) the business to be acquired (the "Target") is in the same or similar lines of business as the Borrower and the other Transaction Parties, (ii) after giving effect to such Permitted Acquisition, and assuming full funding of such Permitted Acquisition 3 -3- on the initial Drawdown Date of the sole or initial Loan, the proceeds of which are to be used to fund all or any portion of such Permitted Acquisition, the ratio of Consolidated Funded Debt as at the most recent fiscal quarter end of the Borrower to EBITDA for the four consecutive fiscal quarters of the Borrower ending with such quarter end (as shown on a PRO FORMA basis based upon (A) the most recently delivered financial statements of the Borrower and its Subsidiaries delivered in accordance with ss.8.4 and (B) audited financial statements for such Target as at the most recent fiscal quarter end of the Borrower which are accompanied by an unqualified audited opinion letter from Arthur Anderson LLP or another nationally recognized accounting firm satisfactory to the Agent and the Majority Banks or which are otherwise satisfactory to the Agent and the Majority Banks) would not exceed 3.25:1.0; and (iii) contemporaneously with the closing of such Permitted Acquisition, the Borrower shall provide to the Agent and the Banks a compliance certificate in the form of EXHIBIT C, duly certified by the principal financial or accounting officer of the Borrower, indicating the Borrower's compliance with (x) the financial covenants contained in ss.10 immediately prior to and, on A Pro FORma basis, immediately following such Permitted Acquisition and (y) on a PRO FORMA basis, the requirement set forth in ss.9.5.2(ii); anD PROVIDED FURTHER that, contemporaneously with the closing of such Permitted Acquisition, the Borrower shall (i) take such action as may be necessary or advisable in the opinion of the Agent to pledge or cause to be pledged to the Agent, for the benefit of the Banks and the Agent, on a perfected, first-priority basis all of the capital stock or other equity interests of such Subsidiary (except that 65% (or such larger percentage as may be permitted without creating material adverse tax consequences for the Borrower under the Code) of the capital stock of such Subsidiary that is organized under the laws of a jurisdiction other than the United States of America and the States (or the District of Columbia) thereof shall be pledged) pursuant to a pledge agreement in form and substance satisfactory to the Agent, which such pledge agreement shall be a Stock Pledge Agreement and a Security Document hereunder, (ii) cause any such Subsidiary which is or is to become a Guarantor to guaranty all of the Obligations hereunder pursuant to a Guaranty in the form of EXHIBIT E, which Guaranty shall be a Guaranty and Security Document hereunder, (iii) cause any such Subsidiary which is or is to become a Guarantor to take all steps as may be necessary or advisable in the opinion of the Agent to grant to the Agent, for the benefit of the Banks and the Agent, a first priority, perfected security interest in substantially all of its assets as collateral security for such guaranty, pursuant to security documents, mortgages, pledges and other documents in form and substance satisfactory to the Agent, each of which documents shall be Security Documents hereunder; and (iv) deliver to the Agent all such evidence of corporate authorization, legal opinions (including local counsel opinions where applicable), and other documentation as 4 -4- the Agent may request. To the extent that any such Permitted Acquisition alters the accuracy or completeness of any of the Schedules hereto, the Borrower shall deliver to the Agent, contemporaneously with the delivery of the loan documentation referred to above, revised schedules reflecting changes resulting from such Permitted Acquisition; PROVIDED that the Agent shall only be required to accept such revised schedules, and such revised schedules shall only become part of this Credit Agreement, in the event that the Borrower shall have taken any and all action necessary to bring such newly acquired Subsidiary into compliance with each representation and warranty set forth herein, including in ss.7 hereof; and PROVIDED FURTHER that no change resulting from any Permitted Acquisition would have a material adverse effect on the Borrower and the other Transaction Parties, taken as a whole." Ss.4. AMENDMENT OF SS.9.10 OF THE CREDIT AGREEMENT. Section 9.10 of the Credit Agreement is hereby amended by deleting the last sentence thereof in its entirety and substituting in lieu thereof the following: "Neither the Borrower nor any of the other Transaction Parties shall (a) without limiting the Indebtedness and Investment limitations set forth in ss.ss.9.1(i), 9.3(f) and 9.3(g), transfer assets to Hadco Scotland, Hadco Ireland, Hadco Singapore (following the incorporation thereof), Hadco Malaysia or any Section 9.5.2 Subsidiary in an aggregate amount exceeding, for all such entities, $2,000,000 or (b) permit Hadco Scotland, Hadco Ireland, Hadco Singapore (following the incorporation thereof), Hadco Malaysia or any Section 9.5.2 Subsidiary at any one time to own, hold or have an interest in, property or assets, whether tangible or intangible and including cash and cash equivalents, in excess of those reasonably required for the conduct of each such entity's business operations in the ordinary course." SS.5. CONDITIONS TO EFFECTIVENESS. This Amendment shall be deemed to be effective as of the date first written above (the "Effective Date") upon the Agent's receipt of the following, each in form and substance satisfactory to the Agent: (a) facsimile copies of original counterparts (to be followed promptly by original counterparts) or original counterparts of this Amendment, duly executed by each of the Borrower, the Guarantors, the Agent and the Majority Banks; (b) each of the Borrower and the Guarantors shall have certified (a) that its charter or other incorporation documents and by-laws have not been amended since the date such charter or other incorporation documents and by-laws were certified to the Agent (or shall deliver the same if amended), (b) that it is in good standing or is authorized to do business in its state of incorporation and in each 5 -5- state in which it does business, (c) resolutions of its Board of Directors authorizing this Amendment and the transactions contemplated hereby, and (d) that its Perfection Certificate is true and correct in all material respects as of the date hereof (or shall deliver an amended and restated Perfection Certificate); (c) such other documents, agreements and items as the Agent may require. SS.6. REPRESENTATIONS AND WARRANTIES; NO DEFAULT; AUTHORIZATION. Each of the Borrower and the Guarantors hereby represents and warrants to each of the Agent and the Banks as follows: (a) Each of the representations and warranties of the Borrower and the Guarantors contained in the Credit Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with the Credit Agreement, the other Loan Documents or this Amendment was true as of the date as of which it was made and is true as of the Effective Date (except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement, as amended hereby, and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse and to the extent that such representations and warranties relate expressly to an earlier date), and no Default or Event of Default has occurred and is continuing as of the date of this Amendment or would occur after giving effect to the transactions contemplated by this Amendment; and (b) This Amendment has been duly authorized, executed and delivered by the Borrower and each of the Guarantors, and shall be in full force and effect upon the satisfaction of the conditions set forth in ss.5 hereof, and the agreements of the Borrower and each of the Guarantors contained herein, in the Credit Agreement as herein amended, or in the other Loan Documents respectively, constitute the legal, valid and binding obligations of the Borrower and each of the Guarantors party hereto or thereto, enforceable against the Borrower or such Guarantor, 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. SS.7. RATIFICATION, ETC. Except as expressly amended hereby, the Credit 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 6 -6- references in the Credit Agreement or such other Loan Documents or in any related agreement or instrument to the Credit Agreement or such other Loan Documents shall hereafter refer to such agreements as amended hereby, pursuant to the provisions of the Credit Agreement. SS.8. NO PRESENT CLAIMS. In order to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect any of the rights, interests, contracts, collateral security or remedies of the Agent or any of the Banks, each of the Borrower and the Guarantors hereby acknowledges and agrees that: (i) neither it nor any of the other Transaction Parties has any claim or cause of action against the Agent, any of the Banks or any of their directors, officers, employees or agents; (ii) neither it nor any of the other Transaction Parties has any offset right, counterclaim or defense of any kind against any of its obligations, indebtedness or liabilities to the Agent and/or the Banks, including, without limitation, the Obligations; and (iii) each of the Agent and the Banks has heretofore properly performed and satisfied in a timely manner all of its obligations to each of the Borrower and the other Transaction Parties. SS.9. EXPENSES. Without limiting the expense reimbursement requirements set forth in ss.16 of the Credit Agreement, the Borrower agrees to pay on demand all costs and expenses, including reasonable attorneys' fees, of the Agent incurred in connection with this Amendment. SS.10. 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 Borrower or any of the Transaction Parties 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. SS.11. 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. SS.12. 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). 7 -7- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a document under seal as of the date first above written. HADCO CORPORATION By: /s/ F. Gordon Bitter ----------------------------------- Name: F. Gordon Bitter Title: CFO/Treasurer, Sr. Vice President BANKBOSTON, N.A., individually and as Agent By: /s/ Sharon A. Stone ----------------------------------- Name: Sharon A. Stone Title: Director BANK OF AMERICA, N.A. By: /s/ Robert Kosche ----------------------------------- Name: Robert Kosche Title: Vice President ABN AMRO BANK N.V. By: /s/ James S. Adelsheim By: /s/ John D. Rogers ------------------------------- ----------------------------------- Name: James S. Adelsheim Name: John D. Rogers Title: Group Vice President Title: Vice President BANK ONE, N.A. (f/k/a The First National Bank Of Chicago) By: /s/ Stephen E. McDonald ----------------------------------- Name: Stephen E. McDonald Title: Senior Vice President 8 -8- KEYBANK NATIONAL ASSOCIATION. By: /s/ Francis Lotz ----------------------------------- Name: Francis Lotz Title: Portfolio Officer THE BANK OF NOVA SCOTIA By: /s/ T.M. Pitcher ----------------------------------- Name: T.M. Pitcher Title: Authorized Signatory MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Francoise Berthelot ----------------------------------- Name: Francoise Berthelot Title: Vice President SUNTRUST BANK, ATLANTA By: /s/ W. David Wisdom ----------------------------------- Name: W. David Wisdom Title: Vice President CITIZENS BANK OF MASSACHUSETTS By: /s/ Bruce S. Daniels ----------------------------------- Name: Bruce S. Daniels Title: V.P. USTRUST By: Eastman, D.G. ----------------------------------- Name: Eastman, D.G. Title: Vice President 9 -9- FLEET BANK-NH By: /s/ Marcia Clatorre ----------------------------------- Name: Marcia Clatorre Title: Vice President FIRST UNION NATIONAL BANK, successor by merger to CORESTATES BANK, N.A. By: /s/ Robert A. Brown ----------------------------------- Name: Robert A. Brown Title: Vice President MELLON BANK, N.A. By: /s/ R. Jane Westrich ----------------------------------- Name: R. Jane Westrich Title: Vice President CITIZENS BANK NEW HAMPSHIRE By: /s/ Lori A. Chandonnais ----------------------------------- Name: Lori A. Chandonnais Title: Vice President 10 -10- Each of the undersigned hereby acknowledges the foregoing Amendment as of the Effective Date and agrees that its obligations under the Guaranty to which it is a party will extend to the Agreement, as so amended, and the other Loan Documents, as so amended. HADCO SANTA CLARA, INC. By: /s/ F. Gordon Bitter ----------------------------------- Title: Treasurer HADCO PHOENIX, INC. By: /s/ F. Gordon Bitter ----------------------------------- Title: Treasurer CCIR OF CALIFORNIA CORP. By: /s/ F. Gordon Bitter ----------------------------------- Title: Treasurer CCIR OF TEXAS CORP. By: /s/ F. Gordon Bitter ----------------------------------- Title: Treasurer EX-10.65 4 HADCO CORP. RETIREMENT PLAN 1 Exhibit 10.65 PLAN 001 FIN 04-2393279 HADCO CORPORATION RETIREMENT PLAN AS AMENDED AND RESTATED THROUGH MARCH 3,1999 June 17, 1999 (2) 2 i TABLE OF CONTENTS PAGE NO. INTRODUCTION...................................................................1 ARTICLE I -DEFINITIONS.........................................................2 ARTICLE II -PLAN PARTICIPATION................................................11 2.01 INITIAL PARTICIPATION.......................................11 2.02 CESSATION OF PARTICIPATION..................................11 2.03 REINSTATEMENT OF ACTIVE PARTICIPATION.......................12 ARTICLE III -CONTRIBUTIONS AND ALLOCATIONS....................................13 3.01 PROFIT SHARING CONTRIBUTIONS................................13 3.02 401(k) CONTRIBUTIONS........................................14 3.03 MATCHING CONTRIBUTIONS......................................14 3.04 QUALIFIED NON-ELECTIVE CONTRIBUTIONS........................15 3.05 AFTER-TAX CONTRIBUTIONS.....................................16 3.06 ROLLOVER CONTRIBUTIONS......................................16 3.07 FORFEITURES.................................................17 3.08 INVESTMENT ADJUSTMENT.......................................17 3.09 LIMITATIONS ON ALLOCATIONS AND CONTRIBUTIONS................17 3.10 ALLOCATION OF EXCESS ALLOCATIONS AND CONTRIBUTIONS..........23 3.11 CONTRIBUTIONS FOR TOP HEAVY PLAN YEARS......................26 3.12 CONTRIBUTIONS UNDER USERRA..................................27 ARTICLE IV -DISTRIBUTIONS PRIOR TO TERMINATION OF EMPLOYMENT..................27 4.01 DISTRIBUTIONS FROM AFTER-TAX CONTRIBUTIONS ACCOUNTS.........27 4.02 DISTRIBUTIONS FROM PROFIT SHARING ACCOUNT...................27 4.03 DISTRIBUTIONS FROM ROLLOVER ACCOUNT.........................28 4.04 DISTRIBUTIONS FROM 401(k) ACCOUNT (INCLUDING 401(k) AND QUALIFIED NON-ELECTIVE CONTRIBUTIONS) AND MATCHING CONTRIBUTIONS ACCOUNT.......................................28 4.05 PROCEDURES FOR PERMITTED WITHDRAWALS........................29 4.06 LOANS TO PARTICIPANTS.......................................31 4.07 DISTRIBUTIONS PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDER.......................................................33 ARTICLE V -VESTING............................................................34 5.01 FULL VESTING................................................34 5.02 PARTIAL VESTING.............................................35 5.03 VESTING AFTER RECEIPT OF DISTRIBUTION.......................36 5.04 VESTING FOR TOP HEAVY PLAN..................................37 5.05 CREDITING YEARS OF SERVICE..................................37 3 -ii- ARTICLE VI -DISTRIBUTION AT RETIREMENT, DEATH, OR DISABILITY..................40 6.01 DISTRIBUTION AT RETIREMENT..................................40 6.02 DISTRIBUTION UPON INCURRING DISABILITY......................41 6.03 DISTRIBUTIONS AT DEATH......................................41 6.04 NOTICES AND ELECTION PROCEDURES.............................42 6.05 DEFINITIONS AND APPLICATION.................................44 6.06 DISTRIBUTION OF SMALL ACCOUNTS..............................45 ARTICLE VII -TERMINATION OF EMPLOYMENT........................................46 7.01 TERMINATION DISTRIBUTIONS...................................46 7.02 TERMINATION FORFEITURES.....................................46 7.03 REPAYMENT TO REINSTATE FORFEITED AMOUNTS....................47 ARTICLE VIII -INVESTMENT OF TRUST FUNDS.......................................48 8.01 TRUSTEE'S RESPONSIBILITY....................................48 8.02 DIRECTED INVESTMENTS OF PARTICIPANT ACCOUNTS................48 8.03 INVESTMENT COMMITTEE........................................48 ARTICLE VIIIA -PROVISIONS FOR RADIAN SOURCE ACCOUNTS..........................51 8A.01 PROTECTED BENEFITS, RIGHTS AND FEATURES........................51 8A.02 IN-SERVICE WITHDRAWALS.........................................51 8A.03 PARTICIPANT LOANS..............................................51 8A.04 DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT, DISABILITY, RETIREMENT OR DEATH............................................52 ARTICLE IX -ADMINISTRATION....................................................57 9.01 ALLOCATION OF RESPONSIBILITY................................57 9.02 APPOINTMENT OF PLAN ADMINISTRATOR...........................57 9.03 ESTABLISHMENT AND VALUATION OF ACCOUNTS.....................57 9.04 CLAIMS PROCEDURE............................................68 9.05 RECORDS AND REPORTS.........................................59 9.06 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR.................59 9.07 RULES AND DECISIONS.........................................59 9.08 AUTHORIZATION OF BENEFITS PAYMENTS..........................60 9.09 APPLICATION AND FORMS FOR BENEFITS..........................60 9.10 FACILITY OF PAYMENT.........................................60 ARTICLE X -MISCELLANEOUS......................................................61 10.01 NONGUARANTEE OF EMPLOYMENT..................................61 10.02 RIGHTS OF EMPLOYEES AND BENEFICIARIES.......................61 10.03 NONALIENATION OF BENEFITS...................................61 10.04 DISCONTINUANCE OF EMPLOYER CONTRIBUTIONS....................61 10.05 NO REVERSION IN EMPLOYER....................................61 10.06 JURISDICTION................................................62 10.07 TIMING OF DISTRIBUTIONS.....................................62 10.08 BENEFICIARY DESIGNATIONS....................................63 1 4 -iii- 10.09 BENEFITS OF LOST PARTICIPANTS...............................64 10.10 DIRECT TRUSTEE-TO-TRUSTEE TRANSFER OPTION...................65 ARTICLE XI -AMENDMENTS AND ACTION BY EMPLOYER.................................66 11.01 AMENDMENTS..................................................66 11.02 ACTION BY EMPLOYER..........................................66 ARTICLE XII -SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS..........67 12.01 SUCCESSOR EMPLOYER..........................................67 12.02 PLAN ASSETS.................................................67 ARTICLE XIII -PLAN TERMINATION................................................69 13.01 RIGHT TO TERMINATE..........................................69 13.02 PARTIAL TERMINATION.........................................69 13.03 LIQUIDATION OF THE PLAN.....................................69 13.04 MANNER OF DISTRIBUTION......................................69 ARTICLE XIV -DISCHARGE OF DUTIES BY FIDUCIARIES...............................70 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 Plan; and WHEREAS, the Employer has recently amended said Plan on September 15, 1998, December 2, 1998 and March 3, 1999, such amendments to be effective on or before October 1, 1998; NOW, THEREFORE, the Employer hereby publishes this Restatement of the HADCO Corporation Retirement Plan reflecting amendments adopted through March 3, 1999 for those of its Employees entitled to participate herein pursuant to the provisions hereof. 6 -2- ARTICLE I DEFINITIONS Whenever used herein or in the Trust agreement, the following words and phrases shall have the meanings set forth below, unless a different definition is specifically provided or a different meaning is clearly required by the context in which such word or phrase is used. The words and phrases are in alphabetical order and are capitalized when used throughout the Plan and Trust agreement. (1/l/92) 1.01 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) 1.02 AFFILIATED EMPLOYER means any corporation which is a member of controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Employer, any trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with the Employer, any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Employer, and any other entity required to be aggregated with the Employer pursuant to regulations under Section 414(o) of the Code. (1/l/88) 1.03 AFTER-TAX CONTRIBUTIONS ACCOUNT shall mean the portion of a Participant's interest in this Plan which is attributable to his After-Tax Contributions. (Name change effective 1/l/92) 1.04 AFTER-TAX CONTRIBUTIONS shall mean the voluntary contributions made by a Participant pursuant to Section 3.05 of the Plan. (Name change effective 1/l/92) 1.05 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. 1.06 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) 1.07 CODE shall mean the Internal Revenue Code of 1986 and amendments thereto. (1/l/87) 1.08 COMPENSATION generally shall mean wages as defined in Section 3401 (a) of the Code and all other payments of compensation to an Employee by the Employer (in the course of the Employer's trade or business) for the Plan Year, for which the Employer is required to furnish the Employee a written statement under Section 6041(d) and 6051(a)(3) of the Code. Compensation shall be determined without regard to any rules under Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed. 2 7 -3- 414(q) Compensation shall mean Compensation increased by elective deferrals as defined in Section 402(g)(3) of the Code and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income of the Employee under Section 125 of the Code. (1/l/98) 401(k) Compensation shall mean 414(q) Compensation reduced by the amount of any cash bonuses, noncash fringe benefits, moving expenses and disability paid to the Employee for the Plan Year. (1/l/92; 3/10/93) 1.09 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. 1.10 DETERMINATION DATE shall mean December 31. (1/l/87) 1.11 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. 1.12 EARLY RETIREMENT DATE shall mean the date the Participant attains age fifty-five (55) and completes seven (7) Years of Service. (10/l/97) 1.13 EFFECTIVE DATE shall mean the original effective date of the Plan, October 27, 1973. 1.14 EMPLOYEE shall mean any individual who is employed on or after the Effective Date by the Employer or by any Affiliated Employer, other than a non-resident alien employed outside the United States, and any individual who is a Leased Employee deemed to be an Employee pursuant to Section 1.28 below. (1/l/88) Notwithstanding the preceding paragraph, if a group of individuals would otherwise become Employees within the meaning of this Section 1.14 as a result of an asset or stock acquisition, merger or other similar transaction occurring on or after January 1, 1997, such individuals shall not become Employees hereunder until the date the Board of Directors of the Employer affirmatively votes to include such group in the Plan. (1/l/97) 1.15 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) 1.16 EMPLOYER CONTRIBUTIONS shall mean the contributions paid hereunder by the Employer to the Trustee in accordance with the provisions of Article III of this document. 3 8 -4- 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 2.01 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 generally means, with respect to any Employee or former Employee, any individual who is the spouse of the Employee or former Employee, a lineal ascendant or descendant of the Employee or former Employee, or the spouse of any such lineal ascendant or descendant. (1/l/88) 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 Profit Sharing Account and/or Matching Contributions Account which is forfeited in accordance with Section 7.02 of Article VII hereof. (1/l/88) 1.22 401(k) ACCOUNT shall mean that portion of a Participant's Account which is attributable to 401(k) Contributions and Qualified Non-elective Contributions made on behalf of such Participant under Sections 3.02 and 3.04 of the Plan. (1/l/88) (Name change effective 1/l/92) 1.23 401(k) CONTRIBUTIONS 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 made pursuant to a salary reduction agreement under Section 3.02 of the Plan. (1/l/88) (Name change effective 1/l/92) 1.24 HIGHLY COMPENSATED EMPLOYEE shall mean, for Plan Years beginning on or after January 1, 1997, an Employee who performs services for the Employer during the determination year and (a) was a five percent owner at any time during the determination year or the look-back year or (b) received 414(q) Compensation from the Employer in excess of $80,000.00 for the look-back year and was in the top-paid group of Employees for such look-back year. For Plan Years ending on or before December 31, 1996, Highly Compensated Employee shall mean an Employee who performs services for the Employer during the determination year and is in one or more of the following groups: (a) Employees who were five percent owners of the Employer at any time during the look-back year or the determination year; (b) Employees who received 414(q) Compensation during the look-back year in excess of $75,000.00; (c) Employees who received 414(q) Compensation during the look-back year in excess of $50,000.00 and who were in the top-paid group for the look-back year; 4 9 -5- (d) Employees who were officers of the Employer during the look-back year and who received 414(q) Compensation during the look-back year in excess of 50% of the limit in effect under Section 415(b)(1)(A) of the Code for that year; and (e) Employees who were in the group of the one hundred Employees who received the most 414(q) Compensation from the Employer during the determination year and are also described in any of paragraphs (b), (c) or (d) above when those paragraphs are modified to substitute the determination year for the look-back year. Highly Compensated Employee shall also include any former Employee who separated from service prior to the determination year and who was an active Highly Compensated Employee in the year of separation or in any determination year after attaining age 55, except as provided in the following sentence. A former Employee who separated from service prior to 1987 shall be treated as Highly Compensated Employee only if during the separation year, the year preceding the separation year, the last year ending before the Employee's 55th birthday, or any year after the Employee attained age 55, the Employee was a five percent owner or received 414(q) Compensation in excess of $50,000.00. The following rules apply for purposes of this definition: The "determination year" shall be the Plan Year for which testing is being performed. The "look-back year" shall be the twelvemonth period immediately preceding the determination year. Each Employee who is, on any day during a determination year or lookback year ending on or before December 31, 1996, a Family Member of either a five percent owner who is an active or former Employee or a Highly Compensated Employee who is one of the ten most highly compensated Employees, ranked on the basis of 414(q) Compensation paid by the Employer during such year, shall be aggregated with the five percent owner or top ten Highly Compensated Employee. In such case, the Family Members and five percent owner or top ten Highly Compensated Employee shall be treated as a single Employee receiving compensation and plan contributions or benefits equal to the sum of such compensation, contributions or benefits of the Family Member and five percent owner or top ten Highly Compensated Employee. The determination of who is a Highly Compensated Employee, including the determination of Employees who are five percent owners, the number and identity of Employees in the top-paid group, the top one hundred Employees, the number of Employees treated as officers, and the compensation that is considered (including adjustments by the Secretary of the Treasury for cost of living changes), will be made in accordance with Section 414(q) of the Code and the regulations thereunder. (1/1/88; 1/1/97) 1.25 HOUR OF SERVICE shall mean: 10 -6- (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 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 2530.200b2 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. 1.26 INVESTMENT COMMITTEE means the committee appointed by the Employer and acting in accordance with Section 8.03 of the Plan. (1/l/89) 1.27 KEY EMPLOYEE generally 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 414(q) Compensation in excess of 50% of the limit in effect under Section 415(b)(1)(A) of the Code for such year; (b) One of the ten (10) Employees having an annual 414(q) Compensation in excess of the limitation 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) five percent owner of the Employer; or (d) A one percent owner of the Employer having an annual 414(q) Compensation in excess of $150,000. The determination of who is a Key Employee, including the determination of the Employees who are one percent or five percent owners, the number of Employees treated as officers, and the compensation that is considered, will be made in accordance with Section 416(i) of the Code and the regulations thereunder. (1/l/88) 11 -7- 1.28 LEASED EMPLOYEE shall mean any individual (other than an Employee) who, pursuant to an agreement between the Employer and any other person (referred to as the "leasing organization") has performed services for the Employer on a substantially full time basis for a period of at least one year, if such services are performed under the primary direction or control of the Employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer. A Leased Employee shall not be considered an Employee if (a) such individual is covered by a money purchase pension plan providing (i) a nonintegrated employer contribution rate of at least ten percent of compensation as defined in Code Section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under Code Sections 125, 402(a)(8), 402(h) or 403(b), (ii) immediate participation, and (iii) full and immediate vesting; and (b) Leased Employees do not constitute more than 20 percent of the Non-highly Compensated Employees of the Employer. (1/l/88; 1/l/97) 1.29 MATCHING CONTRIBUTIONS shall mean contributions to the Trust made by the Employer for the Plan Year under Section 3.03 of the Plan and allocated to a Participant's Matching Contributions Account by reason of the Participant's 401(k) Contributions. (1/l/88) 1.30 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) 1.31 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) 1.32 NON-HIGHLY COMPENSATED EMPLOYEE shall mean an Employee who is neither a Highly Compensated Employee nor a Family Member of a Highly Compensated Employee. (1/l/88) 1.33 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. 12 -8- 1.34 PARTICIPANT shall mean an Employee who is actively participating in the Plan in accordance with the provisions of Section 2.01 of Article II hereof. 1.35 PARTICIPANT'S ACCOUNT shall mean a Participant's Profit Sharing Account, Matching Contributions Account, After-Tax Contributions Account, 401(k) Account and Rollover Account referred to collectively. (1/l/88) 1.36 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 twelve month 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) 1.37 PLAN shall mean the HADCO Corporation Retirement Plan. (Name change effective I/l/92) 1.38 PLAN ADMINISTRATOR shall mean the Employer or such other person or entity appointed by the Employer and acting in accordance with Section 9.02 of the Plan. If the functions of the Plan Administrator are assigned to the Administrative Committee, PLAN ADMINISTRATOR shall mean the Administrative Committee. (1/l/92) 1.39 PLAN FIDUCIARY shall mean each of the Employer, the Plan Administrator, the Investment Committee, and the Trustee, but only with respect to the specific responsibilities of each for Plan and Trust Administration, all as described in Article IX, and shall also mean any investment manager appointed under Article VIII. (1/l/92) 1.40 PLAN YEAR shall mean, for years ending on or before October 28, 1979, the Fiscal Year. There shall be a short Plan Year beginning October 28, 1979 and ending 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. (10/28/79) 1.41 PROFIT SHARING ACCOUNT shall mean the portion of a Participant's Account which is attributable to Profit Sharing Contributions made on behalf of such Participant. (1/1/88) (Name change effective 1/1/92) 1.42 PROFIT SHARING CONTRIBUTIONS shall mean contributions to the Trust made by the Employer for the Plan Year, other than 401(k) Contributions, Matching Contributions and Qualified Non-elective Contributions, and allocated to Profit Sharing Accounts under Section 3.01 of the Plan. (1/l/88) (Name change effective 1/l/92) 13 -9- 1.43 QUALIFIED JOINT AND SURVIVOR ANNUITY generally shall mean an annuity for the life of the Participant with a survivor annuity for the life of his spouse which is equal to two-thirds of the annuity payable during the joint lives of the Participant and his spouse, and which is the actuarial equivalent of a single life annuity for the life of the Participant. For benefits payable from account balances originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan, QUALIFIED JOINT AND SURVIVOR ANNUITY shall mean an annuity for the life of the Participant with a survivor annuity for the life of his spouse which is equal to fifty percent (50%) of the annuity payable during the joint lives of the Participant and his spouse, and which is the actuarial equivalent of a single life annuity for the life of the Participant. (10/l/97) 1.44 QUALIFIED NON-ELECTIVE CONTRIBUTIONS shall mean contributions to the Trust made by the Employer for the Plan Year, other than 401(k) Contributions, Profit Sharing Contributions, and Matching Contributions, and allocated to Participants' 401(k) Accounts under Section 3.04 of the Plan. (1/l/88) 1.45 ROLLOVER ACCOUNT shall mean the portion of a Participant's interest in this Plan which is attributable to his Rollover Contributions. (1/l/84) 1.46 ROLLOVER CONTRIBUTION shall mean a contribution made by an Employee from another qualified plan as provided in Section 3.06 of this Plan. (1/l/84) 1.47 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 Code 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 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 1.47: (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 or 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 14 -10- 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) 1.48 TRUST shall mean the HADCO Corporation Retirement Trust established under a separate trust agreement between the Employer and Trustee, and forming a part of this Plan. (1/l/92) 1.49 TRUSTEE shall mean any person or other entity appointed by the Employer to act as Trustee under the Trust, and any successor Trustee, who or which has executed and is acting under the Trust. (1/l/92) 1.50 VALUATION DATE shall mean the last day of each calendar quarter. 1.51 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 3 1, 1980 shall be credited with two Years of Service for purposes of determining his vested interest in his Profit Sharing Account. For purposes of crediting Years of Service under this Plan, an individual who becomes an Employee as a result of an asset or stock acquisition, merger or other similar transaction shall receive credit for service with his prior employer who was a party to such transaction. (10/28/79; 10/1/97) 1.52 Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise. 15 -11- ARTICLE II PLAN PARTICIPATION 2.01 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; provided, however, that "second anniversary" shall be substituted for "first anniversary" under this clause (ii) for an Employee who is absent from service beyond the first anniversary of the first day of absence 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/l/88) For purposes of determining eligibility to participate in this Plan, an individual who becomes an Employee as a result of an asset or stock acquisition, merger or other similar transaction shall receive credit for service with his prior employer who was a party to such transaction. (10/l/97) 2.02 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 shall cease to be an inactive Participant and become a former Participant. Active 16 -12- participation in this Plan subsequent to either of those dates shall be determined in accordance with Section 2.03. 2.03 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) 17 -13- ARTICLE III CONTRIBUTIONS AND ALLOCATIONS 3.01 PROFIT SHARING CONTRIBUTIONS The Employer may make annual Profit Sharing Contributions to the Trust in accordance with this Section 3.01 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 3.01 and in Section 3.09, 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 3.09. The Profit Sharing Contribution for each Fiscal Year shall be paid to the Trustee as soon as practicable after the end of the Fiscal Year, but in any event not later than the due date for the Employer's federal income tax return for such Fiscal Year, including extensions. If no Profit Sharing contribution is to be made for a particular Fiscal Year, the Employer shall so notify the Trustee within sixty (60) days after the end of such Fiscal Year. Profit Sharing Contributions shall be allocated to the Profit Sharing Accounts of those Participants who shall have received any 401(k) Compensation during such Fiscal Year and who are employed on the last day of the Fiscal Year. Such contribution shall be allocated according to the ratio that each such Participant's 401(k) Compensation for the Fiscal Year bears to the total 401(k) Compensation of all such Participants for the Fiscal Year. For individuals who have become Participants during the 1997 Fiscal Year as a result of an asset or stock acquisition, merger or other similar transaction, the 401(k) Compensation to be taken into account hereunder for said Fiscal Year shall be 401(k) Compensation received during the period from January 1, 1997 through October 25, 1997 from the Employer or from the individual's prior employer who was a party to the transaction. For individuals who have become Participants during the 1998 Fiscal Year 18 -14- as a result of an asset or stock acquisition, merger or other similar transaction, the 401(k) Compensation to be taken into account hereunder for said Fiscal Year shall be 401(k) Compensation received during the period from April 1, 1998 through October 31, 1998 from the Employer or from the individual's prior employer who was a party to the transaction. (1/1/88; 3/10/93; 1/1/97; 1/1/98) 3.02 401(k) CONTRIBUTIONS Effective as of April 1, 1988, an Employee who has met the eligibility and participation requirements of Article II may elect to defer not less than 1% nor more than 15% of his 401(k) Compensation pursuant to a salary reduction agreement with the Employer, in lieu of receiving cash compensation. Such deferred amounts shall be paid by the Employer to the Trustee as 401(k) Contributions promptly following each pay period and shall be allocated to the Participant's 401(k) Account. 401(k) Contributions may be made under this Section 3.02 without regard to current or accumulated Net Profits of the Employer. An initial election to authorize 401(k) Contributions must be effective as of an Entry Date following the date of the election. A Participant may change the amount of his 401(k) Contribution as of the beginning of any calendar quarter, or more frequently if administratively feasible, and may revoke any election to authorize 401(k) Contributions at any time. No such change or revocation may be retroactively effective. No Participant shall be required to make an election under this Section 3.02. No Employee shall be permitted to have 401(k) Contributions made under this Plan during any calendar year in excess of $7,000.00 adjusted for cost of living changes determined by the Secretary of the Treasury under Section 402(g) of the Code. In addition, 401(k) Contributions on behalf of Highly Compensated Employees shall be limited as provided in Section 3.09. The provisions of Section 4.04 shall further limit the election and amount of 401(k) Contributions for any Participant who has received a hardship distribution pursuant to that Section. (1/l/88; 7/l/96) 3.03 MATCHING CONTRIBUTIONS The Employer shall make Matching Contributions to the Trust on behalf of each Participant for whom 401(k) Contributions have been made during the Plan Year, in accordance with this Section 3.03 and subject to the limits of Section 3.09. The amount of the Matching Contribution for Plan Years ending on or before December 31, 1996 shall be equal to 25% of the amount of the Participant's aggregate 401(k) Contributions for the Plan Year that do not exceed four (4%) percent of the Participant's aggregate 401(k) Compensation for the Plan Year. 19 -15- The amount of the Matching Contribution for the 1997 Plan Year shall be equal to the sum of (1) 25% of the amount of the Participant's aggregate 401(k) Contributions for the period from January 1, 1997 through October 31, 1997 that do not exceed four (4%) percent of the Participant's aggregate 401(k) Compensation for such period, and (2) 50% of the amount of the Participant's aggregate 401(k) Contributions for the period from November 1, 1997 through December 31, 1997 that do not exceed six (6%) percent of the Participant's aggregate 401(k) Compensation for such period. The amount of the Matching Contribution for Plan Years beginning on or after January 1, 1998 shall be equal to 50% of the amount of the Participant's aggregate 401(k). Contributions for the Plan Year that do not exceed six (6%) percent of the Participant's aggregate 401(k) Compensation for the Plan Year. The Employer's Matching Contribution for each Participant shall be recalculated monthly or more frequently based upon the Participant's year-to-date 401(k) Contributions and 401(k) Compensation. For the 1997 Plan Year, any Participant who reached the maximum permitted 401(k) Contributions under Section 3.02 prior to the end of the Plan Year and who is employed on the last day of the Plan Year shall be treated as having made his 401(k) Contributions and having received his 401(k) Compensation in equal monthly amounts over the entire Plan Year. Matching Contributions under this Section 3.03 may be made without regard to current or accumulated Net Profits. Matching Contributions shall be paid by the Employer to the Trustees 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. (1/l/88; 1/l/94; 11/l/97) 3.04 QUALIFIED NON-ELECTIVE CONTRIBUTIONS The Employer may make Qualified Non-elective Contributions to the Trust in accordance with this Section 3.04 for any Plan Year. If a Participant authorizes 401(k) Contributions under Section 3.02 when he first becomes eligible to do so, the Employer shall contribute to the Trust on behalf of such Participant as a Qualified Non-elective Contribution the sum of $100.00 without regard to the amount of the 401(k) Contribution. Any additional Qualified Non-elective 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,.09, provided that the Board of Directors may determine that no Qualified Non-elective Contribution shall be made for a particular Plan Year, and provided further that the Board of Directors may authorize any additional Qualified Non-elective Contribution to be allocated among all Participants who are Non-highly Compensated Employees equally, or according to the ratio that each such Participant's 401(k) Contributions for the 20 -16- Plan Year bears to the total 401(k) Contributions of all Participants who are Non-highly Compensated Employees, or according to the ratio that each such Participant's Compensation bears to the total Compensation of all Participants who are Non-highly Compensated Employees for the Plan Year. Qualified Non-elective Contributions under this Section 3.04 may be made without regard to current or accumulated Net Profits. Qualified Non-elective Contributions shall be paid to the Trustee 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, shall be allocated to the 401(k) Accounts of Participants on whose behalf the contributions are made, and shall be fully vested when made. (1/l/88) 3.05 AFTER-TAX CONTRIBUTIONS For Plan Years ending on or before December 31, 1987, a Participant may elect to make After-Tax Contributions to the Trust by executing an application authorizing the Employer to make regular payroll deductions of said After-Tax Contributions or by means of a lump sum payment to the Trust. The amount of such After-Tax Contributions shall be subject to the limitations of Section 3.09, 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. After-Tax Contributions shall be allocated to the After-Tax Contributions Account of the Participant who has made such contribution. (1/l/88) 3.06 ROLLOVER CONTRIBUTIONS An Employee may, with the consent of the Plan Administrator and the Trustee, contribute to the Trust a participant note for a plan loan or cash as a Rollover Contribution from another qualified plan or trust or an individual retirement account or annuity in accordance with Sections 402(c)(4), 403(a)(4) or 408(d)(3) of the Code and the regulations thereunder. A participant note for a plan loan must be assigned to the Trust directly from the other qualified plan or trust. The Plan Administrator or Trustee shall maintain a separate Rollover Account under the Trust for each Employee who has made a Rollover Contribution. All such Rollover Contributions and the investments thereon shall immediately become and at all times remain fully vested in the Employee. Rollover contributions shall not be taken into consideration in determining the limitations set forth in Section 3.09. (1/l/88; 1/l/97) 21 -17- 3.07 FORFEITURES Any Forfeitures from Profit Sharing Accounts which have become available for distribution during a Plan Year shall be credited to the Profit Sharing Accounts of those Participants who are entitled to share in the Employer's Profit Sharing Contribution for the Fiscal Year ending with or within such Plan Year (regardless of whether a Profit Sharing Contribution has been made) and such amounts shall be allocated in the same manner as the Employer's Profit Sharing Contribution under Section 3.01. 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 3.03 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 401(k) Account bears to the aggregate of all Participants' Matching Contributions Accounts and 401(k) Accounts, and such amounts shall be credited to such Matching Contributions Accounts, subject to Sections 3.09 and 3.10. (1/l/88) 3.08 INVESTMENT ADJUSTMENT Beginning as of July 1, 1996, the net earnings or losses of the trust fund shall be computed on a daily basis. Dividends and interest shall be credited as of the date they are declared, and gains and losses from investments shall be credited or debited at the time they are realized. (1/l/88; 7/l/96) 3.09 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) or, if greater, one-fourth of the dollar limitation in effect under Section 415(b)(1)(A) of the Code, or (ii) for Plan Years ending on or before December 31, 1997, 25% of the Participant's Compensation for such Plan Year, or for Plan Years 22 -18- beginning on or after January 1, 1998, 25% of the Participant's 414(q) 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 After-Tax Contributions or such Participant's After-Tax Contributions in excess of six percent (6%) of his annual 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, 401(k) Contributions, Matching Contributions, Qualified Non-elective Contributions, After-Tax Contributions and Forfeitures. In the event the limits of this Section 3.09(a) are exceeded, the provisions of Section 3.10(a) shall become effective. (1/1/88; 1/1/98) (b) Maximum 401(k) Contributions ("ADP Test") 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: (i) the average actual deferral percentage for eligible Participants who are Non-highly Compensated Employees for the Plan Year multiplied by 1.25, or (ii) the average actual deferral percentage for eligible Participants who are Non-highly Compensated Employees for the Plan Year multiplied by 2.0, 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 Non-highly Compensated Employees by more than two percentage points or such lesser amount as the Secretary of the Treasury may prescribe by regulation, and provided further that the provisions of Section 3.09(d) are not applicable. For purposes of this Section 3.09(b) and Section 3.10(c), the following definitions shall be used: (x) "Actual deferral percentage" shall mean the ratio (expressed as a percentage and rounded to the nearest one-hundredth of a percent) of 401(k) Contributions and, to the extent needed to meet the requirements of Section 401(k)(3)(A)(ii) of the Code, Qualified Non-elective Contributions on behalf of the eligible Participant for the Plan Year to the eligible Participant's 414(q) Compensation for the Plan Year and shall be 23 -19- determined separately for each eligible Participant. The actual deferral percentage of an eligible Participant who does not elect to have 401(k) Contributions made to his Account shall be zero. (y) "Average actual deferral percentage" shall mean the average (expressed as a percentage and rounded to the nearest one-hundredth of a percent) of the actual deferral percentages of the eligible Participants in a group. (z) "Eligible Participant" shall mean any Participant who is eligible under the terms of the Plan to have 401(k) Contributions allocated to his Account for all or any part of the Plan Year and includes an Employee who would be a Participant but for his failure to elect 401(k) Contributions, an Employee whose eligibility to elect 401(k) Contributions has been suspended because of an election not to participate or because of a distribution or a loan, and an Employee who cannot elect 401(k) Contributions because the limitations on annual additions set out in Section 3.09(a) above would be exceeded. For purposes of calculating actual deferral percentages, a 401(k) Contribution shall be taken into account for the Plan Year being tested only if the contribution (1) is allocated to the Participant's Account as of a date within the Plan Year, (2) is not contingent upon the Participant's participation in the Plan or performance of services on any date subsequent to that date, (3) is actually paid to the trust no later than the end of the 12-month period immediately following the Plan Year to which the contribution relates, and (4) relates to compensation that, but for the Participant's election to authorize the contribution, would have been received by him in the Plan Year or within two and one-half months after the close of the Plan Year. Qualified Non-elective Contributions may be taken into account to the extent needed to meet the requirements of Section 401(k)(3)(A)(ii) of the Code, as set out in paragraphs (i) and (ii) above, in accordance with the provisions of Treasury Reg. ss.1.401(k)-1 (b) which is incorporated herein by reference. For Plan Years ending on or before December 31, 1996, for purposes of the ADP Tests under paragraphs (i) and (ii) above, Employees who are Family Members of a five percent owner or a Highly Compensated Employee who is one of the ten most highly compensated Employees, ranked on the basis of 414(q). Compensation paid by the Employer during such year, shall be aggregated with the Highly Compensated Employee. Where family aggregation is required, the related Employees are treated as one Highly Compensated Employee and the actual deferral percentage for the group is the ratio determined by combining the 414(q) Compensation, 401(k) Contributions and Qualified Non-elective Contributions of the Highly Compensated Employee and all Family Members. Once the ratio for the group has been determined, the 414(q) Compensation, 401(k) Contributions and Qualified Non-elective Contributions of each Family Member are not separately taken into account in the applicable test. 24 -20- The determination and treatment of the 401(k) Contributions, Qualified Non-elective Contributions and actual deferral percentage of any Participant shall satisfy such other requirements as may be prescribed under Treasury Reg. ss.1.401(k)-1(b). In the event the limits of this Section 3.09(b) are exceeded, the provisions of Section 3.10(c) shall become effective. (1/l/93) (c) Maximum Employee Contributions and Matching Contributions ("ACP Test") 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 Non-highly Compensated Employees for the Plan Year multiplied by 1.25; or (ii) The average contribution percentage for eligible Participants who are Non-highly Compensated Employees for the Plan Year multiplied by 2.0, 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 Non-highly Compensated Employees by more than two percentage points or such lesser amount as the Secretary of the Treasury may prescribe by regulation, and provided further that the provisions of Section 3.09(d) are not applicable. For purposes of this Section 3.09(c) and Section 3.10(d), the following definitions shall be used: (w) "Average contribution percentage" shall mean the average (expressed as a percentage and rounded to the nearest one-hundredth of a percent) of the contribution percentages of the eligible Participants in a group. (x) "Contribution percentage" shall mean the ratio (expressed as a percentage and rounded to the nearest one-hundredth of a percent), of the sum of the employee contributions and Matching Contributions under the Plan on behalf of the eligible Participant for the Plan Year to the eligible Participant's 414(q) Compensation for the Plan Year and shall be determined separately for each eligible Participant. The contribution percentage of an eligible Participant who makes no employee contributions and receives no Matching Contributions shall be zero. (y) "Eligible Participant" shall mean any Participant who is eligible under the terms of the Plan to have Employee Contributions or Matching 25 -21- Contributions allocated to his account for all or any part of the Plan Year and includes an Employee who would be a Participant but for his failure to make contributions under this or any other Plan, an employee whose eligibility to make employee contributions or to receive Matching Contributions has been suspended because of an election not to participate, and an Employee who cannot make employee contributions or receive a Matching Contribution because the limitations on annual additions set out in Section 3.09(a) above would be exceeded. (z) "Employee Contributions" shall mean any mandatory or voluntary contribution to the plan that is treated at the time of contribution as an after-tax employee contribution and is allocated to a separate account to which earnings and losses are allocated and includes After-Tax Contributions and amounts attributable to Excess 401(k) Contributions as defined in Section 3.10(c) that have been recharacterized as contributed by the Participant to the Trust. Employee contributions do not include repayment of loans, repayment of distributions described in Section 411(a)(7)(C) of the Code and Section 7.03 of the Plan, and employee contributions that are transferred to the Plan from another Plan. For purposes of calculating actual contribution percentages, an employee contribution shall be taken into account for the Plan Year being tested only if the contribution is paid to the trust during the Plan year or paid to an agent of the Plan within the Plan Year and transmitted to the Trust within a reasonable period after the end of the Plan Year. An Excess 401(k) Contribution that is re-characterized shall be taken into account in the Plan Year in which the contribution would have been received in cash by the Participant had he not elected to defer the amount. A Matching Contribution shall be taken into account for a Plan Year only if it (1) is made on account of the Participant's elective or employee contributions for the Plan year, (2) is allocated to the Participant's Account as of a date within the Plan Year, and (3) is actually paid to the trust no later than the end of the 12-month period immediately following the Plan Year to which the contribution relates. A Matching Contribution that is forfeited to correct Excess Aggregate Contributions, or because the contribution to which it relates is treated as an Excess Deferral under Section 3.10(b), an Excess 401(k) Contribution under Section 3.10(c), or an Excess Aggregate Contribution under Section 3.10(d) shall not be taken into account for purposes of calculating actual contribution percentages. Qualified Non-elective Contributions may be treated as Matching Contributions and taken into account to the extent needed to meet the requirements of Section 401(m) (2)(A) of the Code, as set out in paragraphs (i) and (ii) above, if and to the extent not used to meet the requirements of Section 401(k)(3)(A)(ii) of the Code and if the requirements of Treasury Reg. ss.1.401 (m)-1(b)(5) are satisfied. For Plan Years ending on or before December 31, 1996, for purposes of the ACP Tests under paragraphs (i) and (ii) above, Employees who are Family Members of a five percent owner or a Highly Compensated Employee who is one of the ten 26 -22- most highly compensated Employees shall be aggregated with the Highly Compensated Employee. Where family aggregation is required, the related Employees are treated as one Highly Compensated Employee and the contribution percentage for the group is the ratio determined by combining the 414(q) Compensation, employee contributions and Matching Contributions of the Highly Compensated Employee and all Family Members. Once the ratio for the group has been determined, the 414(q) Compensation, employee contributions and Matching Contributions of each Family Member are not separately taken into account in the applicable test. (1/l/97) The determination and treatment of employee contributions, Matching Contributions and Qualified Non-elective Contributions and the contribution percentage of any eligible Participant shall satisfy such other requirements as may be prescribed under Treasury Reg. ss.1.401(m)(I)(b), which is incorporated herein by reference. In the event the limits of this Section 3.09(c) are exceeded, the provisions of Section 3.10(d) shall become effective. (1/l/93) (d) Restrictions on Multiple Use of Alternative Limitation for ADP and ACP Tests The provisions of Sections 3.09(b)(ii) and 3.09(c)(ii) set forth alternative methods of compliance with Sections 401(k) and 401(m) of the Code, respectively, and are referred to in this section as the "alternative limitation." Multiple use of the alternative limitation under both Section 3.09(b) and Section 3.09(c) is not permitted. A determination whether multiple use of the alternative limitation has occurred shall be made in accordance with Treasury Reg. ss.1.401(m)-1(b). In the event multiple use of the alternative limitation has occurred with respect to a Plan Year, such multiple use shall be corrected in accordance with this Section 3.09(d). The Employer shall have the option of eliminating the multiple use of the alternative limitation by making Qualified Non-elective Contributions. If such Qualified Non-elective Contributions are not made, or are made but do not eliminate the multiple use of the alternative limitation, the actual contribution percentage of the entire group of eligible Participants who are Highly Compensated Employees shall be reduced so that there is no multiple use of the alternative limitation. The calculation of the amount of the reduction of the actual contribution percentages shall be made in accordance with the provisions of Treasury Reg. ss.1.401(m)-1(e)(2), which is incorporated herein by reference. (1/l/93) (e) Limitations on Compensation For Plan Years beginning after December 31, 1993, the Compensation of each Employee taken into account under this Plan shall not exceed $150,000.00, 27 -23- adjusted for cost of living changes determined by the Secretary of the Treasury under Section 401(a)(17)(B) of the Code. For Plan Years beginning after December 31, 1988 and before January 1, 1994, the Compensation of each Employee taken into account under this Plan shall not exceed $200,000 adjusted for cost of living changes determined by the Secretary of the Treasury under Section 401(a)(17) of the Code. The Compensation of an Employee who is a five percent owner or a Highly Compensated Employee who is one of the ten most highly compensated employees ranked on the basis of Compensation paid by the Employer during such year shall include the Compensation of the spouse of the Employee and of any lineal descendant of the Employee who has not attained age 19 before the end of the Plan Year, and such persons shall not be considered separate Employees. (1/l/89; 1/l/94) 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 3.09(a) above: (i) That portion of a Participant's After-Tax 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 3.09(a) above. (ii) If, after returning a Participant's After-Tax Contributions for that Plan Year as called for in (i) above, the limits of Section 3.09(a) are still exceeded, then the excess portion of the allocation of Profit Sharing Contributions and Forfeitures shall be reallocated to eligible Participants as a Forfeiture for the Year in the manner described in Section 3.07 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 3.07 of this Article Ill. 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 28 -24- 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 (adjusted for cost of living changes as provided in Section 3.02) 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 a 401(k) Contribution for purposes of applying Section 3.09(b). (1/l/88; 7/l/96) (c) Excess 401(k) Contributions The Plan Administrator may suspend, reduce or prohibit all 401(k) Contributions made on behalf of Participants who are Highly Compensated Employees for any Plan Year or part thereof, if the Plan Administrator in its discretion determines that such 401(k) Contributions may result in an actual deferral percentage that exceeds the limits of Section 3.09(b). In the event the limits of Section 3.09(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 then contributed by the Participant to the Trust, provided that such treatment does not cause the limitations of Sections 3.09(a) or 3.09(c) to be exceeded. (ii) For Plan Years ending on or before December 31, 1996, except as otherwise elected in writing by a Participant pursuant to (i) above, excess contributions and income or loss allocable thereto shall be distributed no 29 -25- 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. For Plan Years beginning on or after January 1, 1997, any distribution of excess contributions for any Plan Year shall be made to Highly Compensated Employees on the basis of the amount of contributions by, or on behalf of, each of such Employees. (1/1/97) Allocable income or loss shall include income or loss for the Plan Year in which the limits were exceeded. Allocable income or loss shall be determined by multiplying the income or loss for the Plan Year by a fraction, the numerator of which is the excess contributions for the Plan Year and the denominator of which is the Participant's account balance attributable to 401(k) Contributions, Matching Contributions and Qualified Non-elective Contributions as of the end of the Plan Year minus the income or plus the loss allocable to such account balance for the Plan Year. (1/1/88) The term "excess contributions" means, with respect to any Plan Year, the excess of (x) the aggregate amount of 401(k) Contributions, Matching Contributions and Qualified Non-elective 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 3.09(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 3.09(c) are exceeded for any Plan Year, excess aggregate contributions and income or loss 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 After-Tax Contributions or Matching Contributions were allocated. For Plan Years ending on or before December 31, 1996, 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. For Plan Years beginning on or after January 1, 1997, any distribution of excess aggregate contributions for any Plan Year shall be made to Highly Compensated 30 -26- Employees on the basis of the amount of contributions by, or on behalf of, each of such Employees. (1/1/97) Allocable income or loss shall include income or loss both for the Plan Year in which the limits were exceeded. Allocable income or loss shall be determined by multiplying the income or loss for the Plan Year by a fraction, the numerator of which is the excess aggregate contributions for the Plan Year and the denominator of which is the Participant's account balance attributable to After-Tax Contributions and Matching Contributions as of the end of the Plan Year minus the income or plus the loss allocable to such account balance for the Plan Year. 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 computing the contribution percentage under Section 3.09(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 3.09(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 1.47 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. (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 for 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 the amount in effect under Section 3.09(e). (7/l/96) (c) The annual Compensation of each Employee taken into account under this Plan shall not exceed $200,000 multiplied by the Adjustment Factor. For Plan Years 31 -27- beginning on or after January 1, 1989, Section 3.09(e) shall be applied in lieu of this Section 3.11(c). (1/l/89) 3.12 CONTRIBUTIONS UNDER USERRA Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Internal Revenue Code. ARTICLE IV DISTRIBUTIONS PRIOR TO TERMINATION OF EMPLOYMENT 4.01 DISTRIBUTIONS FROM AFTER-TAX CONTRIBUTIONS ACCOUNTS A Participant may, at any time prior to his separation from service with the Employer, whether by reason of death, disability, retirement or termination of employment, elect to receive a distribution equal to all or a specified portion of the value of his After-Tax Contributions Account. Any request for a distribution shall be made in accordance with the provisions of Section 4.05. For years ending prior to December 31, 1987, any Participant who receives a distribution from his After-Tax Contributions Account shall be prohibited from making After-Tax Contributions for a period of twelve (12) months. The Participant may elect to resume After-Tax 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 hereunder may not be returned to the Trust. 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 After-Tax Contributions Account shall be subject to the provisions of Article VI or VII, as the case may be. (1/l/92) 4.02 DISTRIBUTIONS FROM PROFIT SHARING ACCOUNT In no event shall a Participant be eligible to elect a distribution from his Profit Sharing Account except upon his termination from service with the Employer, whether by reason of death, disability, retirement or termination of employment, at which time such distribution shall be subject to the terms of Article VI or VII, as the case may be. 32 -28- (1/l/92) 4.03 DISTRIBUTIONS FROM ROLLOVER ACCOUNT (a) A Participant may, at any time after he has attained age 59 1/2, elect to withdraw a cash amount equal to all or a specified portion of his Rollover Account. Any withdrawal shall be made in accordance with the provisions of Section 4.05. (b) Prior to his termination from service with the Employer, a Participant may request, and the Plan Administrator may authorize, distributions from the Participant's Rollover Account in the event of hardship, as defined in Section 4.05. Any hardship distribution shall be made in accordance with the provisions of Section 4.05. (c) Upon a Participant's termination from service with the Employer, whether by reason of death, disability, retirement or termination of employment, distribution of the Participant's Rollover Account shall be subject to the terms of Article VI or VII, as the case may be. (Paragraphs (b) and (c) eff. 1/l/92; paragraph (a) eff. 1/l/93) 4.04 DISTRIBUTIONS FROM 401(k) ACCOUNT (INCLUDING 401(k) AND QUALIFIED NON-ELECTIVE CONTRIBUTIONS) AND MATCHING CONTRIBUTIONS ACCOUNT Prior to his termination from service with the Employer, a Participant shall be eligible to elect or request a distribution from his 401(k) Account (including 401(k) and Qualified Non-elective Contributions) or Matching Contributions Account only as provided herein. (a) A Participant may, at any time after he has attained age 59 1/2, elect to withdraw a cash amount equal to all or a specified portion of his 401(k) Account and the vested portion of his Matching Contributions Account. Any withdrawal shall be made in accordance with the provisions of Section 4.05. (1/l/93) (b) In the event this Plan terminates without the establishment of a successor plan, a Participant may elect to receive a lump sum distribution of the balance of his 401(k) Account and Matching Contributions Account. Any distribution shall be made in accordance with the provisions of Section 4.05. (c) A Participant may request, and the Plan Administrator may authorize, distributions from a Participant's 401(k) Account in the event of hardship, as defined in Section 4.05. Any hardship distribution shall be made in accordance with the provisions of Section 4.05. 33 -29- Any Participant who receives a hardship distribution under this Section 4.04(c) shall be prohibited from making 401(k) Contributions under this Plan, as well as any other elective contributions to all other plans of deferred compensation maintained by the Employer, for a period of twelve (12) months after the date of receipt of the distribution. The Participant may elect to resume 401(k) Contributions as of the Entry Date which succeeds the date of the hardship distribution by at least twelve (12) months, provided that the Participant's 401(k) Contributions for his taxable year immediately following the taxable year of the distribution shall not exceed the limit set forth in Section 3.02 of this Plan decreased by the amount of the Participant's 401(k) Contributions for the taxable year of the hardship distribution. An election to resume 401(k) Contributions must be made during the thirty (30) day period prior to the Entry Date on which the Participant wishes the resumption to be made effective. Hardship distributions under this Section 4.04(c) shall be limited to that portion of the Participant's 401(k) Account that is attributable to his 401(k) Contributions 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 distributions shall not include any portion of the Participant's 401(k) Account that is attributable to Qualified Non-elective Contributions or qualified employer matching contributions (if any) or any income earned thereon. (7/1/96) (d) 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 401(k) Account and Matching Contributions Account shall be subject to the provisions of Article VI or VII as the case may be. (1/l/92) 4.05 PROCEDURES FOR PERMITTED WITHDRAWALS (a) All requests for distributions under Sections 4.01, 4.03(a), 4.04(a) and 4.04(b) shall be made in accordance with non-discriminatory procedures established by the Plan Administrator. The minimum distribution amount shall be the total balance of the Account or in increments of $100.00. Distributions shall be made as soon as administratively feasible following the request for withdrawal. (b) Requests for hardship distributions under Sections 4.03(b) and 4.04(c) shall be made to the Plan Administrator. Distributions shall be made as soon as administratively feasible following approval of the request for distribution. Hardship shall mean an immediate and heavy financial need of the Participant where such Participant lacks other available resources to meet the need. The amount of the hardship distribution cannot exceed the amount necessary to satisfy the need. 34 -30- The following will be deemed immediate and heavy financial needs: expenses incurred or necessary for medical care, described in Code Section 213(d), of the Participant or the Participant's spouse, children or dependents; payment of the funeral expenses of a family member; payment of tuition, related educational fees and room and board expenses for not more than the next twelve months of postsecondary education for the Participant, or the Participant's spouse, children or dependents; the purchase (excluding mortgage payments) of a principal residence for the Participant; or the need to prevent the eviction of the Participant from, or a foreclosure on the mortgage of, the Participant's principal residence. A distribution will be deemed to be necessary to satisfy an immediate and heavy financial need of the Participant only if (i) the Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the Employer and (ii) the distribution is not in excess of the amount necessary to meet the immediate and heavy financial need (including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution). The Plan Administrator may determine that a distribution is necessary to satisfy an immediate and heavy financial need of the Participant if (i) the amount of the distribution is not in excess of the amount required to relieve the need and (ii) the need may not be satisfied from other resources that are reasonably available to the Participant, including resources of the Participant, the Participant's spouse and minor children. In making this determination, the Plan Administrator may rely upon the Participant's representation (unless the Plan Administrator has actual knowledge to the contrary) that the need cannot reasonably be relieved: (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Participant's assets; (iii) by cessation of 401(k) Contributions (for hardship distributions from 401(k) Accounts); or (iv) by other distributions or nontaxable (at the time of the loan) loans from plans maintained by the Employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need. For purposes of this paragraph, a need cannot reasonably be relieved by one of the actions listed above if the effect would be to increase the amount of the need. (c) If a distribution is to be made from any portion of a Participant's Account that accrued prior to July 1, 1996 and if the Participant is married, the spouse of the Participant must consent to any lump sum distribution in excess of $3,500. 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. (d) amounts withdrawn by a Participant may not be returned to the Trust. (1/l/92; 7/l/96) 35 -31- 4.06 LOANS TO PARTICIPANTS The Plan Administrator may, subject to rules of uniform application, authorize the Trustee to make loans to a Participant or to a Beneficiary, subject to the provisions of this Section 4.06. (a) Loans under this Section 4.06 may be made to any Participant, or to any former Participant or Beneficiary who is a party in interest under ERISA with respect to this Plan, so long as such individual has an account balance in his 401(k) account, Rollover Account and/or Matching Contributions Account. (1/1/92) (b) The amount of any loan to a Participant or Beneficiary, when added to the outstanding balance of all other loans from this Plan or a related plan to such Participant or Beneficiary, shall be limited to one-half of the present value of the Participant's or Beneficiary's vested interest in his 401(k) Account, Matching Contributions Account and Rollover Account, but shall not be more than fifty thousand ($50,000) dollars reduced by the excess, if any, of the highest outstanding balance of loans from the Plan during the one-year period ending on the day before the date on which the loan is made, over the outstanding balance of loans from the Plan on the date on which the loan is made. (1/1/92) (c) The minimum loan amount shall be $1,000 and the loan amount in excess of the minimum shall be in increments of $100.00. (d) Loans shall be made available to eligible Participants and Beneficiaries on a reasonably equivalent basis. The Plan Administrator may, however, reasonably decide to approve or deny a loan based upon an applicant's credit worthiness, other outstanding financial obligations, financial need and other factors that the Plan Administrator determines may adversely affect repayment of the loan. The Plan Administrator may charge a loan administration fee. (e) Any loan hereunder shall be evidenced by a valid promissory note, payable on a date or dates certain, with interest at a rate to be established by the Plan Administrator with reference to the then-current interest rates available from commercial lending institutions for similar loans. Monthly payments shall be in an amount that results in substantially level amortization of the principal and interest of the loan over the terms of the loan. 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 note shall provide that the loan is to be repaid within a period not exceeding five (5) years. The note shall also provide that the loan will become due and payable prior to the end of such period in the event of default by the borrower as defined below. (f) If the borrower is an Employee of the Employer, he shall authorize the Employer to withhold the amount of his periodic payments under the note from his compensation and to pay such amounts directly to the Trustee. 36 -32- (g) The Plan Administrator may require adequate security for the loan, determined with reference to the type and amount of security which would be required in the case of a similar arms-length transaction between unrelated parties in a commercial setting. The Participant's or Beneficiary's 401(k)Account, Matching Contributions Account and Rollover Account may be used as security for a loan, but only 50% of the present value of his vested interest in such Accounts, determined as of the origination of the loan, may be considered in determining the adequacy of such security. If any portion of such Accounts that accrued prior to July 1, 1996 is to be used as security, the spouse of a married Participant must consent in writing to the use of the Accounts as security and such consent must be given at the time the security interest is entered into. (h) A Participant or Beneficiary shall be in default with respect to any loan granted hereunder, and the note will become due and payable upon demand, upon the occurrence of any of the following: (1) Failure by the borrower to pay when due any interest or principal or both under the note; (2) The occurrence of an event of default under any other note of the borrower to the Trustee; (3) If any property pledged as security for the note becomes subject to attachment or garnishment; (4) If any property pledged as security for the note is disposed of without prior substitution of other security satisfactory to the Plan Administrator; or (5) The occurrence of an event requiring the commencement of benefit payments or a distribution of the borrower's vested interest in his Accounts under the Plan. In the event the Borrower makes an assignment for the benefit of creditors, files a petition in bankruptcy, is adjudicated insolvent or bankrupt, or becomes a subject of any wage earner plan under state or federal law, or in the event a bankruptcy or similar proceeding is commenced against borrower to which borrower consents, assents or acquiesces, or which remains undismissed or stayed for a period of 60 days, the note will become immediately due and payable. (i) The Plan Administrator shall take such actions as it deems reasonable and prudent to collect such amounts as are due and unpaid including but not limited to foreclosure on the security interest given to secure the loan. If the security interest is the Participant's or Beneficiary's 401(k) Account, Matching Contributions Account and/or Rollover Account the Plan Administrator may direct the Trustee to deduct such amounts from such Account or Accounts, in which event such amounts shall be treated as distributed to the borrower and applied by the 37 -33- borrower as a payment of the unpaid principal and interest under the note. The Plan Administrator shall not, however, take any action that would result in a disqualifying distribution under the Plan. (j) Any loan granted under this Section 4.06 shall be deemed to be made first from the borrower's 401(k) Account, then from his Matching Contributions Account, then from his Rollover Account, and the investment experience of such loan shall be credited to (or deducted from) the borrower's said Accounts in the proportion in which the fiends were borrowed. (1/ I /92) (10/l/89; Rollover Accounts added effective 1/l/92;7/l/96) 4.07 DISTRIBUTIONS PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDER All or a specified portion of a Participant's vested interest in his Participant's Account may be distributed to an Alternate Payee in the form of a single sum cash distribution pursuant to a qualified domestic relations order which meets the requirements of Section 414(p) of the Code prior to the time the Participant would be entitled to a distribution under the Plan. The distribution shall be made as soon as administratively feasible following the close of the calendar quarter coinciding with or next following a determination by the Plan Administrator that a domestic relations order is qualified. This section shall not be interpreted as requiring that a domestic relations order provide for an Alternate Payee's benefit to be paid in a particular form or at a particular time in order to be qualified. (1/l/93) 38 -34- ARTICLE V VESTING 5.01 FULL VESTING (a) A Participant shall be one hundred percent (100%) vested in his After-Tax Contributions Account, Rollover Account and 401(k) Account at all times. (b) A Participant's interest in his Profit Sharing Account shall become one hundred percent (100%) vested at the earliest of the following dates: (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; for Plan Years beginning after December 31, 1987, and ending on or before June 30, 1996, 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; and for Plan Years beginning after June 30, 1996, the date the Participant has completed three (3) Years of Service with the Employer, provided that if the Participant has completed three Years of Service on or before June 30, 1996 and is employed on that date, he shall become one hundred percent (100%) vested as of June 30, 1996; (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 10.04. (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; 39 -35- (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; 7/l/96) 5.02 PARTIAL VESTING Prior to the date that the Participant's interest in his Profit Sharing Account or Matching Contributions Account becomes fully vested in accordance with Section 5.01, his current vested interest shall be determined in accordance with (a), (b), (c) or (d) below: (a) For Plan Years ending on or before December 31, 1987, the following schedule shall apply with respect to Profit Sharing Accounts: Vested Percentage of Years of Service Participant's Profit With the Employer Sharing 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 and ending before June 30, 1996, the following schedule shall apply with respect to Profit Sharing Accounts: Vested Percentage of Years of Service Participant's Profit With the Employer Sharing 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: 40 -36- Vested Percentage of Years of Service Participant's Matching With the Employer Contributions Account ----------------- ---------------------- Less than 1 0% 1 33 1/3% 2 66 2/3% 3 or more 100% (1/l/88) (d) For Plan Years beginning on or after July 1, 1996, the following schedule shall apply with respect to both Profit Sharing Accounts and Matching Contributions Accounts: Vested Percentage of Years of Service Participant's Profit Sharing and With the Employer Matching Contributions Account ----------------- -------------------------------- Less than 1 0% 1 33 1/3% 2 66 2/3% 3 or more 100% (7/l/96) 5.03 VESTING AFTER RECEIPT OF DISTRIBUTION In the event that a Participant receives a distribution from his Profit Sharing 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: 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 41 -37- 5.04 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 Profit Sharing Account shall be determined in accordance with this Section 5.04 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 5.02(a), with respect to Plan Years ending on or before December 31, 1987: Vested Percentage of Years of Service Participant's Profit With the Employer Sharing 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 5.02(b) shall be applicable with respect to Plan Years beginning after December 31, 1987 and ending on or before June 30, 1996. The vesting schedule set out in Section 5.02(d) shall be applicable with respect to Plan Years beginning on or after July 1, 1996. (7/l/96) (d) For purposes of this Section 5.04, Years of Service shall be determined under the applicable provisions of Sections 1.50, 2.02 and 2.03 of this Plan. (e) At such time as the Plan ceases to be a Top Heavy Plan, the vesting schedule of Section 5.02 shall again become applicable in determining a Participant's vested interest in his Profit Sharing 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 5.04. (1/l/88) 5.05 CREDITING YEARS OF SERVICE (a) Years of Service for vesting purposes 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 42 -38- Service shall be taken into account in determining his vested interest in his Profit Sharing 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 Profit Sharing Contributions and Matching Contributions accrued prior to such Breaks and Profit Sharing 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 pre Break Profit Sharing Account and/or Matching Contributions Account, and all Years of Service shall be taken into account in determining his vested interest in his post Break Profit Sharing 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 re-employment with the Employer unless the number of his consecutive Breaks in Service equals or exceeds five (5), in which case pre-break 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 (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 (1) above shall be treated as Hours of Service only in the Plan Year in which the absence from work begins, if a Participant would be prevented from incurring a Break in Service in such year solely because the period of absence is treated as Hours of Service as 43 -39- 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) 44 -40- ARTICLE VI DISTRIBUTION AT RETIREMENT, DEATH, OR DISABILITY 6.01 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. (b) For benefits accrued prior to July 1, 1996, unless otherwise elected as provided in Section 6.04 below, the Plan benefit to be distributed to a Participant shall be paid in the form of a Qualified Joint and Survivor Annuity. For benefits payable from account balances originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan prior to October 1, 1997, the Plan benefit to be distributed to a Participant shall be paid in the form of a Qualified Joint and Survivor Annuity. (c) For benefits accrued prior to July 1, 1996 (or, with respect to account balances originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan, for benefits accrued prior to October 1, 1997), if a Participant elects to waive a benefit in the form described in paragraph (b) above, in accordance with the election procedures described in Section 6.04 below, he may choose to receive a benefit in any one of the following forms or in a combination of any of the following forms: (i) A single sum cash distribution equal to the total amount contained in his Participant Account; (ii) An annuity for the life of the Participant; (iii) A contingent annuitant annuity; (iv) A year certain and life annuity; or (v) A full cash refund annuity. (d) For benefits accrued on or after July 1, 1996 (or, with respect to account balances originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan, for benefits accrued on or after October 1, 1997), a Participant may choose to receive a benefit in either of the following forms or in a combination of the following forms: (i) A single sum cash distribution equal to the total amount contained in his Participant Account; (ii) Payments in monthly, quarterly, semiannual or annual cash installments over a period certain extending not longer than the Participant's life 45 -41- expectancy (or the life expectancy of the Participant and his designated beneficiary) based upon the total value of his Participant's Account. (c) For benefits accrued prior to July 1, 1996, if a Participant elects to waive a benefit in the form described in paragraph (b) above, in accordance with the election procedures described in Section 6.04 below, he may choose to receive a benefit in any one of the following forms or in a combination of any of the following forms: (i) A single sum cash distribution equal to the total amount contained in his Participant Account; (ii) An annuity for the life of the Participant; (iii) A contingent annuitant annuity; (iv) A year certain and life annuity; or (v) A full cash refund annuity. (d) For benefits accrued on or after July 1, 1996, a Participant may choose to receive a benefit in either of the following forms or in a combination of the following forms: (i) A single sum cash distribution equal to the total amount contained in his Participant Account; or (ii) Payments in monthly, quarterly, semiannual or annual cash installments over a period certain extending not longer than the Participant's life expectancy (or the life expectancy of the Participant and his designated beneficiary) based upon the total value of his Participant's Account. (7/l/96) 6.02 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 6.04 below, to receive a distribution of benefits in any of the forms described in Section 6.01 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 6.01 above. 6.03 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 date of distribution. (7/l/96) 46 -42- (b) For benefits accrued prior to July 1, 1996, unless otherwise elected as provided in Section 6.04 below, the Plan benefit to be distributed to the spouse of a Participant who is married and who dies before benefits have commenced shall be paid in the form of a qualified pre-retirement survivor annuity. (7/l/96) For benefits payable from account balances originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan prior to October 1, 1997, unless otherwise elected as provided in Section 6.04 below, the Plan benefit to be distributed to the spouse of a Participant who is married and who dies before benefits have commenced shall be paid in the form of a qualified pre-retirement survivor annuity. (10/l/97) (c) If a Participant or his spouse elects to waive a benefit in the form of a qualified pre-retirement survivor annuity in accordance with the election procedures described in Section 6.04 below, or if the Participant is not married or has not been married for the one-year period ending on the date of the Participant's death, or if the value of the Participant's Account is $3,500.00 or less for benefits accrued on or after July 1, 1996 (or, for benefits accrued under the Zycon Corporation Profit Sharing 401(k) Plan, benefits accrued on or after October 1, 1997), the Plan benefit to be distributed in the event of a Participant's death to or for the benefit of his Beneficiary shall be paid in a single sum cash distribution as soon as administratively feasible following the date the Plan Administrator receives notice of the Participant's death. For Plan Years beginning on or after January 1, 1998, the $3,500.00 dollar limit stated above shall be changed to $5,000.00. (1/l/88; 7/l/96; 10/l/97; 1/l/98) (d) 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 benefit the Participant had elected. (1/l/93; 7/l/96) 6.04 NOTICES AND ELECTION PROCEDURES (a) For any Participant whose Participant Account includes benefits accrued on or before June 30, 1996 (or, for benefits accrued under the Zycon Corporation Profit Sharing 401(k) Plan, benefits accrued on or before September 30, 1997), within a reasonable time before or after the Participant's annuity starting date consistent with regulations of the Secretary of the Treasury, the Plan Administrator shall notify the Participant in writing of: (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 47 -43- (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 shall also provide a Participant with a written explanation, in nontechnical language, of each of the forms of benefits described in Section 6.01 (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. (10/l/97) (b) In the case of a qualified pre-retirement survivor annuity, for any Participant whose Participant Account includes benefits accrued on or before June 30, 1996 (or, for benefits accrued under the Zycon Corporation Profit Sharing 401(k) Plan, benefits accrued on or before September 30, 1997), the Plan Administrator shall provide each married Participant within the period beginning on the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year in which the Participant attains age 35, a written explanation of the qualified pre-retirement survivor annuity in such terms and in such manner as would be comparable to the explanation provided for meeting the requirements of subsection (a) above applicable to a Qualified Joint and Survivor Annuity. If a Participant enters the Plan after the first day of the Plan Year in which the Participant attained age 32, the Plan Administrator shall provide notice no later than the close of the second Plan Year after the entry of the Participant in the Plan. (10/l/97) (c) Notwithstanding the other requirements of this Section 6.04, the respective notices prescribed by this section need not be given to a Participant if the Plan "fully subsidizes" the costs of a Qualified Joint and Survivor Annuity or qualified pre-retirement survivor annuity. For purposes of this subsection, the Plan fully subsidizes the costs of a benefit if under the Plan the failure to waive such benefit by a Participant would not result in a decrease in any Plan benefit with respect to such Participant and would not result in increased contributions from the Participant. (d) A Participant may elect to waive a benefit in the form of a Qualified Joint and Survivor Annuity and a married Participant may waive the death benefit in the form of a qualified pre-retirement 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 48 -44- before the commencement of benefits. The number of waivers or revocations shall not be limited. (e) The election to waive a Qualified Joint and Survivor Annuity must be made within the ninety (90) day period ending on the date the Participant's benefits would commence or, if later, no sooner than thirty (30) days from the date the written notice described in this section was given; provided, however, that a distribution cannot be made sooner than thirty (30) days from the date such notice was given unless the Participant (and, if applicable, the Participant's spouse) consents and the distribution commences at least seven (7) days after the date of such notice. Any consent shall satisfy such requirements as may be prescribed under regulations of the Secretary of the Treasury. (10/l/97) (f) The election to waive a qualified pre-retirement survivor annuity must be made within the period which begins on the first day of the Plan year in which the Participant attains age 35 and ends on the date of the Participant's death; provided that, if a Participant separates from service prior to the first day of the Plan Year in which age 35 is attained, the election period with respect to the Participant's account balance as of the date of separation shall begin on the date of separation from service. (1/l/93) 6.05 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 1.43 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. (ii) Qualified pre-retirement survivor annuity: An annuity for the life of the surviving spouse of a Participant which is the amount of benefit which can be purchased with the Participant's vested account balance. (iii) Spouse: The spouse or surviving spouse of the Participant, provided that a former spouse will be treated as the spouse or 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 6.01 relating to Qualified Joint and Survivor Annuities and Section 6.03 relating to qualified pre-retirement survivor annuities shall apply to any Participant who is credited with at least one (1) Hour of Service on or after August 23, 1984. 49 -45- (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 6.01 and/or Section 6.03 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 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 6.01 and/or Section 6.03 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. (1/l/93) 6.06 DISTRIBUTION OF SMALL ACCOUNTS If the value of the Participant's vested interest in his Participant's Account upon retirement, death or disability is $3,500.00 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 an election under this Article VI. For Plan Years beginning on or after January 1, 1998, the $3,500.00 dollar limit stated above shall be changed to $5,000.00. (7/1/96; 1/1/98) 50 -46- ARTICLE VII TERMINATION OF EMPLOYMENT 7.01 TERMINATION DISTRIBUTIONS Upon the termination of a Participant's employment with the Employer, other than by reason of the Participant's retirement, disability or death, the Participant's vested interest in his Participant's Account shall be determined as of his date of termination in accordance with Article V of this Plan. The Participant may elect to receive a lump sum distribution of his vested interest in his Participant's Account valued as of the date of distribution at any time after he has separated from service on account of his termination of employment. Such lump sum distribution shall be made as soon as administratively practicable after the later of (i) the date the Participant becomes eligible to receive such distribution or (ii) the date the Plan Administrator receives notice meeting the requirements set out below. Any election to receive a lump sum distribution of a Participant's vested interest in his Participant's Account must be made by notice to the Plan Administrator. If any portion of the Participant's Account was accrued on or before June 30, 1996 (or, for benefits originally accrued under the Zycon Corporation Profit Sharing 401(k) Plan, on or before September 30, 1997) and if the Participant is married, the spouse of the Participant must consent to any lump sum distribution in excess of $3,500. 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 Participant's vested interest in his Participant's Account upon termination of employment is $3,500 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 made an election under this Section 7.01. For Plan Years beginning on or after January 1, 1998, the $3,500.00 dollar limit stated herein shall be changed to $5,000.00. (7/l/89; 7/l/96; 10/l/97; 1/1/98) 7.02 TERMINATION FORFEITURES A Participant whose employment with the Employer is terminated as described in Section 7.01 of this Article, and who has not received a distribution of the vested portion of his Profit Sharing Account and/or Matching Contributions Account, shall forfeit the value of that portion of his Profit Sharing 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 51 -47- Profit Sharing Account and/or Matching Contributions Account under Section 7.01 shall forfeit the value of the portion of his Profit Sharing 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 7.03 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 3.07 of Article III. If the Participant's employment with the Employer is terminated as described in Section 7.01 of this Article, and he subsequently resumes employment with the Employer prior to receiving a distribution of his vested interest in his Profit Sharing Account and/or Matching Contributions Account, the then current value of the nonvested portion of his Profit Sharing 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 Profit Sharing Account and/or Matching Contributions Account. (1/1/88) 7.03 REPAYMENT TO REINSTATE FORFEITED AMOUNTS (a) A former Participant who has received a distribution from the Plan pursuant to Section 7.01, and who resumes employment with the Employer prior to incurring five (5) consecutive Breaks in Service, shall have reinstated that portion of his Profit Sharing Account and/or Matching Contributions Account which was forfeited under Section 7.02 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 Profit Sharing Account and/or Matching Contributions Account upon repayment shall not be less than the balance of the Participant's Profit Sharing 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. (1/l/88) 52 -48- ARTICLE VIII INVESTMENT OF TRUST FUNDS 8.01 TRUSTEE'S RESPONSIBILITY The Trustee shall have general authority to invest, manage and maintain custody of the trust assets, in accordance with the terms of the Trust and subject to the following provisions of this Article VIII. (1/l/92) 8.02 DIRECTED INVESTMENTS OF PARTICIPANT ACCOLTNTS Each Participant shall be permitted to direct the Trustee as to the investment of his Participant Account in accordance with the investment alternatives selected by the Investment Committee and offered by the Trustee. Upon receiving a direction from a Participant, the Trustee shall segregate that portion of the Participant's Account to which such direction applies from the remainder of the trust fund and invest it in accordance with the Participant's direction. The Participant's Account shall be credited or charged with the gains and losses resulting from such directed investment and such gains and losses shall not be considered in determining gains or losses of the remainder of the trust fund. A Participant shall have the opportunity to change his investment directions with respect to all or any portion of his Participant Account not less frequently than once in any three-month period, or more frequently if administratively feasible. In the event a Participant fails to direct the Trustee as to the investment of all or any part of the Participant's Account, that portion of the account as to which no direction has been given shall be invested by the Trustee in accordance with instructions from the Investment Committee. The Trustee also shall change the investment of all or any part of a Participant's Account if so directed by the Investment Committee. 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/89; 7/l/96) 8.03 INVESTMENT COMMITTEE (a) Appointment and General Responsibilities The Employer shall appoint an Investment Committee consisting of three employees who shall serve at the pleasure of the Employer's Board of Directors. The members of the Investment Committee shall be Plan Fiduciaries. 53 -49- The Investment Committee shall be responsible for establishing and maintaining the investment strategies and funding policies for the Plan and Trust, including but not limited to determining the need for short term or long term liquidity and/or for investment growth, coordinating the investment policy with Plan and Trust needs, and communicating those policies to the Trustee and investment manager, if any. The Investment Committee shall be responsible for selecting investment alternatives for Participant-directed investments permitted under this Plan and for giving the Trustee investment directions with respect to that portion of any Participant Account for which directions have not been given by the Participant to the Trustee and with respect to that portion of the trust fund which is not then allocated to any Participant's Account. (1/1/89; 7/1/96) Any act which the Investment Committee is authorized or required to do may be done by a majority of the members of the Committee at the time acting hereunder and the action of such majority, expressed from time to time by a vote at a meeting or in writing without a meeting, shall constitute the action of the Committee and shall have the same effect for all purposes as if assented to by all members of the Committee at the time in office. In the event of a vacancy on the Committee, the action by the remaining member or members shall be valid and binding. Any such vacancy shall be filled within a reasonable time. (1/l/92) No member of the Committee who receives full time compensation from the Employer shall receive any compensation or fee for his services as a member of the Committee, but may be reimbursed for his expenses. (b) Right to Appoint Investment Managers The Investment Committee may appoint and dismiss one or more investment managers who shall have the power to manage, acquire or dispose of any of the assets of the Trust, including but not limited to the selection of investment alternatives for Participant-directed investments permitted under this plan. The Committee shall designate the portion of the assets of the Trust which shall be subject to the management of any such investment manager and shall so notify the Trustee in writing. The Committee may authorize payment for the services of an investment manager from the trust. (1 / 1/92) Any investment manager must be (i) registered as an investment adviser under the Investment Advisers Act of 1940, or (ii) a bank, as defined in that Act, or (iii) an insurance company qualified to perform trust management and investment services under the laws of more than one state; and must acknowledge in writing that he or it is a Fiduciary with respect to the Plan and Trust. (c) Adoption of Group Trust The Investment Committee may adopt, as part of the Trust, any group trust in which any of the assets of the Trust are or are to be invested, and may authorize 54 -50- the participation of the Trust in such group trust, but only so long as such group trust remains exempt from taxation under Section 501 (a) of the Code, in accordance with Revenue Ruling 81-100. For purposes hereof, the term "group trust" shall include any common, collective, multiple or commingled trust fund that satisfies the requirements of Revenue Ruling 81-100. The Committee also shall have the power to revoke such adoption and to terminate participation in any such group trust. Any action under this Section 8.03(c) shall be reflected in a writing, a copy of which shall be kept with the original Plan documents. Nothing herein shall prevent the Employer, by its Board of Directors, from adopting or revoking the adoption of any such group trust as part of this Trust. (1/l/89) 55 -51- ARTICLE VIIIA PROVISIONS FOR RADIAN SOURCE ACCOUNTS 8A.01 PROTECTED BENEFITS, RIGHTS AND FEATURES Any accounts transferred to this Plan from the Continental Circuits Corp. 401(k) Retirement Plan (the "Continental Circuits Plan") for the benefit of former employees of Radian International LLC or an affiliate of Radian International LLC who become employees of the Employer or any Affiliated Employer ("Radian Participants") shall be segregated and maintained as separate sub-accounts as provided in Section 9.03 below for purposes of continuing to provide the benefits, rights and features which were provided under the Continental Circuits Plan and which are protected benefits under Section 411(d)(6) of the Code. Radian Participants will be provided the following protected benefits, rights, and features solely as to the Radian Source Accounts (as defined in Section 9.03). 8A.02 IN-SERVICE WITHDRAWALS (a) IN GENERAL. A Participant or former Participant may request cash withdrawals from Radian Source Accounts not more than twice during any twelve-month period commencing with any withdrawal, subject to the sequence and conditions for withdrawal set forth in paragraph (b) below. The minimum amount of withdrawal shall be set by the Plan Administrator. The withdrawals are not subject to the spousal and Participant consent requirements contained in Code Sections 401-(a)-(11) and 417. (b) SEQUENCE AND CONDITIONS FOR WITHDRAWAL. A Participant shall request the Plan Administrator to effect a cash withdrawal and such amount shall be debited form his Radian Source Accounts. The Administrator shall withdraw amounts in the following sequence and upon the following conditions: (i) First, a Participant may withdraw all or part of the value of his After-Tax Frozen Account (as defined in Section 9.03 below). (ii) Second, a Participant may withdraw all or part of the value of his Prior Plan Employee Frozen Account (as defined in Section 9.03 below) if the Participant is age 59 1/2 or older. If the Participant is less than age 59 1/2, a Participant may withdraw upon written request to the Plan Administrator all or part of the Deferral Contributions (and earnings thereon accrued as of December 31, 1988) in his Prior Plan Employee Frozen Account due to financial hardship as determined in accordance with the provisions of this Plan. 8A.03 PARTICIPANT LOANS 56 -52- Participants may borrow from their Radian Source Accounts in accordance with the terms of this Plan, without the necessity of obtaining spousal consent. 8A.04 DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT, DISABILITY, RETIREMENT OR DEATH A distribution option other than a one-sum cash distribution shall be available under the following described circumstances only if the total balance of a Participant's Radian Source Accounts at the time of a distribution exceeds $3,500 for Plan Years beginning prior to January 1, 1998 or exceeds $5,000 for Plan Years beginning on or after January 1, 1998. (a) RETIREMENT BENEFITS (i) NORMAL FORM OF RETIREMENT BENEFIT. The Normal Form of benefit shall be a one-sum cash distribution. (ii) OPTIONAL FORMS OF RETIREMENT BENEFIT. A Participant who terminates employment after reaching age 55, who terminates employment and commences distribution after reaching age 55, or who terminates employment on account of disability (as determined under the terms of this Plan), may elect an installment or annuity form of distribution as described below instead of the Normal Form described in paragraph (a)(i) above. Any such election shall not be subject to the spousal and Participant consent requirements contained in Code Sections 401(a)(11) and 417. (A) Annuity payments may be made over one of the following periods: (1) the life of the Participant; (2) the life of the Participant, with a one-sum payment upon the death of the Participant for the excess of the annuity's net purchase price over the sum of payments made prior to the death of the Participant; (3) the lives of the Participant and a designated Beneficiary, or (4) a period certain and continuous not extending beyond 10 years. Any annuity contract distributed herefrom must be nontransferable. Any contract for the lives of the Participant and a designated Beneficiary shall be a 50%, 66-2/3% or 100% joint and survivor annuity. (B) The installment payment options provide for periodic payments to the Participant as hereinafter described. Installment payments shall be 57 -53- made over a period not to exceed the Participant's (or the Participant's and spouse's) life expectancy, subject to the terms set forth herein. The Participant may elect either: (1) payment in equal amounts, except that the last payment which exhausts the Participant's Radian Source Accounts may be greater or smaller; (2) a specific number of payments. The amount of each payment will equal the then value of the Participant's Radian Source Accounts divided by the number of remaining payments to be made; or (3) payments over the Participant's life expectancy re-determined each year. The amount of each payment will equal the then value of the Participant's Radian Source Accounts divided by the Participant's life expectancy. An amount may be deducted from a Participant's Radian Source Account to cover the expenses applicable to such installment payment options. Installment payments will terminate with the earlier of (a) the payment which completely exhausts the Participant's Radian Source Accounts or (b) the last payment due preceding the death of the Participant. At the death of the Participant, any amount remaining in the Participant's Radian Source Accounts will be paid in a lumpsum to the Participant's Beneficiary or Beneficiaries. In no event will the installment period exceed that permitted by law. (b) Termination Of Employment (i) NOTICE OF TERMINATION OF EMPLOYMENT. If the termination of employment of a Participant occurs, the Employer shall give written notice to the Plan Administrator of the date of termination of employment of such Participant. (ii) AMOUNT OF PARTICIPANT'S BENEFIT. The amount of a Participant's Plan benefit upon termination of employment which is subject to the terms of this Article VIII-A shall equal the total balance of his Radian Source Accounts at the time of determination. (iii) PARTICIPANT'S ELECTION OF A FORM OF BENEFIT. If termination of employment occurs, the Participant shall receive his Radian Source Accounts in a form of benefit elected by him. The Participant's election shall occur within 60 days after the forms of benefit first become available to him. Written 58 -54- notice shall be made on a form provided by the Committee. The election once made shall be irrevocable. The forms of benefit are: (A) OPTION A. The Participant may elect to continue his Radian Source Accounts until age 70 1/2 or until age 55, at which time he may elect Option B, Option C or Option D. (B) OPTION B. The Participant may elect to receive an annuity in accordance with paragraph (a)(ii)(A) above to commence at age 55; provided that if a Participant dies before the first payment is made under a deferred annuity, a death benefit will be paid to the Beneficiary under the deferred annuity in an amount equal to the net cost to provide the annuity plus interest compounded annually at a rate of at least five percent (5%) per annum from the date the annuity was purchased to the date of the Participant's death. (C) OPTION C. The Participant may elect a one-sum cash payment. (D) OPTION D. The Participant may elect installment payments, in accordance with paragraph (a)(ii)(B) above, to commence upon separation from service. If the value of the Participant's Radian Source Accounts exceeds (or at the time of any prior distribution exceeded) $3,500 for Plan Years commencing prior to January 1, 1998, or $5,000 for Plan Years commencing on or after January 1, 1998, and the Accounts are immediately distributable, the Participant and the Participant's spouse (or where either the Participant or the spouse has died, the survivor), must consent to any distributions of such Radian Source Accounts. Consent is not valid unless the Administrator notifies the Participant and the Participant's spouse of the right to defer any distribution until the Participant's Radian Source Accounts are no longer immediately distributable. The notice shall acknowledge the right, if any, to defer distributions and must describe the investment features. One-sum cash payments shall be made during the Plan Year in which the event which gives rise to the distribution occurs or as soon thereafter as is reasonably practical. (c) Death Benefits (i) PRERETIREMENT DEATH OF A PARTICIPANT. If the Participant dies before distribution of his interest in the Radian Source Accounts begins, the Account shall be paid to the Participant's surviving spouse. The spouse may elect whether to receive the Participant's account balance in the form of one of the single life annuities provided in paragraph (a)(ii)(A) above, 59 annuity, installments in accordance with paragraph (a)(ii)(B) above, or a one-sum cash payment. If there is no surviving spouse, or if the surviving spouse has already consented to distribution to another Beneficiary in a manner which complies with the terms of this Plan, the Radian Source Accounts shall be paid to the Participant's designated Beneficiary. Unless otherwise elected by the Participant, any portion of the Participant's interest payable to a designated Beneficiary other than the Participant's surviving spouse shall be paid in the form of one of the single life annuities provided in paragraph (a)(ii)(A) above, annuity, installments in accordance with paragraph (a)(ii)(B) above, or a one-sum cash payment. Distribution of Participant's entire interest in the Radian Source Accounts shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death except to the extent that an election is made to receive distributions in accordance with (A) or (B) below: (A) If any portion of the Participant's interest in payable to a designated Beneficiary, distributions may be made over the life or over a period certain not greater than the life expectancy of the designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died. (B) If the designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (A) above shall not be earlier than the later of (1) December 31 of the calendar year immediately following the calendar year in which the Participant died and (2) December 31 of the calendar year in which the Participant would have attained age 70 1/2. If the Participant has not made an election pursuant to this paragraph by the time of his death, the Participant's designated Beneficiary must elect the method of distribution no later than the earlier of (1) December 31 of the calendar year in which distributions would be required to begin under this Paragraph, or (2) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no designated beneficiary, or if the designated Beneficiary does not elect a method of distribution, distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. For purposes of this Paragraph, if the surviving spouse dies after the Participant, but before payments to such spouse begin, the provisions of 60 -56- this Paragraph with the exception of paragraph (B) therein, shall be applied as if the surviving spouse were the Participant. For the purposes of this Paragraph, distribution of a Participant's interest is considered to begin on the Participant's required beginning date (or, if the spouse dies after the Participant, the date distribution is required to begin to the surviving spouse). If distribution in the form of an annuity irrevocably commences to the Participant before the required beginning date, the date distribution is considered to begin is the date distribution actually commences. (ii) POST-RETIREMENT DEATH OF A PARTICIPANT. If the Participant dies after distribution of his interest in the Radian Source Accounts has begun, the remaining portion of such interest shall continue to be distributed at least as rapidly as under the method of distribution begin used prior to the Participant's death. In the case of an installment payment option, installment payments remaining at the Participant's death shall be distributed to the Participant's designated Beneficiary as a one-sum cash payment. 61 -57- ARTICLE IX ADMINISTRATION 9.01 ALLOCATION OF RESPONSIBILITY The Employer, Trustee, Investment Committee and Plan Administrator shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under this Plan and the Trust. In general, the Employer shall have the sole responsibility for making the payments required in accordance with Article III to be made by the Employer; shall appoint, and may dismiss, the Trustee, the members of the Investment Committee and the Plan Administrator; and may amend or terminate the Plan and Trust in whole or in part. The Plan Administrator shall have the sole responsibility for the administration of this Plan, which responsibility is specifically described in this Plan. The Trustees shall have responsibility for the custody, investment and general disposition of Plan and Trust assets, except to the extent that one or more investment managers is appointed to manage certain assets. The Investment Committee shall be responsible for the funding policy; may appoint and dismiss one or more investment managers; and may adopt a so-called group trust as part of the Trust. (1/1/89) 9.02 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. The functions of the Plan Administrator may be assigned to a Committee, to be designated as the Administrative Committee, consisting of two or more Employees who shall serve at the pleasure of the Employer's Board of Directors. Any act which the Plan Administrator is authorized or required to do may be done by a majority of the Administrative Committee at the time acting hereunder and the action of such majority, expressed from time to time by a vote at a meeting or in writing without a meeting, shall constitute the action of the Committee and shall have the same effect for all purposes as if assented to by all members of the Committee at the time in office. (1/l/89) 9.03 ESTABLISHMENT AND VALUATION OF ACCOUNTS (a) The Plan Administrator shall create and maintain adequate records to disclose the interest in this Plan of each Participant and Beneficiary. Such records shall be in the form of individual accounts, including Profit Sharing Accounts, 401(k) Accounts, Matching Contributions Accounts, After-Tax Contributions Accounts, 62 -58- and Rollover Accounts. The Plan Administrator shall segregate account balances accrued under this Plan on or before June 30, 1996 from account balances accrued after June 30, 1996. The Plan Administrator shall segregate account balances accrued under the Zycon Corporation Profit Sharing 401(k) Plan on or before September 30, 1997 from account balances accrued after September 30, 1997. The Plan Administrator shall maintain separate sub-accounts for any accounts transferred from the Continental Circuits Corp. 401(k) Retirement Plan to this Plan for the benefit of Radian Participants (as defined in Section 8A.01), for purposes of continuing to provide the benefits, rights and features which were provided under the Radian Plan and which are protected benefits under Section 411(d)(6) of the Internal Revenue Code of 1986 and the regulations thereunder. The following sub-accounts shall be maintained: Deferred Salary Account (referred to as "Prior Plan Employee Frozen Account"); Participant Voluntary Account (referred to as "After Tax Frozen Account"); and Discretionary Company Contributions and Company Matching (referred to as "Prior Plan Employer Frozen Account"). Such sub-accounts are sometimes referred to in this Plan collectively as the "Radian Source Accounts." (b) All accounts shall be adjusted not less frequently than quarterly to reflect transfers of funds, contributions, forfeitures and net earnings credited, and withdrawals, distributions, forfeitures and losses debited, during or with respect to such period under the provisions of this Plan. (c) As of each Determination Date and at such other times as may be requested by the Employer or the Plan Administrator, the Trustee shall determine the fair market value of the trust fund. (d) Not less frequently than annually, each Participant and Beneficiary who is a party in interest with respect to a Participant Account shall be furnished a statement showing the value of his Participant Account, including a breakdown by individual account. (1/l/92; 7/l/96; 10/l/97) 9.04 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 the Plan Administrator and delivered or mailed to the Participant, former Participant or Beneficiary; and such notice shall set forth the specific reasons for the denial, written 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 63 -59- 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 to one hundred twenty (120) days. 9.05 RECORDS AND REPORTS The Plan Administrator shall exercise such authority and responsibility as it 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. 9.06 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR The Plan Administrator shall have such duties and powers as may be necessary to discharge its duties hereunder, including, but not limited to the following: (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 the Plan Administrator 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 the Plan Administrator deems convenient or proper) reports of the financial condition, and of the receipts and disbursements, of the assets from the Trustee; (f) To appoint or employ individuals to assist in the administration of the Plan and Trust and any other agents the Plan Administrator 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 Trust, 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. 9.07 RULES AND DECISIONS 64 -60- The Plan Administrator may adopt such rules as it 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, the Employer or the legal counsel of the Employer, the Investment Committee or the Trustee. 9.08 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 Trust, and warrants that all such directions are in accordance with the provisions of this Plan. 9.09 APPLICATION AND FORMS FOR BENEFITS The Plan Administrator may require a Participant or Beneficiary to complete and file written application for benefits and to furnish all pertinent information. The Plan Administrator may rely upon all such information so furnished, including the Participant's or Beneficiary's current mailing address. 9.10 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. 65 -61- ARTICLE X MISCELLANEOUS 10.01 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. 10.02 RIGHTS OF EMPLOYEES AND BENEFICIARIES No Employee or Beneficiary shall have any right to or interest in any assets of the Plan upon termination of 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 assets. 10.03 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. (1/1/85) 10.04 DISCONTINUANCE OF EMPLOYER CONTRIBUTIONS In the event of complete discontinuance of contributions under this Plan to the Trust 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. 10.05 NO REVERSION IN EMPLOYER The Employer has no beneficial interest in the Trust assets and no part of the Trust 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 66 -62- 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. 10.06 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. 10.07 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 (tenth) 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 the required beginning date, as defined below, or (ii) will be distributed, commencing not later than such required beginning date, (A) in accordance with regulations prescribed by the Secretary of the Treasury, over the life of such Participant or over the lives of such Participant and a designated beneficiary or (B) in accordance with such regulations, over a period not extending beyond the life expectancy of such Participant or the life expectancy of such Participant and a designated beneficiary. As used herein, for Plan Years ending on or before December 31, 1996, the term "required beginning date" means April 1 of the calendar year in which the Participant attains age 70 1/2. For Plan Years beginning on or after January 1, 1997, the term "required beginning date" means April 1 of the calendar year following the later of (I) the calendar year in which the Participant attains age 70 1/2 or (II) the calendar year in which the Participant retires; provided, however, that clause (II) shall not apply in the case of a Participant who is a five percent owner with respect to the Plan Year in which he attains age 70 1/2. In the case of a Participant to whom clause (II) applies who retires in a calendar year after the 67 -63- calendar year in which he attains age 70 1/2, the Participant's accrued benefit shall be actuarially increased to take into account the period after age 70 1/2 in which the Participant was not receiving any benefits under the Plan. The determination of who is a five percent owner shall be made in accordance with Section 416(i) of the Code and the regulations thereunder. (1/l/87; 1/l/97) (d) If distribution of a Participant's interest has begun in accordance with subsection 10.07(c)(ii) above and the Participant dies before his entire interest 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 10.07(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 10.07(e) 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. 10.08 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 defective, any death benefit due will be paid to any one or more of 68 -64- the surviving members of the Participant's relatives in the following order of preference: (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) 10.09 BENEFITS OF LOST PARTICIPANTS The provisions of this Section 10.09 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 an event giving rise to the right to receive the distribution. Without limiting the generality of the preceding sentence, a decision by the Plan Administrator to direct the distribution of a Participant's Account having a vested value of $3,500 or less shall be an event requiring distribution of a benefit. (1/l/93) (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 10.09(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 69 -65- 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 one year of the date notice is given of the right to receive a distribution under the Plan, the benefit payable to or account balance of such Participant shall be forfeited; 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 3.07 of the Plan for the year in which it occurs. (1/l/85) 10.10 DIRECT TRUSTEE-TO-TRUSTEE TRANSFER OPTION Whenever a Participant, Beneficiary or Alternate Payee under a qualified domestic relations order is to receive a distribution under the Plan that is an eligible rollover distribution, as hereinafter defined, that would otherwise be subject to withholding under Section 3405(c) of the Code, the distributee may elect by written notice to the Plan Administrator to have all or a specified portion of such distribution paid directly to a specified eligible retirement plan in a trustee-to-trustee transfer. The Plan Administrator shall prescribe reasonable procedures for a distributee to elect a direct rollover, including information and documentation to be provided and the time period within which such election may be made, and shall provide notice of this option to each distributee within a reasonable time prior to making an eligible rollover distribution. As used in this Section 10.10, an eligible rollover distribution means any distribution that is described in Section 402(c)(4) of the Code and the regulations thereunder. As used in this Section 10.10, an eligible retirement plan generally is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity (other than an endowment annuity) described in Section 408(b) of the Code, a qualified trust forming part of a qualified defined contribution plan described in Section 401(a) of the Code, the terms of which permit rollover contributions, or an annuity plan described in Section 403(a) of the Code. If the distributee is the surviving spouse of a Participant and is to receive a distribution on account of the Participant's death, an eligible retirement plan is an individual retirement account or an individual retirement annuity only. (1/l/93) 70 -66- ARTICLE XI AMENDMENTS AND ACTION BY EMPLOYER 11.01 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 duty constituted authority in connection therewith. 11.02 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. 71 -67- ARTICLE XII SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS 12.01 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. 12.02 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 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. Upon any merger or consolidation of the Plan with another plan, or transfer of assets and liabilities of the Plan to such other plan, the Board of Directors of the Employer may authorize the Plan Administrator to allocate immediately prior to the merger, consolidation or transfer any amounts then held in a suspense account. If the suspense account includes Forfeitures from Profit Sharing Accounts, the suspense account shall be allocated among all Participants who have a balance in their Profit Sharing Account according to the ratio that the balance of each such Participant's Profit Sharing Account bears to the total balance of all Participants' Profit Sharing Accounts as of the date of allocation. If the suspense account includes Forfeitures from Matching Contributions Accounts, the suspense account may be allocated (a) to reduce the amount of Matching Contributions then due from the Employer for the current Plan Year or (b) among those 72 -68- Participants who have a balance in their 401(k) and Matching Contributions Accounts according to the ratio that the aggregate of each such Participant's Matching Contributions Account and 401(k) Account bears to the total balance of all Participants' 401(k) and Matching Contributions Accounts. Allocations under this Section 12.02 shall be subject to the provisions of Sections 3.09 and 3.10. (1/l/97) 73 -69- ARTICLE XIII PLAN TERMINATION 13.01 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 Trust assets shall be liquidated unless the Plan is continued by a successor to the Employer in accordance with Section 12.01. 13.02 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 Trust 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 13.03. 13.03 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 (including any Forfeitures which shall not have been allocated) to be allocated 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 Profit Sharing Account. 13.04 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 non-cash distributions shall be valued at fair market value at date of distribution. 74 -70- ARTICLE XIV DISCHARGE OF DUTIES BY FIDUCIARIES The Employer, Plan Administrator, Investment Committee, investment manager, Trustee, and any other person who, by reason of his involvement in and under this Plan and the Trust 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 canceled. A true copy of the HADCO Retirement Plan as amended and restated to incorporate all amendments adopted through March 3, 1999. Attest: /s/ James C. Hamilton -------------------------------- James C. Hamilton, Clerk June 17, 1999 EX-10.66 5 HADCO CORP. RETIREMENT TRUST 1 EXHIBIT 10.66 TRUST AGREEMENT BETWEEN - -------------------------------------------------------------------------------- HADCO CORPORATION AND FIDELITY MANAGEMENT TRUST COMPANY - -------------------------------------------------------------------------------- HADCO CORPORATION RETIREMENT TRUST DATED AS OF JUNE 1, 1996 2 TABLE OF CONTENTS SECTION PAGE - ------- ---- 1 Trust........................................................ 2 Exclusive Benefit and Reversion of Sponsor Contributions..... 3 Disbursements................................................ (a) Administrator Directed Disbursements (b) Participant Withdrawal Requests (c) Limitations 4 Investment of Trust.......................................... (a) Selection of Investment Options (b) Available Investment Options (c) Participant Direction (d) Mutual Funds (e) Notes (f) Guaranteed Investment Contracts (g) Participation in Commingled Pools (h) Reliance of Trustee on Directions (i) Trustee Powers 5 Recordkeeping and Administrative Services to Be Performed.... (a) General (b) Accounts (c) Inspection and Audit (d) Effect of Plan Amendment (e) Returns, Reports and Information 6 Compensation and Expenses.................................... 7 Directions and Indemnification............................... (a) Identity of Administrator and Investment Committee (b) Directions from Administrator (c) Directions from Investment Committee (d) Co-Fiduciary Liability (e) Indemnification (f) Survival 8 Resignation or Removal of Trustee............................ (a) Resignation (b) Removal -i- 3 9 Successor Trustee............................................ (a) Appointment (b) Acceptance (c) Corporate Action 10 Termination.................................................. 11 Resignation, Removal, and Termination Notices................ 12 Duration..................................................... 13 Amendment or Modification.................................... 14 General...................................................... (a) Performance by Trustee, its Agents or Affiliates (b) Entire Agreement (c) Waiver (d) Successors and Assigns (e) Partial Invalidity (f) Section Headings 15 Governing Law................................................ (a) Massachusetts Law Controls (b) Trust Agreement Controls SCHEDULES A. Recordkeeping and Administrative Services B. Fee Schedule C. Investment Options D. Administrator's Authorization Letter E. Investment Committee's Authorization Letter F. IRS Determination Letter or Opinion of Counsel G. Telephone Exchange Guidelines -ii- 4 TRUST AGREEMENT, dated as of the first day of June, 1996, between HADCO CORPORATION, a Massachusetts corporation, having an office at 12A Manor Parkway, Salem, New Hampshire 03079 (the "SPONSOR"), and FIDELITY MANAGEMENT TRUST COMPANY, a Massachusetts trust company, having an office at 82 Devonshire Street, Boston, Massachusetts 02109 (the "TRUSTEE"). WITNESSETH: WHEREAS, the Sponsor is the sponsor of the HADCO Corporation Retirement Plan (the "PLAN"); and WHEREAS, the Sponsor wishes to establish a trust to hold and invest plan assets under the Plan for the exclusive benefit of participants in the Plan and their beneficiaries; and WHEREAS, the HADCO Corporation Retirement Plan Investment Committee (the "INVESTMENT COMMITTEE") is the named fiduciary of the Plan (within the meaning of section 402(a) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")); and WHEREAS, the Trustee is willing to hold and invest the aforesaid plan assets in trust pursuant to the provisions of this Trust Agreement, which shall constitute a continuation, by means of an amendment and restatement, of each of the prior trusts from which plan assets are transferred to the Trustee; and WHEREAS, the Trustee is willing to hold and invest the aforesaid plan assets in trust among several investment options selected by the Investment Committee; and WHEREAS, the Sponsor wishes to have the Trustee perform certain ministerial recordkeeping and administrative functions under the Plan; and 5 -2- WHEREAS, the HADCO Corporation Retirement Plan Administrative Committee (the "ADMINISTRATOR") is the administrator of the Plan (within the meaning of section 3(16)(A) of ERISA); and WHEREAS, the Trustee is willing to perform recordkeeping and administrative services for the Plan if the services are purely ministerial in nature and are provided within a framework of plan provisions, guidelines and interpretations conveyed in writing to the Trustee by the Administrator. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements set forth below, the Sponsor and the Trustee agree as follows: Section 1. TRUST. The Sponsor hereby establishes the HADCO Corporation Retirement Trust (the "TRUST") with the Trustee. The Trust shall consist of an initial contribution of money or other property acceptable to the Trustee in its sole discretion, made by the Sponsor or transferred from a previous trustee under the Plan, such additional sums of money as shall from time to time be delivered to the Trustee under the Plan, all investments made therewith and proceeds thereof, and all earnings and profits thereon, less the payments that are made by the Trustee as provided herein, without distinction between principal and income. The Trustee hereby accepts the Trust on the terms and conditions set forth in this Agreement. In accepting this Trust, the Trustee shall be accountable for the assets received by it, subject to the terms and conditions of this Agreement. Section 2. EXCLUSIVE BENEFIT AND REVERSION OF SPONSOR CONTRIBUTIONS. Except as provided under applicable law, no part of the Trust may be used for, or diverted to, purposes other than the exclusive benefit of the participants in the Plan or their beneficiaries prior to the satisfaction of all liabilities with respect to the participants and their beneficiaries. 6 -3- Section 3. DISBURSEMENT. (a) ADMINISTRATOR DIRECTED DISBURSEMENTS. The Trustee shall make disbursements in the amounts and in the manner that the Administrator directs from time to time in writing. The Trustee shall have no responsibility to ascertain such direction's compliance with the terms of the Plan or of any applicable law or the direction's effect for tax purposes or otherwise; nor shall the Trustee have any responsibility to see to the application of any disbursement. (b) PARTICIPANT WITHDRAWAL REQUESTS. The Sponsor hereby directs that, pursuant to the Plan, a participant withdrawal request (in-service or full withdrawal) may be made by the participant by telephone, and the Trustee shall process such request only after the identity of the participant is verified by use of a personal identification number ("PIN") and social security number. The Trustee shall process such withdrawal in accordance with written guidelines provided by the Sponsor and documented in the Plan Administrative Manual. (c) LIMITATIONS. The Trustee shall not be required to make any disbursement in excess of the net realizable value of the assets of the Trust at the time of the disbursement. The Trustee shall not be required to make any disbursement in cash unless the Administrator has provided a written direction as to the assets to be converted to cash for the purpose of making the disbursement. Section 4. INVESTMENT OF TRUST. (a) SELECTION OF INVESTMENT OPTIONS. The Trustee shall have no responsibility for the selection of investment options under the Trust and shall not render investment advice to any person in connection with the selection of such options. 7 -4- (b) AVAILABLE INVESTMENT OPTIONS. The Investment Committee shall direct the Trustee as to the investment options: (i) in which the Trust shall be invested during the participant recordkeeping reconciliation period, which shall be defined as the period beginning on the date of the initial transfer of assets to the Trustee and ending on the date of the completion of the reconciliation of participant records, (ii) in which investment option any portion of participant's accounts that are not directed by participants are to be invested, and (iii) in which Plan participants may invest, subject to the following limitations. The Investment Committee may determine to offer as investment options only (i) securities issued by the investment companies advised by Fidelity Management & Research Company ("Mutual Funds"), (ii) equity securities issued by the Sponsor or an affiliate which are publicly-traded and which are "qualifying employer securities" within the meaning of section 407(d)(5) of ERISA ("SPONSOR STOCK"), (iii) notes evidencing loans to Plan participants in accordance with the terms of the Plan, (iv) guaranteed investment contracts chosen by the Trustee, and (v) collective investment funds maintained by the Trustee for qualified plans; provided that the Trustee shall be considered a fiduciary with investment discretion only with respect to Plan assets that are invested in guaranteed investment contracts chosen by the Trustee or in collective investment funds maintained by the Trustee for qualified plans. The investment options initially selected by the Investment Committee are identified on Schedules "A" and "C" attached hereto. The Investment Committee may add additional investment options with the consent of the Trustee and upon mutual amendment of this Trust Agreement and the Schedules thereto to reflect such additions. (c) PARTICIPANT DIRECTION. Each Plan participant may direct the Trustee in which investment option(s) to invest the assets in the participant's individual accounts. Such directions may be made by Plan participants by use of the telephone exchange system maintained 8 -5- for such purposes by the Trustee or its agent, in accordance with written Telephone Exchange Guidelines attached hereto as Schedule "G". In the event that the Trustee fails to receive a proper direction, the assets shall be invested in the investment option set forth for such purpose on Schedule "C", until the Trustee receives a proper direction. (d) MUTUAL FUNDS. The Sponsor hereby acknowledges that it has received from the Trustee a copy of the prospectus for each Mutual Fund selected by the Investment Committee as a Plan investment option or short-term investment fund. Trust investments in Mutual Funds shall be subject to the following limitations: (i) EXECUTION OF PURCHASES AND SALES. Purchases and sales of Mutual Funds (other than for exchanges) shall be made on the date on which the Trustee receives from the Sponsor in good order all information and documentation necessary to accurately effect such purchases and sales (or in the case of a purchase, the subsequent date on which the Trustee has received a wire transfer of funds necessary to make such purchase). Exchanges of Mutual Funds shall be made in accordance with the Telephone Exchange Guidelines attached hereto as Schedule "G". (ii) VOTING. Each Plan participant shall have the right to direct the Trustee as to the manner in which the Trustee is to vote the shares of any Mutual Funds credited to the participant's accounts (both vested and unvested). At the time of mailing of notice of each annual or special stockholders' meeting of any Mutual Fund, the Trustee shall send a copy of the notice and all proxy solicitation materials to each Plan participant who has shares of the Mutual Fund credited to the participants accounts, together with a voting direction form for return to the Trustee or its designee, and the Trustee shall vote the shares as directed by the participant. The Investment Committee shall receive a copy 9 -6- of the notice and all proxy solicitation materials for shares of the Mutual Fund held in any short-term investment fund or liquidity reserve. The Investment Committee shall have the right to direct the Trustee as to the manner in which the Trustee is to vote the Mutual Fund shares held in any short-term investment fund or liquidity reserve, and the Trustee shall vote such shares as directed by the Investment Committee. The Trustee shall not vote shares for which it has received no directions from the participant or the Investment Committee. During the participant recordkeeping reconciliation period, the Investment Committee shall have the right to direct the Trustee as to the manner in which the Trustee is to vote the shares of the Mutual Funds in the Trust including Mutual Fund shares held in any short-term investment fund for liquidity reserve. With respect to all rights other than the right to vote, the Trustee shall follow the directions of the participant and if no such directions are received, the directions of the Investment Committee. The Trustee shall have no further duty to solicit directions from participants or the Sponsor. (e) NOTES. The Administrator shall act as the Trustee's agent for the purpose of holding all trust investments in participant loan notes and related documentation and as such shall: (1) hold physical custody of and keep safe the notes and other loan documents, (ii) collect and remit all principal and interest payments to the Trustee and (iii) keep the repayments of such loans separate from the other assets of the Administrator and clearly identify such assets as Plan assets and (iv) cancel and surrender the notes and other loan documentation when a loan has been paid in full. To originate a participant loan, the Plan participant shall direct the Trustee as to the type of loan to be made from the participant's individual account. Such directions shall be made by Plan participants by use of the telephone exchange system maintained for such purpose by the Trustee or its agent. The Trustee shall determine, based on the current value of the participant's 10 -7- account, the amount available for the loan. Based on the interest rate supplied by the Administrator in accordance with the terms of the Plan, the Trustee shall advise the participant of such interest rate, as well as the installment payment amounts. The Trustee shall forward the loan document and truth-in-lending disclosures to the participant for execution and submission for approval to the Administrator. The Administrator shall have the responsibility for approving the loan and instructing the Trustee to send the loan proceeds to the Administrator or to the participant if so directed by the Administrator. In all cases, such instruction by the Administrator shall be made within thirty (30) days of the participant's initial request (the origination date). (f) GUARANTEED INVESTMENT CONTRACTS. Trust investments in guaranteed investment contracts ("GICs") shall be subject to the following limitations: (i) COMMINGLED POOL INVESTMENTS. To the extent that the Investment Committee selects as an investment option the Managed Income Portfolio of the Fidelity Group Trust for Employee Benefit Plans (the "Group Trust"), the Investment Committee hereby (A) agrees to the terms of the Group Trust and adopts said terms as a part of this Agreement and (B) acknowledges that it has received from the Trustee a copy of the Group Trust, the Declaration of Separate Fund for the Managed Income Portfolio of the Group Trust, and the Circular for the Managed Income Portfolio. (ii) In order to provide the necessary monies for exchanges or redemptions from the GIC investment option, if any, under the Plan, the Investment Committee agrees that the Plan shall maintain a liquidity reserve allocated to the Plan GIC investment option in Fidelity Institutional Cash Portfolios: Money Market Portfolio: Class A or such other Mutual Fund or commingled money market pool as agreed to by the Investment Committee and the Trustee. 11 -8- (g) RELIANCE OF TRUSTEE ON DIRECTIONS. (i) The Trustee shall not be liable for any loss, or by reason of any breach, which arises from any participant's exercise or non-exercise of rights under this Section 4 over the assets in the participant's accounts. (ii) The Trustee shall not be liable for any loss, or by reason of any breach, which arises from the Investment Committee's exercise or non-exercise of rights under this Section 4, unless it was clear on their face that the actions to be taken under the Investment Committee's directions were prohibited by the fiduciary duty rules of Section 404(a) of ERISA or were contrary to the terms of the Plan or this Agreement. (h) TRUSTEE POWERS. The Trustee shall have the following powers and authority: (i) Subject to paragraphs (b), (c), (d) and (e) of this Section 4, to sell, exchange, convey, transfer, or otherwise dispose of any property held in the Trust, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or other property delivered to the Trustee or to inquire into the validity, expediency, or propriety of any such sale or other disposition. (ii) Subject to paragraphs (b) and (c) of this Section 4, to invest in guaranteed investment contracts and short term investments (including interest bearing accounts with the Trustee or money market mutual funds advised by affiliates of the Trustee) and in collective investment funds maintained by the Trustee for qualified plans, in which case the provisions of each collective investment fund in which the Trust is invested shall be deemed adopted by the Sponsor and the provisions thereof incorporated 12 -9- as a part of this Trust as long as the fund remains exempt from taxation under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended. (iii) To cause any securities or other property held as part of the Trust to be registered in the Trustee's own name, in the name of one or more of its nominees, or in the Trustee's account with the Depository Trust Company of New York and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust. (iv) To keep that portion of the Trust in cash or cash balances as the Investment Committee or Administrator may, from time to time, deem to be in the best interest of the Trust. (v) To make, execute, acknowledge, and deliver any and all documents of transfer or conveyance and to carry out the powers herein granted. (vi) To borrow funds from a bank not affiliated with the Trustee in order to provide sufficient liquidity to process Plan transactions in a timely fashion, provided that the cost of borrowing shall be allocated in a reasonable fashion to the investment fund(s) in need of liquidity. (vii) To settle, compromise, or submit to arbitration any claims, debts, or damages due to or arising from the Trust; to commence or defend suits or legal or administrative proceedings; to represent the Trust in all suits and legal and administrative hearings; and to pay all reasonable expenses arising from any such action, from the Trust if not paid by the Sponsor. (viii) Subject to the prior approval of the Sponsor, to employ legal, accounting, clerical, and other such extraordinary assistance as may be required in 13 -10- carrying out the provisions of this Agreement and to pay their reasonable expenses and compensation from the Trust if not paid by the Sponsor. (ix) To do all other acts although not specifically mentioned herein, as the Trustee may deem necessary to carry out any of the foregoing powers and the purposes of the Trust. Section 5. RECORDKEEPING AND ADMINISTRATIVE SERVICES TO BE PERFORMED. (a) GENERAL. The Trustee shall perform those recordkeeping and administrative functions described in Schedule "A" attached hereto. These recordkeeping and administrative functions shall be performed within the framework of the Administrator's written directions regarding the Plan's provisions, guidelines and interpretations. (b) ACCOUNTS. The Trustee shall keep accurate accounts of all investments, receipts, disbursements, and other transactions hereunder, and shall report the value of the assets held in tile Trust as of the last day of each fiscal quarter of the Plan and, if not on the last day of a fiscal quarter, the date on which the Trustee resigns or is removed as provided in Section 8 of this Agreement or is terminated as provided in Section 10 (the "Reporting Date"). Within thirty (30) days following each Reporting Date or within sixty (60) days in the case of a Reporting Date caused by the resignation or removal of the Trustee, or the termination of this Agreement, the Trustee shall file with the Administrator a written account setting forth all investments, receipts, disbursements, and other transactions effected by the Trustee between the Reporting Date and the prior Reporting Date, and setting forth the value of the Trust as of the Reporting Date. Except as otherwise required under ERISA, upon the expiration of six (6) months from the date of filing such account with the Administrator, the Trustee shall have no liability or further accountability to anyone with respect to the propriety of its acts or transactions shown in such 14 -11- account, except with respect to such acts or transactions as to which the Sponsor shall within such six (6) month period file with the Trustee written objections. (c) INSPECTION AND AUDIT. Except as required under ERISA, all records generated by the Trustee in accordance with paragraphs (a) and (b) shall be open to inspection and audit, during the Trustee's regular business hours prior to the termination of this Agreement, by the Administrator or any person designated by the Administrator. Upon the resignation or removal of the Trustee or the termination of this Agreement, the Trustee shall provide to the Administrator, at no expense to the Sponsor, in the format regularly provided to the Administrator, a statement of each participant's accounts as of the resignation, removal, or termination, and the Trustee shall provide to the Administrator or the Plan's new recordkeeper such further records as are reasonable, at the Sponsor's expense. (d) EFFECT OF PLAN AMENDMENT. A confirmation of the current qualified status of the Plan is attached hereto as Schedule "F". The Trustee's provision of the recordkeeping and administrative services set forth in this Section 5 shall be conditioned on the Sponsor delivering to the Trustee a copy of any amendment to the Plan as soon as administratively feasible following the amendment's adoption, with, if requested, an IRS determination letter or an opinion of counsel substantially in the form of Schedule "F" covering such amendment, and on the Administrator providing the Trustee on a timely basis with all the information the Administrator deems necessary for the Trustee to perform the recordkeeping and administrative services and such other information as the Trustee may reasonably request. (e) RETURNS, REPORTS AND INFORMATION. The Administrator shall be responsible for the preparation and filing of all returns, reports, and information required of the Trust or Plan by law. The Trustee shall provide the Administrator with such information as the Administrator 15 -12- may reasonably request to make these filings. The Administrator shall also be responsible for making any disclosures to Participants required by law, except such disclosure as may be required under federal or state truth-in-lending laws with regard to Participant loans, which shall be provided by the Trustee. Section 6. COMPENSATION AND EXPENSES. Within thirty (30) days of receipt of the Trustee's bill, which shall be computed and billed in accordance with Schedule "B" attached thereto and made a part hereof, as amended from time to time, the Sponsor shall send to the Trustee a payment in such amount or the Sponsor may direct the Trustee to deduct such amount from participants' accounts and any unallocated portion of the Trust fund on a pro rata basis. All expenses of the Trustee relating directly to the acquisition and disposition of investments constituting part of the Trust, and all taxes of any kind whatsoever that may be levied or assessed under existing or future laws upon or in respect of the Trust or the income thereof, shall be a charge against and paid from the appropriate Plan participants' account. Section 7. DIRECTIONS AND INDEMNIFICATION. (a) IDENTITY OF ADMINISTRATOR AND INVESTMENT COMMITTEE. The Trustee shall be fully protected in relying on the fact that the Investment Committee and the Administrator under the Plan are the individuals or persons named as such or such other individuals or persons as the Sponsor may notify the Trustee in writing. (b) DIRECTIONS FROM ADMINISTRATOR. Whenever the Administrator provides a direction to the Trustee, the Trustee shall not be liable for any loss, or by reason of any breach, arising from the direction (i) if the direction is contained in a writing (or is oral and immediately confirmed in a writing) signed by any individual whose name and signature have been submitted (and not withdrawn) in writing to the Trustee by the Sponsor in the form attached hereto as 16 -13- Schedule "D", and (ii) if the Trustee reasonably believes the signature of the individual to be genuine, unless it is clear on the direction's face that the actions to be taken under the direction would be prohibited by the fiduciary duty rules of section 404(a) of ERISA or would be contrary to the terms of the Plan or this Agreement. (c) DIRECTIONS FROM INVESTMENT COMMITTEE. Whenever the Investment Committee provides a direction to the Trustee, the Trustee shall not be liable for any loss, or by reason of any breach, arising from the direction (i) if the direction is contained in a writing (or is oral and immediately confirmed in a writing) signed by any individual whose name and signature have been submitted (and not withdrawn) in writing to the Trustee by the Sponsor in the form attached hereto as Schedule "E" and (ii) if the Trustee reasonably believes the signature of the individual to be genuine, unless it is clear on the direction's face that the actions to be taken under the direction would be prohibited by the fiduciary duty rules of section 404(a) of ERISA or would be contrary to the terms of the Plan or this Agreement. (d) CO-FIDUCIARY LIABILITY. In any other case, the Trustee shall not be liable for any loss, or by reason of any breach, arising from any act or omission of another fiduciary under the Plan except as provided in section 405(a) of ERISA. (e) INDEMNIFICATION. The Sponsor shall indemnify the Trustee against, and hold the Trustee harmless from, any and all loss, damage, penalty, liability, cost, and expense, including without limitation, reasonable attorneys' fees and disbursements, that may be incurred by, imposed upon, or asserted against the Trustee by reason of any claim, regulatory proceeding, or litigation arising from any act done or omitted to be done by any individual or person with respect to the Plan or Trust, excepting only any and all loss, etc., arising from the Trustee's negligence or bad faith. 17 -14- (f) SURVIVAL. The provisions of this Section 7 shall survive the termination of this Agreement. Section 8. RESIGNATION OR REMOVAL OF TRUSTEE. (a) RESIGNATION. The Trustee may resign at any time upon sixty (60) days' notice in writing to the Sponsor, unless a shorter period of notice is agreed upon by the Sponsor. (b) REMOVAL. The Sponsor may remove the Trustee at any time upon sixty (60) days' notice in writing to the Trustee, unless a shorter period of notice is agreed upon by the Trustee. Section 9. SUCCESSOR TRUSTEE. (a) APPOINTMENT. If the office of Trustee becomes vacant for any reason, the Sponsor may in writing appoint a successor trustee under this Agreement. The successor trustee shall have all of the rights, powers, privileges, obligations, duties, liabilities, and immunities granted to the Trustee under this Agreement. The successor trustee and predecessor trustee shall not be liable for the acts or omissions of the other with respect to the Trust. (b) ACCEPTANCE. When the successor trustee accepts its appointment under this Agreement, title to and possession of the Trust assets shall immediately vest in the successor trustee without any further action on the part of the predecessor trustee. The predecessor trustee shall execute all instruments and do all acts that reasonably may be necessary or reasonably may be requested in writing by the Sponsor or the successor trustee to vest title to all Trust assets in the successor trustee or to deliver all Trust assets to the successor trustee. (c) CORPORATE ACTION. Any successor of the Trustee or successor trustee, through sale or transfer of the business or trust department of the Trustee or successor trustee, or 18 -15- through reorganization, consolidation, or merger, or any similar transaction, shall, upon consummation of the transaction, become the successor trustee under this Agreement. Section 10. TERMINATION. This Agreement may be terminated, without penalty to the Sponsor, at any time by the Sponsor upon sixty (60) days' notice in writing to the Trustee. On the date of the termination of this Agreement, the Trustee shall forthwith transfer and deliver to such individual or entity as the Sponsor shall designate, all cash and assets then constituting the Trust. If, by the termination date, the Sponsor has not notified the Trustee in writing as to whom the assets and cash are to be transferred and delivered, the Trustee may bring an appropriate action or proceeding for leave to deposit the assets and cash in a court of competent jurisdiction. The Trustee shall be reimbursed by the Sponsor for all costs and expenses of the action or proceeding including, without limitation, reasonable attorneys' fees and disbursements. Section 11. RESIGNATION, REMOVAL, AND TERMINATION NOTICES. All notices of resignation, removal, or termination under this Agreement must be in writing and mailed to the party to which the notice is being given by certified or registered mail, return receipt requested, to the Sponsor c/o Betty Green, HADCO Corporation, 12A Manor Parkway, Salem, New Hampshire 03079 and James Hamilton, General Counsel, Berlin, Hamilton & Dahmen, 73 Tremont Street, Boston, Massachusetts 02108, and to the Trustee c/o John M. Kimpel, Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109, or to such other addresses as the parties have notified each other of in the foregoing manner. Section 12. DURATION. This Trust shall continue in effect without limit as to time, subject, however, to the provisions of this Agreement relating to amendment, modification, and termination thereof. 19 -16- Section 13. AMENDMENT OR MODIFICATION. This Agreement may be amended or modified at any time and from time to time only by an instrument executed by both the Sponsor and the Trustee. Notwithstanding the foregoing and not prior to June 1, 1998, to reflect increased operating costs the Trustee may once each calendar year amend Schedule "B" without the Sponsor's consent upon ninety (90) days written notice to the Sponsor. Section 14. GENERAL. (a) PERFORMANCE BY TRUSTEE, ITS AGENTS OR AFFILIATES. The Sponsor Acknowledges and authorizes that the services to be provided under this Agreement shall be provided by the Trustee, its agents or affiliates, including Fidelity Investments Institutional Operations Company or its successor, and that certain of such services may be provided pursuant to one or more other contractual agreements or relationships. (b) ENTIRE AGREEMENT. This Agreement, including the Exhibits attached hereto, contains all of the terms agreed upon between the parties with respect to the subject matter hereof. (c) WAIVER. No waiver by either party of any failure or refusal to comply with an obligation hereunder shall be deemed a waiver of any other or subsequent failure or refusal to so comply. (d) SUCCESSORS AND ASSIGNS. The stipulations in this Agreement shall inure to the benefit of, and shall bind, the successors and assigns of the respective parties. (e) PARTIAL INVALIDITY. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall 20 -17- not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. (f) SECTION HEADINGS. The headings of the various sections and subsections of this Agreement have been inserted only for the purposes of convenience and are not part of this Agreement and shall not be deemed in any manner to modify, explain, expand or restrict any of the provisions of this Agreement. Section 15. GOVERNING LAW. (a) MASSACHUSETTS LAW CONTROLS. This Agreement is being made in the Commonwealth of Massachusetts, and the Trust shall be administered as a Massachusetts trust. The validity, construction, effect, and administration of this Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, except to the extent those laws are superseded under section 514 of ERISA (b) TRUST AGREEMENT CONTROLS. The Trustee is not a party to the Plan, and in the event of any conflict between the provisions of the Plan and the provisions of this Agreement, the provisions of this Agreement shall control. [Remainder of page intentionally left blank] 21 -18- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. HADCO CORPORATION Attest: /s/ James Hamilton By: /s/ Richard Saporito 5/24/96 ---------------------------- ------------------------------ Clerk Vice President Date FIDELITY MANAGEMENT TRUST COMPANY Attest: /s/ Douglas O. Kant By: /s/ John O'Reiley 10/26/96 ---------------------------- ------------------------------ Assistant Clerk Vice President Date EX-10.67 6 1ST AMENDMENT TO TRUST AGREEMENT 1 EXHIBIT 10.67 FIRST AMENDMENT TO TRUST AGREEMENT BETWEEN FIDELITY MANAGEMENT TRUST COMPANY AND HADCO CORPORATION THIS FIRST AMENDMENT, dated as of the first day of October, 1997, by and between Fidelity Management Trust Company (the "Trustee") and Hadco Corporation (the "Sponsor"); WITNESSETH: WHEREAS, the Trustee and the Sponsor heretofore entered into a Trust Agreement dated June 1, 1996, with regard to the Hadco Corporation Retirement Plan (the "Plan"); and WHEREAS,. the Sponsor has informed the Trustee that the Zycon Corporation Profit Sharing 401(k) Plan will merge into the Hadco Corporation Retirement Plan and has directed the Trustee to accept and hold the assets of the Zycon Corporation Profit Sharing 401(k) Plan; and WHEREAS, the Trustee and the Sponsor now desire to amend said Trust Agreement as provided for in Section 13 thereof; NOW THEREFORE, in consideration of the above premises the Trustee and the Sponsor hereby amend the Trust Agreement by: (1) Amending the Trust Agreement to add the following "WHEREAS" clause: WHEREAS, the Sponsor wishes to establish two trusts: one, for which Hadco Corporation serves as trustee, to hold assets attributable to the Balanced Account; and the other for which the Trustee serves as trustee, a trust to hold and invest the remaining plan assets under the Plan for the exclusive benefit of participants in the Plan and their beneficiaries; and (2) Amending Section 4(b)(i) AVAILABLE INVESTMENT OPTIONS by redefining "Mutual Fund" as follows: (i) securities issued by investment companies advised by Fidelity Management & Research Company and certain securities issued by registered investment companies not advised by Fidelity Management & Research Company (collectively, "MUTUAL FUNDS"). (3) Amending Section 4(b) by adding new subsection (vi) as follows: (vi) separately managed portfolios, namely the Balanced Account for which the Investment Manager is Wentworth Hauser, respectively, as described in Section 3(38) of ERISA, and for which the Trustee has no responsibility with regard investment selections. 2 (4) Amending Section 4(d) by inserting the following sentence before the first sentence of the Section: All transactions involving Non-Fidelity Mutual Funds shall be done in accordance with the OPERATIONAL GUIDELINES FOR NON-FIDELITY MUTUAL FUNDS attached hereto as Schedule "I". (5) Amending the "money classifications" section of Schedule "A" by adding the following: - Pre Tax Contributions QJ&S* - After Tax Contributions QJ&S* - Company Match QJ&S* - Rollover QJ&S* - Profit Sharing QJ&S* - Sign On Bonus QJ&S* - Pre Tax Contributions** - Company Match** - Rollover** - Profit Sharing - Sign On Bonus** - Zycon Company Match - Zycon Profit Sharing * "QJ&S" indicates the source is eligible for payment as Qualified Joint & Survivor Annuity. ** Eligible for pre-approved loans. The other sources not eligible for pre-approved loans will require spousal consent. (6) Amending the "investment options" section of Schedules "A" and "C" by adding the following: - The Balanced Account (frozen to new investments) - The Stock Account (also referred to as the "Harris, Bretall, Sullivan & Smith Growth Equity Fund") (frozen to new investments) (7) Amending Schedule "B" by adding "Non-Fidelity Mutual Funds" as follows: Non-Fidelity Mutual Funds: .25 % annual administration fee on all Non-Fidelity Mutual Fund assets except for the Harris Bretall fund (to be paid by the Non-Fidelity Mutual Fund vendor). 3 Harris Bretall Fund: .25 % annual administration fee on all assets; .10% per annum to be paid by Harris Bretall. .15 % per annum to be paid by the Sponsor. (8) Adding Schedule "J" OPERATING AGREEMENT FOR THE BALANCED ACCOUNT IN THE HADCO CORPORATION RETIREMENT PLAN as attached. IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this First Amendment to be executed by their duly authorized officers effective as of the day and year first written. HADCO CORPORATION FIDELITY MANAGEMENT TRUST COMPANY By: /s/ Richard Saporito By: /s/ Lucy Lewis 10/6/97 -------------------------------- ----------------------------- Title: Vice President Date Vice President Date EX-10.68 7 2ND AMENDMENT TO TRUST AGREEMENT 1 EXHIBIT 10.68 SECOND AMENDMENT TO TRUST AGREEMENT BETWEEN FIDELITY MANAGEMENT TRUST COMPANY AND HADCO CORPORATION THIS SECOND AMENDMENT, dated as of the fifteenth day of January, 1998, by and between Fidelity Management Trust Company (the "Trustee") and HADCO Corporation (the "Sponsor"); WITNESSETH: WHEREAS, the Trustee and the Sponsor heretofore entered into a Trust Agreement dated June 1, 1996, with regard to the HADCO Corporation Retirement Plan (the "Plan"); and WHEREAS, the Trustee and the Sponsor now desire to amend said Trust Agreement as provided for in Section 13 thereof, NOW THEREFORE, in consideration of the above premises the Trustee and the Sponsor hereby amend the Trust Agreement by: (1) Amending Schedule "A" by adding a the second point to subsection G, Other, as follows: For terminated and retired participants with outstanding loans: Fidelity shall provide to these participants a loan coupon book for the purpose of scheduling and processing loan repayments. IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this Second Amendment to be executed by their duly authorized officers effective as of the day and year first above written. HADCO CORPORATION FIDELITY MANAGEMENT TRUST COMPANY By: /s/ Timothy Matthews 12/11/97 By: /s/ Steve Quackenbush 12/26/97 -------------------------------- -------------------------------- Title: Vice President Date Vice President Date EX-10.69 8 3RD AMENDMENT TO TRUST AGREEMENT 1 EXHIBIT 10.69 THIRD AMENDMENT TO TRUST AGREEMENT BETWEEN FIDELITY MANAGEMENT TRUST COMPANY AND HADCO CORPORATION THIS THIRD AMENDMENT, dated as of the first day of January, 1998, by and between Fidelity Management Trust Company (the "Trustee") and Hadco Corporation (the "Sponsor"); WITNESSETH: WHEREAS, the Trustee and the Sponsor heretofore entered into a Trust Agreement dated June 1, 1996, with regard to the Hadco Corporation Retirement Plan (the "Plan"); and WHEREAS, the Trustee and the Sponsor now desire to amend said Trust Agreement as provided for in Section 13 thereof, NOW THEREFORE, in consideration of the above premises the Trustee and the Sponsor hereby amend the Trust Agreement by: (1) Amending Section 4(e) by restating as follows: (e) NOTES. (i) NOTES ON CONTRIBUTIONS TO THE HADCO CORPORATION RETIREMENT PLAN BEFORE JULY 1, 1996 AND ON CONTRIBUTIONS TO THE ZYCON CORPORATION PROFIT SHARING 401(K) PLAN BEFORE OCTOBER 1, 1997. The Administrator shall act as the Trustee's agent for the purpose of holding all trust investments in participant loan notes and related documentation and as such shall (i) hold physical custody of and keep safe the notes and other loan documents, (ii) separately account for repayments of such loans and clearly identify such assets as Plan assets, (iii) collect and remit all principal and interest payments to the Trustee, and (iv) cancel and surrender the notes and other loan documentation when a loan has been paid in full. To originate a participant loan, the Plan participant shall direct the Trustee as to the type of loan to be made from the participant's individual account. Such directions shall be made by Plan participants by use of the telephone exchange system maintained for such purpose by the Trustee or its agent. The Trustee shall determine, based on the current value of the participants account, the amount available for the loan. Based on the interest rate supplied by the Sponsor in accordance with the terms of the Plan, the Trustee shall advise the participant of such interest rate, as well as the installment payment amounts. The Trustee shall forward the loan document to the participant for execution and submission for approval to the Administrator. The Administrator shall have the responsibility for approving the loan and instructing the Trustee to send the loan proceeds to the Administrator or to the participant if so directed by the Administrator. In all cases, approval or disapproval by the Administrator shall be made within thirty (30) days of the participant's initial request (the origination date). 2 (ii) NOTES ON ALL OTHER CONTRIBUTIONS. The Administrator shall act as the Trustee's agent for participant loan notes and as such shall (i) separately account for repayments of such loans and clearly identify such assets as Plan assets and (ii) collect and remit all principal and interest payments to the Trustee. To originate a participant loan, tile Plan participant shall direct the Trustee as to the term and amount of the loan to be made from the participant's individual account. Such directions shall be made by Plan participants by use of the telephone exchange system maintained for such purpose by the Trustee or its agent. The Trustee shall determine, based on the current value of the participant's account on the date of the request and any guidelines provided by the Sponsor, the amount available for the loan. Based on the interest rate supplied by the Sponsor in accordance with the terms of the Plan, the Trustee shall advise the participant of such interest rate, as well as the installment payment amounts. The Trustee shall distribute the Participant loan agreement and truth-in-lending disclosure with the proceeds check to the participant. To facilitate recordkeeping, the Trustee may destroy the original of any promissory note made in connection with a loan to a participant under the Plan, provided that the Trustee first creates a duplicate by a photographic or optical scanning or other process yielding a reasonable facsimile of the promissory note and the Plan participant's signature thereon, which duplicate may be reduced or enlarged in size from the actual size of the original promissory note. IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this third Amendment to be executed by their duly authorized officers effective as of the day and year first above written. HADCO CORPORATION FIDELITY MANAGEMENT TRUST COMPANY By: /s/ Timothy Matthews 2/4/98 By: /s/ John DiBenedetto 2/18/98 -------------------------------- ------------------------------ Title: Vice President Date Vice President Date EX-23 9 CONSENT OF ARTHUR ANDERSON 1 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated November 18, 1999 included in Registration Statement Nos. 33-2915, 33-12555, 33-24975, 33-40616, 33-48288, 333-11485, 333-22377, 333-47589 and 333-79029. It should be noted that we have not audited any financial statements of the Company subsequent to October 30, 1999 or performed any audit procedures subsequent to the date of our report. /s/ Arthur Andersen LLP Boston, Massachusetts January 3, 2000 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR OCT-30-1999 NOV-01-1998 OCT-30-1999 1 9,078 0 118,058 (1,478) 63,926 208,752 703,552 (375,371) 724,823 160,971 278,309 0 0 683 218,326 724,823 1,005,970 1,007,354 849,100 940,004 0 0 30,895 36,455 14,491 21,964 0 0 0 21,964 1.62 1.60
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