<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SOLECTRON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3670 94-2447045
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
SOLECTRON CORPORATION
777 GIBRALTAR DRIVE
MILPITAS, CALIFORNIA 95035
(408) 957-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SUSAN WANG
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
SOLECTRON CORPORATION
777 GIBRALTAR DRIVE
MILPITAS, CALIFORNIA 95035
(408) 957-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES TO:
<TABLE>
<S> <C>
STEVEN E. BOCHNER, ESQ. BRUCE ALAN MANN, ESQ.
WILSON SONSINI GOODRICH & ROSATI P. RUPERT RUSSELL, ESQ.
PROFESSIONAL CORPORATION KRISTIAN E. WIGGERT, ESQ.
650 PAGE MILL ROAD DAVID G. THATCHER, ESQ.
PALO ALTO, CA 94304-1050 MORRISON & FOERSTER LLP
(650) 493-9300 425 MARKET STREET
SAN FRANCISCO, CA 94105-2482
(415) 268-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
Upon consummation of the merger described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
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Common Stock $0.001 par value....... 27,112,554 Not Applicable $1,924,459,694 $535,000
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</TABLE>
(1) Based upon the maximum number of shares of common stock, $0.001 par value
per share, of Solectron Corporation, that may be issued pursuant to the
merger giving effect to the exercise of all currently outstanding options to
purchase SMART Modular Technologies, Inc.'s common stock, no par value per
share, and rights to purchase SMART common stock under SMART's Employee
Stock Purchase Plan.
(2) Estimated solely for purposes of calculating the registration fee required
by the Securities Act of 1933, as amended, and computed pursuant to Rules
457(f) and (c) under the Securities Act based on $36.20, the average of the
high and low per share prices of common stock of SMART on the Nasdaq
National Market on October 13, 1999.
(3) Pursuant to Rule 457(b) under the Securities Act, $336,510 of the
registration fee is offset by the filing fee previously paid by Solectron in
connection with the filing of preliminary proxy materials on Schedule 14A on
October 1, 1999. Accordingly, a registration fee of $198,490 is being paid
herewith.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
[SMART MODULAR TECHNOLOGIES, INC. LOGO]
TO THE SHAREHOLDERS OF SMART MODULAR TECHNOLOGIES, INC.
A MERGER PROPOSAL -- YOUR VOTE IS VERY IMPORTANT
On September 13, 1999 SMART Modular Technologies, Inc.'s board of directors
approved a reorganization agreement between Solectron Corporation and SMART
Modular Technologies, Inc. The reorganization agreement provides for the merger
of SMART with a newly formed, wholly-owned subsidiary of Solectron.
In the merger, each share of your SMART common stock will be exchanged for
0.51 of a share of Solectron common stock. Solectron common stock is listed on
the New York Stock Exchange under the trading symbol "SLR," and on October 13,
1999, Solectron common stock closed at $75 1/16 per share. Based on the number
of shares of common stock of SMART and Solectron outstanding on October 13,
1999, the former shareholders of SMART will own approximately 8.0% of
Solectron's common stock after the merger.
The merger cannot be completed unless the holders of a majority of SMART
common stock entitled to vote adopt the reorganization agreement. Only
shareholders who hold their shares of SMART common stock at the close of
business on October 13, 1999, will be entitled to vote at the special meeting.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS DETERMINED THE MERGER
TO BE FAIR TO YOU AND IN YOUR BEST INTERESTS AND DECLARED THE MERGER ADVISABLE.
SMART'S BOARD OF DIRECTORS APPROVED THE REORGANIZATION AGREEMENT AND RECOMMENDS
ITS ADOPTION BY YOU.
This proxy statement-prospectus provides you with detailed information
concerning Solectron and the merger. Please give all of the information
contained in the proxy statement-prospectus your careful attention. IN
PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION ENTITLED
"RISK FACTORS" ON PAGE 15 OF THIS PROXY STATEMENT-PROSPECTUS.
Please use this opportunity to take part in the affairs of SMART by voting
on the adoption of the reorganization agreement. Whether or not you plan to
attend the meeting, please complete, sign, date and return the accompanying
proxy in the enclosed self-addressed stamped envelope. Returning the proxy does
NOT deprive you of your right to attend the meeting and to vote your shares in
person. YOUR VOTE IS VERY IMPORTANT.
We appreciate your interest in SMART and consideration of this matter.
Ajay Shah signature
Ajay Shah
Chairman of the Board and
Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SHARES OF SOLECTRON COMMON STOCK
TO BE ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED WHETHER THIS PROXY
STATEMENT-PROSPECTUS IS ADEQUATE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This proxy statement-prospectus is dated October 18, 1999 and was first
mailed to shareholders on or about October 18, 1999.
<TABLE>
<S> <C> <C>
SMART Modular 4305 Cushing Parkway, Telephone: (510) 623-1231
Technologies, Inc. Fremont, California 94538 Facsimile: (510) 623-1434
</TABLE>
------------------------
<PAGE> 3
SMART MODULAR TECHNOLOGIES, INC.
4305 CUSHING PARKWAY
FREMONT, CALIFORNIA 94538
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Date: November 29, 1999
Time: 10:00 a.m.
Place: The Hyatt Sainte Claire
302 South Market Street
San Jose, CA 95113
------------------------
At the meeting you will be asked:
1. To consider and vote upon a proposal to adopt the Agreement and
Plan of Reorganization, dated as of September 13, 1999, by and among
Solectron Corporation, SM Acquisition Corp., a wholly-owned subsidiary of
Solectron, and SMART, pursuant to which SM Acquisition will merge with and
into SMART and SMART will survive the merger as a wholly-owned subsidiary
of Solectron. In the merger, holders of outstanding shares of common stock,
no par value per share, of SMART will receive 0.51 of a share of common
stock, $0.001 par value per share, of Solectron for each share of SMART
common stock they hold. Adoption of the reorganization agreement will also
constitute approval of the merger and the other transactions contemplated
by the reorganization agreement.
2. To transact such other business as may properly come before the
special meeting or any adjournment of the special meeting.
The attached proxy statement-prospectus contains a more complete
description of these items of business. Only holders of record of SMART common
stock at the close of business on October 13, 1999, the record date, are
entitled to vote on the matters listed in this notice of special meeting. You
may vote in person at the SMART special meeting even if you have returned a
proxy.
By Order of the Board of Directors
of SMART Modular Technologies, Inc.
David B. Mullin signature
David B. Mullin
Vice President and Chief Financial
Officer
Fremont, California
October 18, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE.
<PAGE> 4
WHERE YOU CAN FIND MORE INFORMATION
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED IN OR DELIVERED WITH THIS PROXY STATEMENT-PROSPECTUS.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
SOLECTRON OR SMART HAVE REFERRED YOU TO. NEITHER SOLECTRON NOR SMART HAS
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
All documents filed by Solectron or SMART pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 after the date of this proxy
statement-prospectus and before the date of the special meeting are incorporated
by reference into and to be a part of this proxy statement-prospectus from the
date of filing of those documents.
The following documents, which were filed by SMART with the Securities and
Exchange Commission, are incorporated by reference into this proxy
statement-prospectus:
- SMART's Annual Report on Form 10-K for the fiscal year ended October
31, 1998;
- SMART's Quarterly Report on Form 10-Q for the quarter ended July 31,
1999;
- SMART's Quarterly Report on Form 10-Q for the quarter ended April
30, 1999; and
- SMART's Quarterly Report on Form 10-Q for the quarter ended January
31, 1999.
The following documents, which have been filed by Solectron with the
Securities and Exchange Commission, are incorporated by reference into this
proxy statement-prospectus:
- Solectron's Annual Report on Form 10-K for the fiscal year ended
August 31, 1998;
- Solectron's Quarterly Report on Form 10-Q for the quarter ended May
31, 1999;
- Solectron's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1999;
- Solectron's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1998;
- Solectron's Current Report on Form 8-K filed on September 17, 1999;
- Solectron's Current Report on Form 8-K filed on July 30, 1999;
- Solectron's Current Report on Form 8-K filed on February 18, 1999;
- Solectron's Current Report on Form 8-K filed on January 26, 1999;
and
- the description of Solectron's common stock contained in Solectron's
Registration Statement filed on Form 8-A filed on July 18, 1988, and
any amendment or report filed for the purpose of updating such
description.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this proxy statement-prospectus will be deemed to
be modified or superseded for purposes of this proxy statement-prospectus to the
extent that a statement contained in this proxy statement-prospectus or any
other subsequently filed document that is deemed to be incorporated by reference
into this proxy statement-prospectus modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement-prospectus.
The documents incorporated by reference into this proxy
statement-prospectus are available from Solectron or SMART upon request and
copies of any and all of the information that is incorporated by reference in
this proxy statement-prospectus, not including exhibits to the information
unless those exhibits are specifically incorporated by reference into this proxy
statement-prospectus will be provided to any person,
<PAGE> 5
without charge, upon written or oral request. ANY REQUEST FOR DOCUMENTS SHOULD
BE MADE BY NOVEMBER 22, 1999 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS.
<TABLE>
<S> <C>
Requests for documents relating to SMART Requests for documents relating to
should be directed to: Solectron should be directed to:
SMART Modular Technologies, Inc. Solectron Corporation
4305 Cushing Parkway 777 Gibraltar Drive
Fremont, California 94538 Milpitas, California 95035
Attention: Investor Relations Attention: Investor Relations
(510) 624-8294 (408) 957-8500
</TABLE>
We file reports, proxy statements and other information with the Securities
and Exchange Commission. Copies of our reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
<TABLE>
<S> <C>
Reports, proxy statements and other Reports, proxy statements and other
information concerning SMART may also be information regarding Solectron may also
inspected at: be inspected at:
The National Association of The New York Stock Exchange
Securities Dealers 20 Broad Street
1735 K Street, N.W. New York, New York 10005
Washington, D.C. 20006
</TABLE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at (800) SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other
information regarding each of Solectron or SMART. The address of the SEC website
is http://www.sec.gov.
Solectron has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to
Solectron's common stock to be issued to SMART shareholders in the merger. This
proxy statement-prospectus constitutes the prospectus of Solectron filed as part
of the registration statement. This proxy statement-prospectus does not contain
all of the information set forth in the registration statement because parts of
the registration statement are omitted in accordance with the rules and
regulations of the SEC. The registration statement and its exhibits are
available for inspection and copying as set forth above.
If you have any questions about the merger, please call SMART Investor
Relations at (510) 624-8294. You may also call Solectron Investor Relations at
(408) 957-8500. You may call either investor relations number during normal
business hours at any time before the special meeting to obtain the prior day's
closing market quotations of SMART common stock and Solectron common stock.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY OF THE PROXY STATEMENT-PROSPECTUS................... 1
The Companies............................................. 1
Questions and Answers About the Merger.................... 2
Summary of the Transaction................................ 4
Selected Historical and Pro Forma Financial Data.......... 9
Comparative Per Share Market Price Data................... 13
RISK FACTORS................................................ 15
RISKS RELATED TO THE MERGER............................... 15
You will receive 0.51 of a share of Solectron common
stock despite changes in market value of SMART common
stock or Solectron common stock....................... 15
Although Solectron and SMART expect that the merger
will result in benefits, those benefits may not be
realized.............................................. 15
SMART officers and directors have conflicts of interest
that may influence them to support or approve the
merger................................................ 15
The failure to obtain all required consents and waivers
may cause third parties to terminate or alter existing
contracts with SMART.................................. 16
Failure to qualify for pooling of interests accounting
treatment may harm the future operating results of the
combined company...................................... 16
Failure to complete the merger could negatively impact
SMART's stock price and future business and
operations............................................ 16
General uncertainty related to the merger could
negatively impact the combined company................ 17
SMART's legal proceedings.............................. 17
RISKS RELATED TO SOLECTRON................................ 18
A majority of Solectron's net sales comes from a small
number of customers; if Solectron loses any of these
customers, Solectron's net sales could decline
significantly......................................... 18
Solectron's long-term contracts do not include minimum
purchase requirements................................. 18
Possible fluctuation of operating results from quarter
to quarter could affect the market price of
Solectron's common stock.............................. 18
Solectron is dependent upon the electronics industry
which continually produces technologically advanced
products with short life cycles; Solectron's inability
to continually manufacture such products on a
cost-effective basis would harm its business.......... 19
Solectron bears the risk of price increases associated
with potential shortages in the availability of
electronics components................................ 19
Solectron's net sales could decline if Solectron's
competitors provide comparable manufacturing services
at a lower cost....................................... 19
If Solectron is unable to manage its rapid growth and
assimilate new operations in a cost-effective manner,
its profitability could decline....................... 19
Solectron needs to manage integration of Solectron's
acquisitions to maintain profitability................ 19
Solectron's international sales are a significant and
growing portion of its net sales; Solectron is
increasingly exposed to risks associated with
operating internationally............................. 20
Solectron is exposed to fluctuations in the exchange
rates of foreign currency............................. 21
Solectron may not be able to adequately protect or
enforce its intellectual property rights and Solectron
could become involved in intellectual property
disputes.............................................. 21
Failure to comply with environmental regulations could
harm Solectron's business............................. 21
Solectron's stock price may be volatile due to factors
outside of its control................................ 21
Failure to maintain key personnel and skilled
associates could hurt Solectron's operations.......... 22
Year 2000 problems may have an adverse effect on
Solectron's operations and ability to offer products
and services without interruption..................... 22
Solectron's anti-takeover defense provisions may deter
potential acquirors of Solectron and may depress its
stock price........................................... 22
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE SPECIAL MEETING OF SMART SHAREHOLDERS................... 22
Purpose of the Special Meeting............................ 22
Shareholder Record Date for the Special Meeting........... 22
Vote of SMART Shareholders Required for Adoption of the
Reorganization Agreement............................... 23
Proxies................................................... 23
Availability of Accountants............................... 24
THE MERGER.................................................. 25
Background of the Merger.................................. 25
SMART's Reasons for the Merger............................ 27
Recommendation of SMART's Board of Directors.............. 29
Opinion of SMART's Financial Advisor...................... 29
Interests of Certain SMART Directors, Officers and
Affiliates in the Merger............................... 34
Completion and Effectiveness of the Merger................ 35
Structure of the Merger and Conversion of SMART Common
Stock.................................................. 35
Exchange of SMART Stock Certificates for Solectron Stock
Certificates........................................... 35
Material United States Federal Income Tax Considerations
of the Merger.......................................... 36
Accounting Treatment of the Merger........................ 37
Regulatory Filings and Approvals Required to Complete the
Merger................................................. 38
Restrictions on Sales of Shares by Affiliates of SMART and
Solectron.............................................. 38
Listing on the New York Stock Exchange of Solectron Common
Stock to Be Issued in the Merger....................... 39
Dissenters' Rights........................................ 39
Delisting and Deregistration of SMART Common Stock After
the Merger............................................. 41
Dividend Policy........................................... 41
The Reorganization Agreement.............................. 41
Conditions to Completion of the Merger.................... 47
Termination of the Reorganization Agreement............... 48
Payment of Termination Fee................................ 49
Extension, Waiver and Amendment of the Reorganization
Agreement.............................................. 50
The Stock Option Agreement................................ 50
Voting Agreements......................................... 51
Affiliate Agreements...................................... 52
Noncompetition and Nonsolicitation Agreement.............. 52
Operations after the Merger............................... 52
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 53
COMPARISON OF RIGHTS OF HOLDERS OF SMART COMMON STOCK AND
SOLECTRON COMMON STOCK.................................... 60
Number of Directors....................................... 60
Cumulative Voting for Directors........................... 60
Classified Board of Directors............................. 60
Director Voting........................................... 60
Removal of Directors...................................... 61
Filling Vacancies on the Board of Directors............... 61
Advance Notice of Stockholder/Shareholder Proposals....... 61
Power to Call Special Meetings of
Stockholders/Shareholders.............................. 62
Business Combination Following a Change of Control........ 62
Amendment of Charter Documents............................ 62
Indemnification........................................... 63
Restriction on Sales of Stock............................. 63
</TABLE>
ii
<PAGE> 8
<TABLE>
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PAGE
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<S> <C>
Inspection of Stockholders/Shareholders List.............. 63
Appraisal/Dissenters' Rights.............................. 63
SHARE OWNERSHIP BY PRINCIPAL SHAREHOLDERS, MANAGEMENT AND
DIRECTORS OF SMART........................................ 64
LEGAL MATTERS............................................... 66
EXPERTS..................................................... 67
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING OF SMART
SHAREHOLDERS IF THE MERGER IS NOT COMPLETED............... 68
Annex A -- Agreement and Plan of Reorganization............. A-1
Annex B -- Stock Option Agreement........................... B-1
Annex C -- Form of Voting Agreement......................... C-1
Annex D -- Opinion of Morgan Stanley & Co. Incorporated..... D-1
Annex E -- California Dissenters' Rights.................... E-1
</TABLE>
iii
<PAGE> 9
SUMMARY OF THE PROXY STATEMENT-PROSPECTUS
This summary may not contain all of the information that is important to
you. You should carefully read this entire document and the other documents we
refer to for a more complete understanding of the merger. In particular, you
should read the documents attached to this proxy statement-prospectus, including
the reorganization agreement, the stock option agreement, the voting agreement,
the fairness opinion of Morgan Stanley & Co. Incorporated and the California
Dissenters' Rights Statute, which are attached as Annexes A, B, C, D and E,
respectively. In addition, we incorporate by reference important business and
financial information about Solectron and SMART into this proxy
statement-prospectus. You may obtain the information incorporated by reference
into this proxy statement-prospectus without charge by following the
instructions in the section entitled "Where You Can Find More Information" on
the inside front cover of this proxy statement-prospectus.
THE COMPANIES
SMART MODULAR TECHNOLOGIES, INC.
4305 CUSHING PARKWAY
FREMONT, CALIFORNIA 94538
ATTN: INVESTOR RELATIONS
(510) 624-8294
SMART is a leading designer and manufacturer of specialty and standard
memory modules, flash memory cards, embedded computers and input/output products
to leading and emerging high-tech original equipment manufacturers, or OEMs, in
the computer, networking and telecommunications markets. SMART operates
state-of-the-art design centers in Fremont, California; Bangalore, India;
Boston, Massachusetts; and Ayr, Scotland and has an ISO 9001 certified
manufacturing center in Fremont, California; and ISO 9002 certified
manufacturing centers in Penang, Malaysia; Aguada, Puerto Rico; and East
Kilbride, Scotland.
SMART maintains a site on the Internet at www.smartmodulartech.com;
however, information found at SMART's website is not a part of this proxy
statement-prospectus. SMART was incorporated in California in 1988.
SOLECTRON CORPORATION
777 GIBRALTAR DRIVE
MILPITAS, CALIFORNIA 95035
ATTN: INVESTOR RELATIONS
(408) 957-8500
Solectron is an independent provider of customized manufacturing services
to electronics OEMs. Solectron provides a wide variety of pre-manufacturing,
manufacturing and post-manufacturing services. Solectron's goal is to offer its
customers the significant competitive advantages that can be obtained from
manufacturing outsourcing such as access to advanced manufacturing technologies,
shortened product time-to-market, reduced cost of production and more effective
asset utilization. Solectron has manufacturing operations in locations
throughout the world, including North America, Europe, the Asia/Pacific region
and Brazil. Solectron believes that the geographically diverse locations of its
facilities enable it to build closer regional relationships with its customers
and to better meet its customers' cost and local market content requirements.
Solectron maintains a site on the Internet at www.solectron.com; however,
information found at Solectron's website is not part of this proxy
statement-prospectus. Solectron was originally incorporated in California in
August 1977 and reincorporated in Delaware in February 1997.
1
<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE WE PROPOSING TO MERGE? (SEE PAGE 27)
A: The merger allows Solectron and SMART the opportunity to significantly extend
Solectron's and SMART's leadership in global supply chain facilitation,
enhance Solectron's and SMART's technologies, further capitalize on the
economic benefits of Solectron's and SMART's respective infrastructures and
add potentially strong value for the stockholders of the combined company. In
particular, this combination will provide Solectron and SMART the opportunity
to continue Solectron's and SMART's shared strategic vision to become the
comprehensive outsource provider to electronics OEMs.
Q: WHAT WILL I RECEIVE IN THE MERGER? (SEE PAGE 35)
A: If the merger is completed, you will receive 0.51 of a share of Solectron
common stock for each share of SMART common stock you own. Solectron will not
issue fractional shares of common stock. You will receive cash based on the
average price of Solectron common stock on the NYSE composite tape for the
five trading days prior to the completion of the merger instead of any
fractional share.
The number of shares of Solectron common stock to be issued for each share of
SMART common stock is fixed and will not be adjusted based upon changes in
the value of these shares. As a result, the value of the shares you receive
in the merger will not be known at the time you vote on the merger and may go
up or down as the market price for Solectron common stock goes up or down.
SMART is not permitted to withdraw from the merger or resolicit the vote of
its shareholders based solely on changes in the value of Solectron common
stock.
Based on the number of SMART and Solectron shares outstanding as of October
13, 1999, the record date for the special meeting of SMART Shareholders, the
former shareholders of SMART will own approximately 8.0% of Solectron's
common stock after the merger.
Q: WHAT DO I NEED TO DO NOW? (SEE PAGE 23)
A: Following your review of this proxy statement-prospectus, mail your signed
proxy card in the enclosed return envelope as soon as possible so that your
shares can be voted at the special meeting of SMART shareholders.
Q: WHAT HAPPENS IF I DON'T INDICATE HOW TO VOTE MY PROXY? (SEE PAGE 23)
A: If you do not include instructions on how to vote your properly signed proxy,
your shares will be voted FOR adoption of the reorganization agreement and
approval of the merger.
Q: WHAT HAPPENS IF I DON'T RETURN A PROXY CARD? (SEE PAGE 23)
A: Not returning your proxy card will have the same effect as voting against the
merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD? (SEE PAGE 23)
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can send a
written notice to the Secretary of SMART stating that you would like to
revoke your proxy. Second, you can complete and submit a new proxy card.
Third, you can attend the special meeting, file a written notice of
revocation of your proxy with the Secretary of SMART and vote in person. Your
attendance alone will not revoke your proxy.
Q: IF MY BROKER HOLDS MY SHARES IN STREET NAME, WILL MY BROKER VOTE MY SHARES
FOR ME? (SEE PAGE 23)
A: No. Your broker will not be able to vote your shares without instructions
from you. If you do not provide your broker with voting instructions, your
shares will be considered present at the special meeting for purposes of
determining a quorum but will not be considered to have been voted in favor
of adoption of the
2
<PAGE> 11
reorganization agreement. If you have instructed a broker to vote your shares,
you must follow directions received from your broker to change those
instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW? (SEE PAGE 24)
A: No. After the merger is completed, Solectron will send you written
instructions for exchanging your SMART stock certificates for Solectron stock
certificates.
Q: WHO CAN HELP ANSWER MY QUESTIONS? (SEE INSIDE FRONT COVER)
A: You can write or call SMART's Investor Relations at 4305 Cushing Parkway,
Fremont, California 94538, telephone (510) 624-8294 with any questions about
the merger.
3
<PAGE> 12
SUMMARY OF THE TRANSACTION
STRUCTURE OF THE TRANSACTION (SEE PAGE 35)
SMART will merge with a subsidiary of Solectron and become a wholly-owned
subsidiary of Solectron. Following the merger, as a stockholder of Solectron,
you will have an equity stake in SMART's parent company Solectron.
SHAREHOLDER APPROVAL (SEE PAGE 23)
The holders of a majority of the outstanding shares of SMART common stock
must adopt the reorganization agreement. Solectron stockholders are not required
to adopt the reorganization agreement and will not vote on the merger.
You are entitled to cast one vote per share of SMART common stock you owned
as of October 13, 1999, the record date.
RECOMMENDATION OF SMART'S BOARD OF DIRECTORS (SEE PAGE 29)
After careful consideration, SMART's board of directors determined the
merger to be fair to you and in your best interests and declared the merger
advisable. SMART's board of directors approved the reorganization agreement and
recommends its adoption by you.
OPINION OF SMART'S FINANCIAL ADVISOR (SEE PAGE 29)
Morgan Stanley, SMART's financial advisor, delivered an opinion to SMART's
board of directors that, subject to the considerations described in its opinion,
the exchange ratio in the reorganization agreement is fair from a financial
point of view to holders of SMART common stock. The complete opinion of Morgan
Stanley is attached as Annex D and you are urged to read it in its entirety.
PROCEDURE FOR CASTING YOUR VOTE (SEE PAGE 23)
Please mail your signed proxy card in the enclosed return envelope as soon
as possible so that your shares of SMART common stock may be represented at the
special meeting. If you do not include instructions on how to vote your properly
executed proxy, your shares will be voted FOR adoption of the reorganization
agreement.
PROCEDURE FOR CASTING YOUR VOTE IF YOUR SHARES ARE HELD BY YOUR BROKER IN STREET
NAME (SEE PAGE 23)
Your broker will vote your shares only if you provide instructions on how
to vote by following the information provided to you by your broker. If you do
not provide your broker with voting instructions, your shares will not be voted
at the SMART special meeting and it will have the same effect as voting against
adoption of the reorganization agreement.
PROCEDURE FOR CHANGING YOUR VOTE (SEE PAGE 23)
If you want to change your vote, just send the Secretary of SMART a
later-dated, signed proxy card before the special meeting or attend the special
meeting in person and revoke your proxy and vote in person. You may revoke your
proxy by sending written notice to the Secretary of SMART before the special
meeting or attending the special meeting and revoking your vote.
PROCEDURE FOR EXCHANGING YOUR STOCK CERTIFICATES (SEE PAGE 40)
After the merger is completed, Solectron will send you written instructions
for exchanging your SMART stock certificates for Solectron stock certificates.
Do not send your SMART stock certificates now.
4
<PAGE> 13
COMPLETION AND EFFECTIVENESS OF THE MERGER (SEE PAGE 35)
Solectron and SMART will complete the merger when all of the conditions to
completion of the merger are satisfied or waived. The merger will become
effective when we file an agreement of merger with the State of California.
Solectron and SMART are working toward completing the merger as quickly as
possible and hope to complete the merger by the end of 1999.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 47)
Solectron's and SMART's respective obligations to complete the merger are
subject to the prior satisfaction or waiver of conditions. If either Solectron
or SMART waives any conditions, SMART will consider the facts and circumstances
at that time and make a determination as to whether a resolicitation of proxies
from SMART shareholders is appropriate. The conditions that must be satisfied or
waived before the completion of the merger include the following:
- SMART's shareholders must vote a majority of the outstanding shares of
SMART common stock for approval of the merger;
- the applicable waiting periods under the antitrust laws must expire or be
terminated;
- the SEC must declare Solectron's S-4 registration statement relating to
the Solectron shares of common stock to be issued in the merger effective
and no injunction or order preventing the completion of the merger may be
in effect;
- Solectron and SMART must each receive an opinion of tax counsel that the
merger will qualify as a tax-free reorganization;
- Solectron shall have received from KPMG LLP, independent accountants for
Solectron, a letter to Solectron to the effect that KPMG LLP concurs with
Solectron management's conclusion that the merger can be accounted for as
a pooling of interest; and
- shares of Solectron common stock issuable to SMART shareholders under the
reorganization agreement shall have been authorized for NYSE listing.
SMART's obligations to complete the merger are subject to the satisfaction
or waiver of each of the following additional conditions before completion of
the merger:
- Solectron's representations and warranties must be true and correct; and
- Solectron must perform or comply in all material respects with all of its
agreements and covenants required by the reorganization agreement to be
performed or complied with by Solectron at or before completion of the
merger.
Solectron's obligations to complete the merger are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
- SMART's representations and warranties must be true and correct;
- SMART must perform or comply in all material respects with all of its
agreements and covenants required by the reorganization agreement to be
performed or complied with by SMART at or before completion of the
merger;
- holders of no more than five percent of the outstanding shares of SMART
common stock shall have exercised, or shall have any right to exercise,
appraisal, dissenters' or similar rights under applicable law with
respect to their shares;
- each of SMART's affiliates shall have entered into an affiliate agreement
and each of the agreements shall be in full force and effect as of the
date of the merger; and
- Solectron shall have received from Arthur Andersen LLP, independent
accountants for SMART, a copy of a letter addressed to SMART to the
effect that Arthur Andersen LLP agrees with SMART management's conclusion
that no conditions related to SMART exist that would preclude Solectron
from accounting for the merger as a pooling of interests.
5
<PAGE> 14
TERMINATION OF THE REORGANIZATION AGREEMENT (SEE PAGE 48)
Solectron or SMART may terminate the reorganization agreement by mutual
written consent, duly authorized by Solectron's and SMART's boards of directors.
Either Solectron or SMART may also terminate the reorganization agreement
if the conditions to completion of the merger would not be satisfied because of
a material breach of the reorganization agreement by the other party or a
representation or warranty of the other party in the reorganization agreement
becomes materially untrue, either of which is incurable through reasonable
efforts.
In addition, either Solectron or SMART may terminate the reorganization
agreement under any of the following circumstances:
- if the merger is not completed by March 31, 2000;
- if a final court order or other government decree or ruling prohibiting
the merger is issued and is not appealable; or
- if SMART's shareholders do not approve and adopt the reorganization
agreement and approve the merger at the special meeting.
Furthermore, Solectron may terminate the reorganization agreement if:
- SMART's board of directors withdraws or changes in a manner adverse to
Solectron its recommendation in favor of the merger;
- SMART's board of directors does not reaffirm its recommendation in favor
of the merger within ten business days after Solectron requests
reaffirmation following the announcement of any offer or proposal from a
party other than Solectron relating to an extraordinary transaction
involving SMART, such as a merger or a sale of significant assets;
- SMART's board of directors approves or recommends any offer or proposal
from a party other than Solectron relating to an extraordinary
transaction;
- SMART enters into any letter of intent or other agreement accepting any
offer or proposal from a party other than Solectron relating to an
extraordinary transaction; or
- a person unaffiliated with Solectron starts a tender or exchange offer
relating to the securities of SMART, and SMART does not recommend that
its shareholders reject such offer within ten business days after the
offer is first started.
PAYMENT OF TERMINATION FEE (SEE PAGE 49)
If the reorganization agreement terminates, SMART may be required to pay
Solectron an aggregate termination fee of $60 million.
NO OTHER NEGOTIATIONS INVOLVING SMART (SEE PAGE 43)
SMART has agreed, subject to some limited exceptions, not to initiate or
engage in discussions with another party about a business combination with the
other party while the merger is pending.
STOCK OPTION AGREEMENT (SEE PAGE 50)
SMART entered into a stock option agreement with Solectron that grants
Solectron the option to acquire shares of SMART common stock that represent
approximately 19.9% of the issued and outstanding shares of SMART common stock.
The exercise price of the option is $39.3656 per share. Solectron also has the
right under some circumstances to require SMART to purchase the option or shares
acquired by Solectron.
Solectron required SMART to grant the option as a prerequisite to entering
into the reorganization agreement. The option may discourage third parties who
are interested in acquiring a significant stake in SMART and is intended by
Solectron to increase the likelihood that the merger will be completed.
6
<PAGE> 15
The option is not currently exercisable and Solectron may exercise the
option only if the reorganization agreement is terminated in circumstances
similar to those in which the termination fee is payable. If the reorganization
agreement is terminated under any other circumstances, the option will
terminate.
You are urged to read the stock option agreement, which is attached as
Annex B, in its entirety.
NONCOMPETITION AND NONSOLICITATION AGREEMENT (SEE PAGE 52)
In connection with the merger, Ajay Shah, the Chairman and Chief Executive
Officer of SMART, agreed to enter into a noncompetition and nonsolicitation
agreement with Solectron. Under the noncompetition and nonsolicitation
agreement, Mr. Shah agreed to neither solicit Solectron's employees nor compete
with Solectron in the design, manufacture, marketing or sale of memory modules,
memory cards and single board computers until the later to occur of two years
from the date of completion of the merger or the end of his employment with
Solectron.
VOTING AGREEMENT (SEE PAGE 51)
Some SMART shareholders entered into a voting agreement with Solectron. The
voting agreement requires these SMART shareholders to vote all shares of SMART
common stock they beneficially own in favor of adoption of the reorganization
agreement. These SMART shareholders were not paid additional consideration in
connection with the voting agreement.
The SMART shareholders who entered into the voting agreement collectively
held approximately 36.8% of the outstanding SMART common stock as of the record
date.
You are urged to read the voting agreement, a form of which is attached as
Annex C, in its entirety.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 34)
When considering the recommendation of SMART's board of directors, you
should be aware that some of SMART's directors and officers may have interests
in the merger that are different from yours.
In particular, some of the directors and officers of SMART participate in
arrangements and have continuing indemnification against liabilities that
provide them with interests in the merger that are different from, or are in
addition to, your interests. As a result, these directors and officers could be
more likely to vote to approve the reorganization agreement than if they did not
hold these interests. SMART shareholders should consider whether these interests
may have influenced these directors and officers to support or recommend the
merger.
As of the record date, directors and executive officers of SMART and their
affiliates held approximately 37.9% of the outstanding shares of SMART common
stock.
U.S. FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER (SEE PAGE 36)
The merger is structured so that, in general, Solectron, SMART and SMART's
shareholders will not recognize gain or loss for United States federal income
tax purposes in the merger, except for taxes payable because of cash received by
SMART shareholders instead of fractional shares or because of their exercise of
dissenters' rights. It is a condition to the merger that Solectron and SMART
receive legal opinions stating that the merger will be a tax-free
reorganization.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE 37)
Solectron intends to account for the merger as a pooling of interests
business combination. It is a condition to completion of the merger that
Solectron be advised by KPMG LLP that they concur with Solectron management's
conclusion that the transactions contemplated by the reorganization agreement
can properly be accounted for as a pooling of interests business combination,
although this condition may be waived by Solectron. In addition, Solectron must
receive from Arthur Andersen LLP a copy of a letter addressed to SMART stating
their concurrence with SMART management's conclusion that no conditions
7
<PAGE> 16
related to SMART exist that would preclude Solectron from accounting for the
merger as a pooling of interests. Under the pooling of interests method of
accounting, each of Solectron's and SMART's historical recorded assets and
liabilities will be carried forward to the combined company at their recorded
amounts. In addition, the operating results of the combined company will include
Solectron's and SMART's operating results for the entire fiscal year in which
the merger is completed and Solectron's and SMART's historical reported
operating results for prior periods will be combined and restated as the
operating results of the combined company.
ANTITRUST APPROVAL REQUIRED TO COMPLETE THE MERGER (SEE PAGE 38)
The merger is subject to antitrust laws. Solectron, SMART and Mr. Ajay Shah
have made the required filings with the Department of Justice and the Federal
Trade Commission, but the appropriate waiting periods have not expired as of the
date of this proxy statement-prospectus. Solectron and SMART are not permitted
to complete the merger until the applicable waiting periods have expired or
terminated. Solectron and SMART intend to comply with all requests for
information from the Department of Justice and the Federal Trade Commission. The
merger is also subject to regulatory approval in Germany and Ireland. The
Department of Justice or the Federal Trade Commission, as well as a foreign
regulatory agency or government, state or private person, may challenge the
merger at any time before its completion.
RESTRICTIONS ON THE ABILITY TO SELL SOLECTRON STOCK (SEE PAGE 38)
All shares of Solectron common stock received by you in connection with the
merger will be freely transferable unless you are considered an affiliate of
either of Solectron or SMART under the Securities Act of 1933. Shares of
Solectron common stock held by affiliates may only be sold pursuant to a
registration statement or exemption under the Securities Act.
DISSENTERS' RIGHTS (SEE PAGE 39)
If holders of five percent or more of the outstanding shares of SMART
common stock entitled to vote at the SMART special meeting vote against the
approval and adoption of the reorganization agreement and make a demand for
payment of the fair market value of the shares pursuant to the provisions of
Chapter 13 of the California General Corporation Law, those SMART shareholders
will be entitled to exercise dissenters' rights. In accordance with these
provisions, dissenting SMART shareholders will have the right to be paid the
fair market value of their shares of SMART common stock as set forth in and by
fully complying with the procedures specified in the California General
Corporation Law. The failure of a dissenting SMART shareholder to timely and
properly comply with such procedures will result in the termination or waiver of
such rights.
FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT-PROSPECTUS (SEE PAGE 15)
This proxy statement-prospectus and the documents incorporated by reference
into this proxy statement-prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 with respect to Solectron's and SMART's financial condition, results of
operations and business and on the expected impact of the merger on Solectron's
financial performance. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. In evaluating the merger, you should carefully
consider the discussion of risks and uncertainties in the section entitled "Risk
Factors" on page 15 of this proxy statement-prospectus.
8
<PAGE> 17
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Solectron and SMART have provided the following selected historical
financial data and selected pro forma combined financial data to aid you in
analyzing the financial aspects of the proposed merger. The information is only
a summary and you should read it together with Solectron's and SMART's
consolidated financial statements and other financial information contained in
the most recent annual and quarterly reports filed by Solectron and SMART, which
are incorporated by reference. Please see the section entitled "Where You Can
Find More Information" on the inside front cover of this proxy
statement-prospectus.
The selected historical consolidated income statement financial data for
the nine-month periods ended May 31, 1999 and 1998, and for each of the fiscal
years in the three-year period ended August 31, 1998, for Solectron and for the
nine-month periods ended July 31, 1999 and 1998, and for each of the fiscal
years in the three-year period ended October 31, 1998, for SMART, have been
derived from the consolidated statements of income for Solectron and SMART for
such periods incorporated by reference in this proxy statement-prospectus. The
consolidated income statement data for the fiscal years ended August 31, 1995
and 1994 for Solectron and for the fiscal years ended October 31, 1995 and 1994
for SMART have been derived from consolidated financial statements not included
herein or incorporated by reference.
The historical consolidated balance sheet data for Solectron as of May 31,
1999 and 1998, August 31, 1998 and 1997, and for SMART as of July 31, 1999 and
1998, October 31, 1998 and 1997, have been derived from consolidated financial
statements for such periods incorporated by reference in this proxy statement-
prospectus. The historical consolidated balance sheet data for Solectron as of
August 31, 1996, 1995 and 1994, and for SMART as of October 31, 1996, 1995, and
1994 have been derived from consolidated financial statements not included
herein or incorporated by reference.
The selected unaudited pro forma combined financial data reflects the
merger using the pooling of interests method of accounting. Since the fiscal
years for Solectron and SMART differ, SMART will change its fiscal year to
coincide with Solectron upon the consummation of the merger. The unaudited pro
forma condensed combined income statements combine Solectron's consolidated
income statements for the nine-month period ended May 31, 1999 and fiscal years
ended August 31, 1998, 1997 and 1996 with SMART's nine-month period ended July
31, 1999 and fiscal years ended October 31, 1998, 1997 and 1996, respectively.
The unaudited selected pro forma combined balance sheet data combines
Solectron's consolidated balance sheet data as of May 31, 1999, August 31, 1998,
1997 and 1996 with SMART's consolidated balance sheet data as of July 31, 1999,
October 31, 1998, 1997 and 1996, respectively. The unaudited selected pro forma
combined balance sheet data as of August 31, 1998, 1997 and 1996 have been
derived from unaudited pro forma condensed combined financial statements not
included herein.
The pro forma financial data is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the merger had been consummated at the beginning of
the periods indicated, nor is such information indicative of the future
operating results or financial positions of the combined company after the
merger.
Solectron's financial reporting year consists of either 52-week or 53-week
periods ending on the last Friday in August. Fiscal years 1999, 1998 and 1997
each contained 52 weeks, and fiscal year 1996 contained 53 weeks. For purposes
of presentation in the accompanying financial data, Solectron has indicated its
accounting years as ending on August 31.
9
<PAGE> 18
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF SOLECTRON
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31, YEAR ENDED AUGUST 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME:
Net sales............................ $6,005,270 $3,601,818 $5,288,294 $3,694,385 $2,817,191 $2,065,559 $1,456,779
Cost of sales........................ 5,449,411 3,218,775 4,749,988 3,266,106 2,534,813 1,863,729 1,310,451
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit....................... 555,859 383,043 538,306 428,279 282,378 201,830 146,328
Operating expenses:
Selling, general and
administrative..................... 219,412 155,296 218,377 172,872 100,260 73,554 53,816
Research & development............... 24,563 14,706 20,940 14,985 6,693 4,842 4,162
Acquisition costs.................... 2,864 -- -- 4,000 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income................... 309,020 213,041 298,989 236,422 175,425 123,434 88,350
Interest income...................... 18,605 19,645 24,753 28,536 13,302 6,611 6,484
Interest expense..................... (26,015) (17,784) (24,759) (26,551) (15,650) (9,551) (10,675)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes......... 301,610 214,902 298,983 238,407 173,077 120,494 84,159
Income taxes......................... 96,516 71,994 100,159 80,348 58,845 40,968 28,614
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income......................... $ 205,094 $ 142,908 $ 198,824 $ 158,059 $ 114,232 $ 79,526 $ 55,545
========== ========== ========== ========== ========== ========== ==========
Net income per share:
Basic.............................. $ 0.85 $ 0.62 $ 0.86 $ 0.71 $ 0.56 $ 0.46 $ 0.34
Diluted............................ $ 0.80 $ 0.59 $ 0.82 $ 0.69 $ 0.54 $ 0.41 $ 0.30
Weighted average number of shares:
Basic.............................. 242,339 230,850 231,666 223,004 203,352 171,442 164,092
Diluted............................ 261,153 252,940 253,135 230,642 213,436 208,238 207,048
</TABLE>
<TABLE>
<CAPTION>
AS OF MAY 31, AS OF AUGUST 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................... $1,787,217 $1,025,620 $1,046,724 $ 931,690 $ 786,355 $ 355,603 $ 309,203
Total assets......................... 3,454,575 2,204,183 2,410,568 1,876,419 1,452,198 940,855 766,395
Long-term debt....................... 917,668 386,542 385,519 385,850 386,927 30,043 140,709
Shareholders' equity................. 1,620,929 1,085,999 1,181,326 919,069 700,569 538,141 330,789
Book value per common share.......... 6.41 5.02
</TABLE>
10
<PAGE> 19
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF SMART
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JULY 31, YEAR ENDED OCTOBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME:
Net sales....................................... $745,539 $534,668 $714,651 $694,675 $401,774 $274,592 $163,849
Cost of sales................................... 649,883 444,099 595,279 582,515 329,644 224,931 132,826
-------- -------- -------- -------- -------- -------- --------
Gross profit.................................. 95,656 90,569 119,372 112,160 72,130 49,661 31,023
Operating expenses:
Selling, general and administrative............. 34,824 31,074 41,781 37,163 28,544 23,952 15,192
Research & development.......................... 7,910 6,676 8,945 8,496 5,933 5,283 5,891
-------- -------- -------- -------- -------- -------- --------
Operating income.............................. 52,922 52,819 68,646 66,501 37,653 20,426 9,940
Interest income................................. 4,793 5,689 7,548 2,615 2,252 190 81
Interest expense................................ (44) (229) (73) (225) (309) (704) (220)
Other, net...................................... 7 (168) (410) (26) 295 (1) (4)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.................... 57,678 58,111 75,711 68,865 39,891 19,911 9,797
Income taxes.................................... 18,450 18,596 24,228 23,418 14,760 7,344 3,759
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle.......................... 39,228 39,515 51,483 45,447 25,131 12,567 6,038
Cumulative effect of change in accounting
principle..................................... -- -- -- -- -- -- 121
-------- -------- -------- -------- -------- -------- --------
Net income.................................... $ 39,228 $ 39,515 $ 51,483 $ 45,447 $ 25,131 $ 12,567 $ 6,159
======== ======== ======== ======== ======== ======== ========
Net income per share:
Basic......................................... $ 0.87 $ 0.92 $ 1.19 $ 1.17 $ 0.69 $ 0.43 $ 0.23
Diluted....................................... $ 0.84 $ 0.84 $ 1.10 $ 1.04 $ 0.60 $ 0.36 $ 0.19
Weighted average number of shares:
Basic......................................... 45,082 43,064 43,445 38,895 36,459 28,986 26,876
Diluted....................................... 46,729 46,995 46,902 43,892 41,748 35,130 33,074
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31, AS OF OCTOBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................. $272,084 $226,614 $231,291 $206,115 $ 74,324 $ 21,464 $ 12,185
Total assets.................................... 413,235 340,252 368,992 327,985 172,185 91,976 45,612
Long-term debt.................................. -- -- -- 234 1,241 1,599 632
Shareholders' equity............................ 321,321 268,568 279,621 230,320 86,619 26,234 13,665
Book value per common share..................... 7.10 6.25
</TABLE>
11
<PAGE> 20
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF SOLECTRON AND SMART
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED AUGUST 31,
MAY 31, ------------------------------------
1999 1998 1997 1996
----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRO FORMA CONSOLIDATED STATEMENTS OF
INCOME:
Net sales.................................. $6,729,456 $5,978,342 $4,383,992 $3,211,098
Cost of sales.............................. 6,077,862 5,321,128 3,843,559 2,856,768
---------- ---------- ---------- ----------
Gross profit............................. 651,594 657,214 540,433 354,330
Operating expenses:
Selling, general and administrative........ 254,229 260,568 210,061 128,509
Research & development..................... 32,473 29,885 23,481 12,626
Acquisition costs.......................... 2,864 -- 4,000 --
---------- ---------- ---------- ----------
Operating income......................... 362,028 366,761 302,891 213,195
Interest income............................ 23,398 32,301 31,151 15,554
Interest expense........................... (26,059) (24,832) (26,776) (15,959)
---------- ---------- ---------- ----------
Income before income taxes............... 359,367 374,230 307,266 212,790
Income taxes............................... 114,997 124,206 103,763 73,536
---------- ---------- ---------- ----------
Net income............................... $ 244,370 $ 250,024 $ 203,503 $ 139,254
========== ========== ========== ==========
Net income per share:
Basic.................................... $ 0.92 $ 0.99 $ 0.84 $ 0.63
Diluted.................................. $ 0.87 $ 0.94 $ 0.80 $ 0.60
Weighted average number of shares:
Basic.................................... 265,331 253,823 242,840 221,946
Diluted.................................. 284,985 277,055 253,027 234,727
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Working capital............................ $2,043,956 $1,277,620 $1,137,693 $ 860,570
Total assets............................... 3,865,216 2,776,475 2,203,706 1,623,478
Long-term debt............................. 917,668 385,519 386,084 388,168
Shareholders' equity....................... 1,926,904 1,460,552 1,149,277 787,079
Book value per common share................ 6.98 5.66
SMART PRO FORMA EQUIVALENTS:
Net income per share:
Basic.................................... $ 0.47 $ 0.50 $ 0.43 $ 0.32
Diluted.................................. 0.44 0.48 0.41 0.31
Book value per common share................ 3.56 2.89
</TABLE>
12
<PAGE> 21
COMPARATIVE PER SHARE MARKET PRICE DATA
Solectron's common stock is traded on the New York Stock Exchange under the
symbol "SLR." The following table shows the high and low per share sale prices
of Solectron common stock as reported by the New York Stock Exchange for the
periods indicated. The prices in the following table have been adjusted to
reflect Solectron's two-for-one stock splits, which were effective in August
1997 and February 1999. Solectron has never paid a cash dividend since its
inception and does not anticipate paying any cash dividends in the foreseeable
future.
<TABLE>
<CAPTION>
SOLECTRON
SALES PRICE
-----------------
HIGH LOW
---- ---
<S> <C> <C>
Year Ended August 31, 1997
First Quarter............................................. $14 31/32 $ 8 9/16
Second Quarter............................................ 15 11/32 12 7/8
Third Quarter............................................. 16 1/4 11 25/32
Fourth Quarter............................................ 22 25/32 14 25/32
Year Ended August 31, 1998
First Quarter............................................. 23 23/32 16 31/32
Second Quarter............................................ 24 13/16 14 7/16
Third Quarter............................................. 24 9/32 18 7/32
Fourth Quarter............................................ 26 9/16 17 23/32
Year Ended August 31, 1999
First Quarter............................................. 34 11/16 19 13/32
Second Quarter............................................ 47 1/8 32 1/2
Third Quarter............................................. 57 7/8 40 1/2
Fourth Quarter............................................ 78 15/16 52 1/4
Year Ending August 31, 2000
First Quarter through October 13, 1999.................... 80 3/8 66 1/8
</TABLE>
SMART's common stock is traded on the Nasdaq National Market under the
symbol "SMOD." The following table shows the high and low bid prices of SMART
common stock as reported by the Nasdaq National Market for the periods
indicated. The prices in the following table have been adjusted to reflect
SMART's two-for-one stock split, which was effective in December 1997. SMART has
never paid a cash dividend since its inception and does not anticipate paying
any cash dividends in the foreseeable future.
<TABLE>
<CAPTION>
SMART
BID PRICE
-----------------
HIGH LOW
---- ---
<S> <C> <C>
Year Ended October 31, 1997
First Quarter............................................. $15 23/32 $ 9 11/16
Second Quarter............................................ 17 11 5/8
Third Quarter............................................. 23 11/16 15 15/16
Fourth Quarter............................................ 44 1/16 20 1/2
Year Ended October 31, 1998
First Quarter............................................. 31 9/16 21 5/8
Second Quarter............................................ 36 20 7/16
Third Quarter............................................. 26 1/4 12 1/16
Fourth Quarter............................................ 21 1/2 15 1/4
Year Ending October 31, 1999
First Quarter............................................. 27 3/4 20
Second Quarter............................................ 20 12 1/2
Third Quarter............................................. 23 11/16 13 1/2
Fourth Quarter through October 13, 1999................... 37 1/2 17 7/16
</TABLE>
13
<PAGE> 22
On September 10, 1999, the last full trading day before the public
announcement of the proposed merger, the high and low sale prices for Solectron
common stock, as reported on the New York Stock Exchange, were $77 13/16 and
$76 1/16, respectively. The high and low bid prices for SMART common stock, as
reported on the Nasdaq National Market, were $23 5/8 and $22, respectively.
The following table sets forth the closing sale price of Solectron common
stock, as reported on the New York Stock Exchange, SMART common stock, as
reported on the Nasdaq National Market, and the equivalent per share price of
SMART, giving effect to the proposed merger, on September 10, 1999, the last
full trading day prior to the public announcement of the proposed merger, and
October 13, 1999, the latest practicable trading day prior to the printing of
this proxy statement-prospectus.
<TABLE>
<CAPTION>
CLOSING SALES PRICE
----------------------------------------
SMART
SOLECTRON SMART EQUIVALENT
--------- ----- ----------
<S> <C> <C> <C>
Price per share:
September 10, 1999.................................. $77 1/2 $23 1/2 $39 21/40
October 13, 1999.................................... $75 1/16 $35 7/8 $38 7/25
</TABLE>
You are advised to obtain a current market quotation for Solectron common
stock. The market price of Solectron common stock is subject to fluctuation. The
value of the shares of Solectron common stock that holders of SMART will receive
in the proposed merger may increase or decrease prior to and following the
proposed merger.
Because the market price of Solectron common stock may increase or decrease
before the completion of the merger, you are urged to obtain current market
quotations. You may call SMART Investor Relations at (510) 624-8294 or Solectron
Investor Relations at (408) 957-8500 during business hours at any time before
the special meeting to obtain the prior day's closing market quotations of SMART
common stock and Solectron common stock.
14
<PAGE> 23
RISK FACTORS
This proxy statement-prospectus and the documents incorporated by reference
into this proxy statement-prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 with respect to Solectron's and SMART's financial condition, results of
operations and business, and on the expected impact of the merger on Solectron's
financial performance. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. In evaluating the merger, you should carefully
consider the above discussion of risks and uncertainties.
By voting in favor of the merger, you will be choosing to invest in
Solectron common stock. An investment in Solectron common stock involves a high
degree of risk. In addition to the other information contained in or
incorporated by reference into this proxy statement-prospectus, you should
carefully consider the following risk factors in deciding whether to vote for
the merger.
RISKS RELATED TO THE MERGER
YOU WILL RECEIVE 0.51 OF A SHARE OF SOLECTRON COMMON STOCK DESPITE CHANGES IN
MARKET VALUE OF SMART COMMON STOCK OR SOLECTRON COMMON STOCK
Upon completion of the merger, each share of SMART common stock will be
exchanged for 0.51 of a share of Solectron common stock. There will be no
adjustment for changes in the market price of either SMART common stock or
Solectron common stock, and SMART is not permitted to withdraw from the merger
or resolicit the vote of its shareholders solely because of changes in the
market price of Solectron or SMART common stock. Accordingly, the specific
dollar value of Solectron common stock you will receive upon completion of the
merger will depend on the market value of Solectron common stock at the time of
completion of the merger.
ALTHOUGH SOLECTRON AND SMART EXPECT THAT THE MERGER WILL RESULT IN BENEFITS,
THOSE BENEFITS MAY NOT BE REALIZED
Achieving the benefits of the merger will depend in part on the integration
of technology, operations and personnel. The integration of Solectron and SMART
will be a complex, time consuming and expensive process and may disrupt
Solectron's business if not completed in a timely and efficient manner. Among
the challenges involved in this integration is demonstrating to customers and
suppliers that the merger will not result in adverse changes in client service
standards or business focus, persuading personnel that Solectron's and SMART's
business cultures are compatible and addressing any perceived adverse changes in
business focus. Neither company's management has experience in integrating
operations on the scale represented by the merger, and it is not certain that
Solectron and SMART can be successfully integrated in a timely manner or at all
or that any of the anticipated benefits will be realized, and failure to do so
could seriously harm the business and operating results of the combined company.
Additionally, neither Solectron nor SMART can assure you that the growth rate of
the combined company will equal the growth rate that has been experienced by
Solectron and SMART.
SMART OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY INFLUENCE THEM
TO SUPPORT OR APPROVE THE MERGER
The directors and officers of SMART participate in arrangements and have
continuing indemnification against liabilities that provide them with interests
in the merger that are different from, or are in addition to, your interests. As
a result, these directors and officers could be more likely to vote to approve
the reorganization agreement than if they did not hold these interests. SMART
shareholders should consider whether these interests may have influenced these
directors and officers to support or recommend the merger.
15
<PAGE> 24
Tor Braham is a member of SMART's board of directors and also serves as a
Managing Director of Warburg Dillon Read LLC, an investment bank which provided
financial advisory services to SMART in connection with the merger. On the
advice of counsel, Mr. Braham abstained from voting for the merger at SMART's
board of directors meeting.
THE FAILURE TO OBTAIN ALL REQUIRED CONSENTS AND WAIVERS MAY CAUSE THIRD PARTIES
TO TERMINATE OR ALTER EXISTING CONTRACTS WITH SMART
SMART has contracts with many of its suppliers, customers, licensors,
licensees and other business partners relating to, among other things,
intellectual property rights. Some of these contracts require SMART to obtain
the consent, waiver or approval of these other parties in connection with the
reorganization agreement. If consent, waiver or approval cannot be obtained,
SMART may suffer a loss of potential future revenue and may lose rights to
facilities or intellectual property that are material to SMART's business. SMART
has agreed to use reasonable efforts to secure the necessary consents, waivers
and approvals and it is a condition to Solectron's obligation to complete the
merger that SMART obtain any consents, waivers and approvals which, if not
obtained, would have a material adverse effect on SMART. However, SMART may not
be able to obtain all of the necessary consents, waivers and approvals and
failure to do so could seriously harm the business and operating results of the
combined company.
FAILURE TO QUALIFY FOR POOLING OF INTERESTS ACCOUNTING TREATMENT MAY HARM THE
FUTURE OPERATING RESULTS OF THE COMBINED COMPANY
Solectron intends to account for the merger as a pooling of interests
business combination. It is a condition to completion of the merger that
Solectron be advised by KPMG LLP that they concur with Solectron management's
conclusion that the transactions contemplated by the reorganization agreement
can properly be accounted for as a pooling of interests business combination,
although this condition may be waived by Solectron. In addition, Solectron must
receive from Arthur Andersen LLP a copy of a letter addressed to SMART stating
their concurrence with SMART management's conclusion that no conditions related
to SMART exist that would preclude Solectron from accounting for the merger as a
pooling of interests. Under the pooling of interests method of accounting, each
of Solectron's and SMART's historical recorded assets and liabilities will be
carried forward to the combined company at their recorded amounts. In addition,
the operating results of the combined company will include Solectron's and
SMART's operating results for the entire fiscal year in which the merger is
completed and Solectron's and SMART's historical reported operating results for
prior periods will be combined and restated as the operating results of the
combined company.
After completion of the merger, if events occur that cause the merger to no
longer qualify for pooling of interests accounting treatment, the purchase
method of accounting would apply. Under that method, Solectron would record the
estimated fair value of Solectron common stock issued in the merger as the cost
of acquiring the business of SMART. That cost would be allocated to the net
assets acquired, with the excess of the estimated fair value of Solectron common
stock over the fair value of net assets acquired recorded as goodwill or other
intangible assets. The estimated fair value of Solectron common stock to be
issued in the merger is much greater than the historical net book value at which
SMART carries its assets in its accounts. Therefore, purchase accounting
treatment could harm the reported operating results of the combined company
compared to pooling of interests accounting treatment.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT SMART'S STOCK PRICE AND
FUTURE BUSINESS AND OPERATIONS
If the merger is not completed, SMART may be subject to a number of
material risks, including the following:
- SMART may be required to pay Solectron a termination fee of $60 million;
- the option granted to Solectron by SMART may become exercisable;
16
<PAGE> 25
- Solectron could require SMART to purchase the option or shares of SMART
common stock it acquired under the option, resulting in additional costs
to SMART;
- the price of SMART common stock may decline to the extent that the
current market price of SMART common stock reflects a market assumption
that the merger will be completed; and
- costs related to the merger, such as legal, accounting and financial
advisor fees, must be paid even if the merger is not completed.
Further, if the merger is terminated and SMART's board of directors
determines to seek another merger or business combination, it is not certain
that it will be able to find a partner willing to pay an equivalent or more
attractive price than that which would be paid in the merger. In addition, while
the reorganization agreement is in effect and subject to limited exceptions
described on page 43 of this proxy statement-prospectus, SMART is generally
prohibited from soliciting, initiating or knowingly encouraging or entering into
extraordinary transactions, such as a merger, sale of assets or other business
combination, with any party other than Solectron. Furthermore, if the
reorganization agreement is terminated and Solectron's option to purchase SMART
common stock is exercisable, transactions between SMART and a potential
third-party involved would not be able to be accounted for as a business
combination using the pooling of interests accounting method for some period of
time and Solectron would have the ability to purchase a substantial portion of
SMART's equity.
GENERAL UNCERTAINTY RELATED TO THE MERGER COULD NEGATIVELY IMPACT THE COMBINED
COMPANY
Solectron's or SMART's customers may, in response to the announcement of
the merger, delay or defer purchasing decisions. Any delay or deferral in
purchasing decisions by Solectron's or SMART's customers could seriously harm
the business of the combined company. Similarly, Solectron and SMART employees
may experience uncertainty about their future role with the combined Company
until or after strategies with regard to SMART are announced or executed. This
may adversely affect the combined company's ability to attract and retain key
management, marketing and technical personnel.
SMART'S LEGAL PROCEEDINGS
SMART and some of its officers and directors have been named as defendants
in six securities class action lawsuits filed in the United States District
Court for the Northern District of California:
- Boren v. SMART Modular Technologies, Inc., et al., No. C 98 20692 JW,
PVT, filed July 1, 1998;
- Woszczak v. SMART Modular Technologies, Inc., et al., No. C 98 2617 JL,
filed July 2, 1998;
- Bisson v. SMART Modular Technologies, Inc., et al., No. C 98 20714 JF,
filed July 8, 1998;
- D'Amato v. SMART Modular Technologies, Inc., et al., No. C 98 2804 PJH,
filed July 16, 1998;
- Cha v. SMART Modular Technologies, Inc., et al., No. C 98 2833 BZ, filed
July 17, 1998; and
- Chang v. SMART Modular Technologies, Inc., et al., No. C 98 3151 SI,
filed August 13, 1998.
The plaintiffs in these actions allege that defendants made material
misrepresentations and omissions during the period from July 1, 1997 through May
21, 1998 in violation of Section 10(b) of the Securities Exchange Act and Rule
10b-5 promulgated thereunder. The actions were consolidated on October 9, 1998,
and a consolidated complaint was filed on November 30, 1998.
On October 22, 1998, a putative securities class action lawsuit, captioned
Reagan v. SMART Modular Technologies, Inc., et al., Case No. H204162-5, was
filed against SMART and certain of its officers and directors in the Superior
Court of the State of California, County of Alameda. This complaint alleges
violations of Sections 25400 and 25500 of the California Corporations Code and
seeks unspecified damages on behalf of a purported class of purchasers of SMART
common stock during the period from July 1, 1997 through May 21, 1998. The
factual allegations of this state complaint are nearly identical to the factual
17
<PAGE> 26
allegations contained within the consolidated federal complaint. On February 22,
1999, the Superior Court granted SMART's motion to stay the state action pending
the resolution of the federal action.
SMART believes that all claims related to the state and federal securities
actions are without merit and intends to defend itself vigorously against these
actions; however, SMART cannot currently estimate the financial impact of the
state and federal securities actions.
RISKS RELATED TO SOLECTRON
A MAJORITY OF SOLECTRON'S NET SALES COMES FROM A SMALL NUMBER OF CUSTOMERS; IF
SOLECTRON LOSES ANY OF THESE CUSTOMERS, SOLECTRON'S NET SALES COULD DECLINE
SIGNIFICANTLY
The majority of Solectron's annual net sales comes from a small number of
Solectron's customers. Solectron's ten largest customers accounted for over two
thirds of net sales in fiscal 1998. Since Solectron is dependent upon continued
net sales from Solectron's ten largest customers, any material delay,
cancellation or reduction of orders from these or other major customers could
cause Solectron's net sales to decline significantly. Some of these customers
individually account for more than ten percent of Solectron's annual net sales.
There is no guarantee that Solectron will be able to retain any of Solectron's
ten largest customers or any other accounts. In addition, our customers may
materially reduce the levels of services ordered from Solectron at any time.
This could cause a significant decline in Solectron's net sales and Solectron
may not be able to reduce the accompanying expenses at the same time.
SOLECTRON'S LONG-TERM CONTRACTS DO NOT INCLUDE MINIMUM PURCHASE REQUIREMENTS
Although Solectron has long-term contracts with a few of its top ten
customers, including Ericsson Telecom AB, NCR Corporation and IBM, under which
these customers are obligated to obtain services from Solectron, they are not
obligated to purchase any minimum amount of services. As a result, there is no
guarantee that Solectron will receive any net sales from these contracts. In
addition, these customers with whom Solectron has long-term contracts may
materially reduce the levels of services ordered at any time. This could cause a
significant decline in Solectron's net sales and Solectron may not be able to
reduce its accompanying expenses at the same time.
POSSIBLE FLUCTUATION OF OPERATING RESULTS FROM QUARTER TO QUARTER COULD AFFECT
THE MARKET PRICE OF SOLECTRON'S COMMON STOCK
Solectron's quarterly earnings may fluctuate in the future due to a number
of factors including the following:
- differences in the profitability of the types of manufacturing services
Solectron provided, for example, systems assembly services have lower
gross margins than printed circuit board assembly services;
- Solectron's ability to maximize the hours of use of its equipment and
facilities is dependent on the duration of the production run time for
each job and customer;
- the amount of automation that Solectron can use in the manufacturing
process for cost reduction, which varies depending upon the complexity of
the product being made;
- Solectron's ability to optimize the ordering of inventory as to timing
and amount to avoid holding excess inventory in excess of immediate
production, for example, electronic components could be made obsolete by
technological advances; and
- fluctuations in demand for Solectron's services or the products being
manufactured.
Therefore, Solectron's operating results in the future could be below the
expectations of securities analysts and investors. If this occurs, the market
price of Solectron's common stock could be harmed.
18
<PAGE> 27
SOLECTRON IS DEPENDENT UPON THE ELECTRONICS INDUSTRY WHICH CONTINUALLY PRODUCES
TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; SOLECTRON'S INABILITY
TO CONTINUALLY MANUFACTURE SUCH PRODUCTS ON A COST-EFFECTIVE BASIS WOULD HARM
ITS BUSINESS
A majority of Solectron's net sales is to corporations in the electronics
industry, which is subject to rapid technological change and product
obsolescence. If Solectron's customers are unable to create products that keep
pace with the changing technological environment, the customers' products could
become obsolete and the demand for Solectron's services could significantly
decline. If Solectron is unable to offer technologically advanced, quick
response manufacturing services to customers that are cost effective, customer
demand for Solectron's services will also decline. In addition, a substantial
portion of Solectron's net sales is derived from its ability to offer complete
service solutions for Solectron's customers. For example, if Solectron fails to
maintain high quality design and engineering services, Solectron's net sales
would significantly decline.
SOLECTRON BEARS THE RISK OF PRICE INCREASES ASSOCIATED WITH POTENTIAL SHORTAGES
IN THE AVAILABILITY OF ELECTRONICS COMPONENTS
At various times, there have been shortages of components in the
electronics industry. One of the services that Solectron performs for many
customers is purchasing electronics components used in the manufacturing of such
customers' products. As a result of this service, Solectron bears the risk of
price increases for these components because Solectron is unable to purchase
components at the same time as Solectron agrees with its customers on the
pricing for the components.
SOLECTRON'S NET SALES COULD DECLINE IF SOLECTRON'S COMPETITORS PROVIDE
COMPARABLE MANUFACTURING SERVICES AT A LOWER COST
Solectron competes with different contract manufacturers depending on the
type of service Solectron provides or the geographic locale of Solectron's
operations. These competitors may have greater manufacturing, financial,
research and development and/or marketing resources than Solectron has. In
addition, Solectron may not be able to offer prices as low as some of its
competitors because those competitors may have lower cost structures as a result
of where they are located geographically or the services they provide.
Solectron's inability to provide comparable or better manufacturing services at
a lower cost than its competitors could cause Solectron's net sales to decline.
IF SOLECTRON IS UNABLE TO MANAGE ITS RAPID GROWTH AND ASSIMILATE NEW OPERATIONS
IN A COST-EFFECTIVE MANNER, ITS PROFITABILITY COULD DECLINE
Solectron has experienced rapid growth over the last five fiscal years.
Solectron's historical growth may not continue. In recent years, Solectron has
established operations in different places throughout the world. For example, in
fiscal 1998, Solectron opened offices in Taiwan and Israel, commenced
manufacturing operations in Mexico and Romania. In fiscal 1998, Solectron
acquired foreign facilities in Brazil, Sweden and Ireland. Furthermore, through
acquisitions in fiscal 1998 and 1999, Solectron acquired facilities in Georgia
and South Carolina and enhanced its capabilities in North Carolina and Texas.
Also during that period, Solectron announced a joint venture with Ingram Micro,
Inc. In March 1999, Solectron announced the opening of the first new phase of
its facility in Brazil.
As Solectron manages and continues to expand new operations, it may incur
substantial infrastructure and working capital costs. If Solectron does not
achieve sufficient growth to offset increased expenses associated with rapid
expansion, Solectron's profitability will decline.
SOLECTRON NEEDS TO MANAGE INTEGRATION OF SOLECTRON'S ACQUISITIONS TO MAINTAIN
PROFITABILITY
In fiscal 1998 and 1999, Solectron completed acquisitions of certain
manufacturing assets and facilities from Ericsson, NCR, IBM, and Mitsubishi and
Trimble Navigation Limited, and acquired all of the capital
19
<PAGE> 28
stock of Sequel, Inc. Solectron also continues to evaluate acquisition
opportunities and may pursue additional acquisitions over time. These
acquisitions involve risks, including:
- integration and management of the operations;
- retention of key personnel;
- integration of purchasing operations and information systems;
- management of an increasingly larger and more geographically disparate
business; and
- diversion of management's attention from other ongoing business concerns.
Solectron's profitability will suffer if it is unable to successfully
integrate and manage recent acquisitions, as well as any future acquisitions
that it might pursue, or if it does not achieve sufficient revenue to offset the
increased expenses associated with these acquisitions.
SOLECTRON'S INTERNATIONAL SALES ARE A SIGNIFICANT AND GROWING PORTION OF ITS NET
SALES; SOLECTRON IS INCREASINGLY EXPOSED TO RISKS ASSOCIATED WITH OPERATING
INTERNATIONALLY
In fiscal 1998 approximately 34% of Solectron's net sales came from outside
of the United States. For the first nine months of fiscal 1999, approximately
37% of Solectron's net sales came from outside the United States. As a result of
Solectron's foreign sales and facilities, Solectron's operations are subject to
a variety of risks that are unique to its international operations including the
following:
- adverse movement of foreign currencies against the U.S. dollar in which
Solectron's results are reported;
- import and export duties, and value added taxes;
- import and export regulation changes that could erode Solectron's profit
margins or restrict exports;
- potential restrictions on the transfer of funds;
- inflexible employee contracts in the event of business downturns; and
- the burden and cost of compliance with foreign laws.
In addition, Solectron has operations in several locations that have
inflationary economies or potentially volatile currencies, including Mexico,
Brazil, China and Romania. In the future, these factors may harm Solectron's
results of operations. Markets in Southeast Asia, Latin America and Eastern
European markets generally have recently experienced and are experiencing
currency, economic and political instability. As of May 31, 1999, Solectron
recorded a $64.9 million cumulative foreign exchange translation adjustment on
its balance sheet which was primarily the result of the recent devaluation of
the Brazilian Real. While, to date, these factors have not had a significant
adverse impact on Solectron's results of operations, Solectron cannot assure
that there will not be such an impact. Furthermore, while Solectron may adopt
measures to reduce the impact of losses resulting from volatile currencies and
other risks of doing business abroad, no assurance may be given that such
measures will be adequate.
The Malaysian government adopted currency exchange controls, including
controls on its currency, the ringgit, held outside Malaysia, and established a
fixed exchange rate for the ringgit against the U.S. dollar. The fixed exchange
rate, when applied to local expenses denominated in ringgit, will result in
higher expenses when translated to U.S. dollars. The long term impact of such
controls is not predictable due to dynamic economic conditions that also affect
or are affected by other regional or global economies.
Solectron has been granted a tax holiday for its Malaysia sites, which is
effective through January 31, 2002, subject to some conditions. Solectron has
also been granted various tax holidays in China. These tax holidays are
effective for various terms and are subject to certain conditions. It is
possible that the current tax holidays will be terminated or modified or that
future tax holidays that Solectron may seek will not be granted. If the current
tax holidays are terminated or modified or if additional tax holidays are not
granted in the future, Solectron's effective income tax rate would likely
increase.
20
<PAGE> 29
SOLECTRON IS EXPOSED TO FLUCTUATIONS IN THE EXCHANGE RATES OF FOREIGN CURRENCY
Fluctuations in the rate of exchange between U.S. dollars and the
currencies of countries other than the U.S. in which Solectron conducts business
could seriously harm its business, operating results and financial condition.
For example, if there is an increase in the rate at which a foreign currency is
exchanged into U.S. dollars, it will require more of the foreign currency to
equal a specified amount of U.S. dollars than before the rate increase. In such
cases and if Solectron prices its products and services in the foreign currency,
it will receive less in U.S. dollars than it did before the rate increase went
into effect. If Solectron prices its products and services in U.S. dollars, and
competitors price their products in local currency, an increase in the relative
strength of the U.S. dollar could result in Solectron's prices being
uncompetitive in markets where business is transacted in the local currency.
Solectron has a task force which evaluates the effects of the Euro
conversion on Solectron. Solectron is in the process of evaluating its tax
positions and all outstanding contracts in currencies of the participating
countries to determine the effects, if any, of the Euro conversion. It is
possible that the Euro conversion will significantly harm Solectron's results of
operations and financial position due to competitive and other factors relating
to the conversion that Solectron cannot predict.
SOLECTRON MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE ITS INTELLECTUAL
PROPERTY RIGHTS AND SOLECTRON COULD BECOME INVOLVED IN INTELLECTUAL PROPERTY
DISPUTES
Solectron's ability to effectively compete may be affected by its ability
to protect its proprietary information. Solectron holds a number of patents and
other license rights. These patent and license rights may not provide meaningful
protection for Solectron's manufacturing process and equipment innovations. On
June 23, 1999, Solectron was served, along with 87 other companies including
SMART, as a defendant in a lawsuit brought by the Lemelson Medical, Education &
Research Foundation. The lawsuit alleges that Solectron has infringed certain of
the plaintiff's patents relating to machine vision and bar-code technology.
Solectron believes it has meritorious defenses to these allegations and
Solectron does not expect that this litigation will harm Solectron's financial
condition. In addition, in the future third parties may assert infringement
claims against Solectron or its customers. In the event of an infringement
claim, Solectron may be required to spend a significant amount of money to
develop a non-infringing alternative or to obtain licenses. Solectron may not be
successful in developing such an alternative or obtaining a license on
reasonable terms, if at all. In addition, any such litigation could be lengthy
and costly and could harm Solectron's financial condition.
FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD HARM SOLECTRON'S BUSINESS
As a company in the electronic manufacturing services industry, Solectron
is subject to a variety of environmental regulations relating to the use,
storage, discharge and disposal of hazardous chemicals used during Solectron's
manufacturing process. Although Solectron has never sustained any significant
loss as a result of noncompliance with such regulations, any failure by
Solectron to comply with environmental laws and regulations could result in
liabilities or the suspension of production. In addition, these laws and
regulations could restrict Solectron's ability to expand its facilities or
require it to acquire costly equipment or incur other significant costs to
comply with regulations.
SOLECTRON'S STOCK PRICE MAY BE VOLATILE DUE TO FACTORS OUTSIDE OF ITS CONTROL
Solectron's stock price could fluctuate due to the following factors, among
others:
- announcements of operating results and business conditions by our
customers;
- announcements by our competitors relating to new customers or
technological innovations or new services;
- economic developments in the electronics industry as a whole;
- political and economic developments in countries in which we have
operations; and
- general market conditions.
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<PAGE> 30
FAILURE TO MAINTAIN KEY PERSONNEL AND SKILLED ASSOCIATES COULD HURT SOLECTRON'S
OPERATIONS
Solectron's continued success depends to a large extent upon the efforts
and abilities of key managerial and technical associates. Losing the services of
key personnel could harm Solectron. Solectron's business also depends upon its
ability to continue to attract and retain senior managers and skilled
associates. Failure to do so could harm Solectron's operations.
YEAR 2000 PROBLEMS MAY HAVE AN ADVERSE EFFECT ON SOLECTRON'S OPERATIONS AND
ABILITY TO OFFER PRODUCTS AND SERVICES WITHOUT INTERRUPTION
The Year 2000 issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have this date-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, order
materials or otherwise engage in normal business activities.
A key to Solectron's ability to successfully manage its operations is the
responsiveness of the supply chain for electronics components. This supply chain
is often controlled by computer systems, which could fail. While Solectron
controls some of these systems, its vendors, its customers, transportation
companies and other service providers that are outside of Solectron's control
operate some of these computer systems as well. If any of these computer systems
fail, it could delay Solectron's receipt of previously-ordered electronics
components thereby causing Solectron to delay, cancel or modify orders from its
customers, which could harm Solectron's business.
Solectron has developed a contingency plan to handle the Year 2000 problem.
This contingency plan may still not be successful in preventing a disruption of
Solectron's operations. Although Solectron has extensively tested its equipment
and interfaces with other companies, Solectron cannot be sure that this testing
will fully replicate the actual situation when the Year 2000 arrives.
SOLECTRON'S ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRORS OF
SOLECTRON AND MAY DEPRESS ITS STOCK PRICE
Solectron's certificate of incorporation and bylaws contain provisions that
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from attempting to acquire, control of
Solectron. These provisions allow Solectron to issue preferred stock with rights
senior to those of its common stock and impose various procedural and other
requirements that could make it more difficult for Solectron stockholders to
effect some corporate actions.
THE SPECIAL MEETING OF SMART SHAREHOLDERS
PURPOSE OF THE SPECIAL MEETING
The special meeting is being held so that shareholders of SMART may
consider and vote upon a proposal to adopt the reorganization agreement, dated
as of September 13, 1999, by and among Solectron, SM Acquisition, and SMART and
to transact any other business that properly comes before the special meeting or
any adjournment of the special meeting. Adoption of the reorganization agreement
will also constitute approval of the merger and the other transactions
contemplated by the reorganization agreement.
SHAREHOLDER RECORD DATE FOR THE SPECIAL MEETING
SMART's board of directors has fixed the close of business on October 13,
1999, as the record date for determination of SMART shareholders entitled to
notice of and entitled to vote at the special meeting. On the record date, there
were 46,467,839 shares of SMART common stock outstanding, held by approximately
175 holders of record.
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<PAGE> 31
VOTE OF SMART SHAREHOLDERS REQUIRED FOR ADOPTION OF THE REORGANIZATION AGREEMENT
A majority of the outstanding shares of SMART common stock entitled to vote
at the special meeting must be represented, either in person or by proxy, to
constitute a quorum at the special meeting. The affirmative vote of the holders
of at least a majority of SMART's common stock outstanding and entitled to vote
at the special meeting is required to adopt the reorganization agreement. You
are entitled to one vote for each share of SMART common stock held by you on the
record date on each proposal to be presented to shareholders at the special
meeting.
The SMART shareholders who are parties to voting agreements with Solectron
agreed to vote their shares of SMART common stock in favor of the adoption of
the reorganization agreement. As of the record date, these shareholders held
approximately 17,074,678 shares of SMART common stock, which represented
approximately 36.8% of all outstanding shares of SMART common stock entitled to
vote at the special meeting.
As of the record date for the special meeting, directors and executive
officers of SMART and their affiliates held approximately 17,605,184 shares of
SMART common stock, which represented approximately 37.9% of all outstanding
shares of SMART common stock entitled to vote at the special meeting.
PROXIES
All shares of SMART common stock represented by properly executed proxies
that SMART receives before or at the special meeting will, unless the proxies
are revoked, be voted in accordance with the instructions indicated thereon. If
no instructions are indicated on a properly executed proxy, the shares will be
voted FOR adoption of the reorganization agreement. You are urged to mark the
applicable box on the proxy to indicate how to vote your shares.
If a properly executed proxy is returned and the shareholder has abstained
from voting on adoption of the reorganization agreement, the SMART common stock
represented by the proxy will be considered present at the special meeting for
purposes of determining a quorum, but will not be considered to have been voted
in favor of adoption of the reorganization agreement. Similarly, if an executed
proxy is returned by a broker holding shares of SMART common stock in street
name which indicates that the broker does not have discretionary authority to
vote on adoption of the reorganization agreement, the shares will be considered
present at the meeting for purposes of determining the presence of a quorum, but
will not be considered to have been voted in favor of adoption of the
reorganization agreement. Your broker will vote your shares only if you provide
instructions on how to vote by following the information provided to you by your
broker.
Because adoption of the reorganization agreement requires the affirmative
vote of at least a majority of SMART's common stock outstanding as of the record
date, abstentions, failures to vote and broker non-votes will have the same
effect as a vote against adoption of the reorganization agreement.
SMART does not expect that any matter other than adoption of the
reorganization agreement will be brought before the special meeting. If,
however, other matters are properly presented, the persons named as proxies will
vote in accordance with their judgment with respect to those matters, unless
authority to do so is withheld in the proxy.
You may revoke your proxy at any time before it is voted by:
- notifying in writing the Secretary of SMART at 4305 Cushing Parkway,
Fremont, California 94538;
- granting a subsequent proxy; or
- appearing in person and voting at the special meeting; attendance at the
special meeting will not in and of itself constitute revocation of a
proxy.
Solectron and SMART will equally share the expenses incurred in connection
with the printing and mailing of this proxy statement-prospectus. SMART and
Corporate Investor Communications, Inc. will request banks, brokers and other
intermediaries holding shares beneficially owned by others to send this proxy
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<PAGE> 32
statement-prospectus to and obtain proxies from the beneficial owners and will
reimburse the holders for their reasonable expenses in so doing.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXIES. A
TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK CERTIFICATES FOR
SMART COMMON STOCK WILL BE MAILED TO YOU AS SOON AS PRACTICABLE AFTER COMPLETION
OF THE MERGER.
AVAILABILITY OF ACCOUNTANTS
Arthur Andersen LLP has acted as SMART's independent accountants since June
1995. Representatives of Arthur Andersen LLP are expected to be present at the
special meeting, will have an opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions. KPMG
LLP, Solectron's independent auditors, are not expected to appear at the
meeting.
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<PAGE> 33
THE MERGER
This section of the proxy statement-prospectus describes material aspects
of the proposed merger, including the reorganization agreement and the stock
option agreement. While we believe that the description covers the material
terms of the merger and the related transactions, this summary may not contain
all of the information that is important to you. You should read this entire
document and the other documents we refer to carefully for a more complete
understanding of the merger.
BACKGROUND OF THE MERGER
On July 13, 1999, Ajay Shah, SMART's CEO and Chairman of the Board, Charles
Welch, SMART's Vice President, Business Development & General Counsel, Susan
Wang, Solectron's Senior Vice President & CFO, Mark Holman, Solectron's
Corporate Vice President, Marketing and Business Development, and Kevin Burns,
Solectron's Vice President Global Material Services met at SMART's Fremont
facility. The parties discussed their existing relationship whereby SMART
supplies memory products to Solectron and how it could be expanded to benefit
both companies. SMART supplies Solectron with memory products based on a vendor
managed inventory process in order to help Solectron supply products to
Solectron's customers as quickly as possible. Mr. Shah explained SMART's
business and business strategy. The parties had preliminary discussions on the
merits of a possible business combination. The parties agreed to reflect upon
the discussions and meet at a later date to pursue the matter further.
On July 29, 1999, Mr. Shah, Mr. Welch, David Mullin, SMART's Vice President
and CFO, Koichi Nishimura, Solectron's President, CEO and Chairman of the Board,
Saeed Zohouri, Solectron's Senior Vice President and COO, Ms. Wang, Mr. Holman
and Mr. Burns met. The parties further discussed the merits of a possible
business combination. On August 1, 1999, Mr. Holman and Mr. Welch had a phone
conversation to discuss issues involving a potential business combination
including the integration of SMART's business into Solectron.
On August 5, 1999, Mr. Shah and Mr. Zohouri met and discussed the benefits
of a business combination, the two companies' business strategies, whether a
cultural fit existed and how the two companies could be integrated together. In
the morning of August 6, 1999, Mr. Shah and Mr. Nishimura met at Solectron to
have a conversation about similar matters. In the afternoon of August 6, 1999,
Mr. Shah, Mr. Welch, Mr. Mullin and Tor Braham, one of SMART's directors, met to
discuss the potential merger and whether a strategic fit existed. On August 8,
1999, Mr. Welch and Mr. Holman met to further discuss how the two companies
could be integrated in the potential merger.
On August 9, 1999, Solectron and SMART executed a confidentiality
agreement. In the afternoon of August 9, 1999, Mr. Shah, Mr. Welch, Mr. Mullin,
Mr. Zohouri, Ms. Wang and Mr. Holman met at Solectron to further discuss whether
a strategic fit existed and how the companies could be integrated together. Each
party requested information from the other. Between August 14, 1999 and August
23, 1999, the parties exchanged diligence information.
Also during the week of August 9, 1999, Mr. Shah, Mr. Mullin and Mr. Welch
began evaluating financial advisors for the proposed transaction. Subject to
SMART's board of directors approval, Mr. Shah, Mr. Mullin and Mr. Welch decided
to engage Morgan Stanley as SMART's lead financial advisor and Warburg Dillon
Read of which Mr. Braham is a managing director, as a co-financial advisor. On
August 13, 1999, SMART's board of directors met and discussed the potential
merger with Solectron. SMART's board of directors instructed SMART's management
to continue discussions with Solectron and approved Morgan Stanley and Warburg
Dillon Read, as advisors, with Morgan Stanley to provide any potential fairness
opinion. From August 13 through the execution of the merger agreement on
September 13, 1999, members of SMART's management discussed the progress of the
negotiations with SMART's non-employee directors on a regular basis.
Between August 14, 1999 and August 23, 1999, Morgan Stanley placed calls to
several other companies which had been identified in its discussions with
executives of SMART as potential business combination candidates. None of these
calls resulted in a meeting or a proposal for a business combination.
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<PAGE> 34
On August 20, 1999, via a teleconference, Solectron's board of directors
was briefed regarding the potential acquisition of SMART.
On August 23, 1999, Mr. Welch, Mr. Mullin, a representative from Morgan
Stanley, Ms. Wang and Kurt Colehower, Solectron's Corporate Director, Business
Development, met to more fully discuss each party's business and future
prospects. Between August 23, 1999 and September 6, 1999, each party and its
advisors exchanged views regarding the potential transaction and information
from the diligence items.
On August 30, 1999, Mr. Welch, Mr. Mullin, Mr. Braham, representatives from
Morgan Stanley, Mr. Holman, and attorneys from Wilson Sonsini met to discuss the
terms of the potential merger. During the course of the meeting, the parties
discussed SMART's business, future prospects and valuation.
The following day, Mr. Welch met with Mr. Holman. The two discussed
Solectron's proposed valuation range for SMART. Mr. Welch indicated that SMART's
board of directors considered Solectron's proposed valuation range to be below
the range of SMART's fair valuation. Mr. Holman and Mr. Welch further discussed
SMART's valuation, Solectron's price-to-earnings ratio, Solectron's stock value
to SMART shareholders and potential exchange ratios of Solectron common stock
for SMART common stock and their impact on the implied valuation of SMART. In a
subsequent telephone conversation, Mr. Braham and Solectron's legal advisors
further discussed Solectron's proposal and SMART's valuation.
On September 3 and 4, 1999, Mr. Shah, Mr. Welch, Mr. Mullin, Mr. Nishimura,
Ms. Wang and Mr. Holman met at Solectron to discuss SMART's valuation.
Following these discussions, the parties agreed to recommend an exchange
ratio between 0.50 to 0.52 to their respective Boards, subject to satisfactory
due diligence, with the exact ratio to be determined by the outcome of due
diligence.
Starting on September 7, 1999, and for the balance of the week, the parties
conducted extensive due diligence on each other. On September 8, 1999, SMART's
legal advisors with respect to the merger, Morrison & Foerster LLP, received a
copy of the proposed reorganization agreement, the stock option agreement and
the related agreements. Also on September 8, 1999, SMART's board of directors,
along with its financial and legal advisors, met telephonically to discuss the
status of negotiations and due diligence. Also on September 8, 1999, Solectron's
board of directors met to discuss the transaction including process, structure
and due diligence. In the morning of September 11, 1999, SMART's board of
directors with its financial and legal advisors present met at SMART to discuss
the draft reorganization agreement, the stock option agreement and the related
agreements, the results of due diligence and other strategic alternatives
available to SMART. Morgan Stanley provided SMART's board of directors with
certain quantitative analyses of SMART, Solectron and electronic manufacturing
services and related industries, and representatives of Morgan Stanley and legal
advisors provided advice on the proposed merger's structure and terms and
conditions. At the meeting, SMART's board of directors considered the proposed
terms of the draft reorganization agreement, the stock option agreement, the
related agreements and the proper exchange ratio.
Concurrently with SMART's board of directors meeting, attorneys for both of
the parties continued to negotiate the reorganization agreement, the stock
option agreement and the related agreements. In the afternoon of September 11,
1999, both parties and their advisors continued to negotiate the reorganization
agreement, the stock option agreement and the related agreements. On September
12, 1999, the parties reconvened to continue negotiations.
In the afternoon on September 12, 1999, SMART's board of directors with its
financial and legal advisors present met telephonically to discuss the exchange
ratio and the status of the draft reorganization agreement, the stock option
agreement and the related agreements. Following SMART's board of directors
meeting, Mr. Shah phoned Mr. Nishimura and the two agreed to recommend an
exchange ratio of 0.51 to their respective boards of directors. The parties
continued to negotiate the reorganization agreement, the stock option agreement
and the related agreements. On September 12, 1999, Solectron's board of
directors approved the proposed 0.51 exchange ratio, the reorganization
agreement and related documents.
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On September 13, 1999, SMART's board of directors with its financial and
legal advisors present met again in person or telephonically. All members of
SMART's board of directors were present at the meeting. Prior to the meeting,
each member of SMART's board of directors had received a current draft of the
reorganization agreement, the stock option agreement and the related agreements.
SMART's legal advisors presented the terms and conditions of the final draft of
the reorganization agreement, the stock option agreement and the related
agreements. SMART's board of directors received the oral opinion of Morgan
Stanley to the effect that, as of September 13, 1999, and subject to the
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, the exchange ratio of 0.51 shares of Solectron
common stock per share of SMART common stock pursuant to the reorganization
agreement was fair to the holders of SMART common stock.
Following these presentations, SMART's board of directors engaged in a full
discussion of the terms of the proposed transaction and its advisability. With
Mr. Braham abstaining on advice of counsel, SMART's board of directors then
determined that the merger and the exchange ratio of 0.51 were fair to, and in
the best interests of, SMART and its shareholders, and accordingly, SMART's
board of directors, other than Mr. Braham, who abstained on the advice of
counsel, unanimously approved and adopted the reorganization agreement, the
stock option agreement and the related agreements and the performance by SMART
of its obligations thereunder.
After SMART's board of directors meeting, the parties executed the
reorganization agreement and the stock option agreement, and the parties made a
public announcement of the proposed merger between SMART and Solectron on the
afternoon of September 13, 1999.
SMART'S REASONS FOR THE MERGER
SMART's board of directors has determined that the terms of the merger and
the reorganization agreement are fair to, and in the best interests of, SMART
and its shareholders. Accordingly, SMART's board of directors has approved the
reorganization agreement and the consummation of the merger and recommends that
you vote FOR approval of the reorganization agreement and the merger.
In reaching its decision, SMART's board of directors identified several
potential benefits of the merger, the most important of which included:
- the merger will represent a significant step forward in SMART's strategy
of becoming the comprehensive outsource solutions provider to electronics
OEMs;
- the combination of SMART's innovative technology, design expertise and
products together with Solectron's design, manufacturing, distribution
and end-of-life product service and support will provide opportunities to
realize significant benefits and long-term value to shareholders;
- the exchange ratio in the merger represented a premium of approximately
85% over the ratio of the closing prices of SMART common stock divided by
the corresponding closing prices of Solectron common stock over the 30
day trading period ending on the last trading day prior to the
announcement of the merger; and
- by combining with Solectron, SMART's shareholders will be afforded
substantially increased trading liquidity for their investment.
SMART's board of directors consulted with SMART's senior management, as
well as its legal counsel, independent accountants and financial advisors, in
reaching its decision to approve the merger. Among the factors considered by
SMART's board of directors in its deliberations were the following:
- the financial condition, results of operations, cash flow, business and
prospects of SMART and Solectron;
- the current economic and industry environment, including the continued
trend for OEM customers to outsource the design, manufacture and
distribution of their products to a vendor that can combine skills from
design through manufacturing to after-sale support;
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<PAGE> 36
- the complementary nature of the technology, products, services and
customer base of SMART and Solectron;
- the intense competition in the computer, networking and
telecommunications industries and the ability of larger industry
participants to increase market share;
- the key strengths that Solectron will provide as a merger partner,
including Solectron's manufacturing breadth and expertise, its
distribution and logistics strength, its strong customer relationships
and its reputation as a leading worldwide electronics manufacturing
services company;
- the fairness to SMART of the terms of the reorganization agreement, stock
option agreement and related agreements, which were the product of
extensive arm's length negotiations. In particular, SMART's board of
directors considered the stock option granted to Solectron, the events
triggering payment of the termination fee and the limitations on the
ability of SMART to negotiate with other companies regarding an
alternative transaction, and the potential effect these provisions would
have on SMART receiving alternative proposals that could be superior to
the merger. Because SMART's board of directors conducted an extensive
review of its strategic alternatives prior to entering into the
reorganization agreement, and because these provisions were required by
Solectron in order for it to enter into the reorganization agreement,
SMART's board of directors determined that the value for SMART
shareholders represented by the merger justified these requirements;
- the fact that the merger is expected to qualify as a tax-free
reorganization and to be accounted for using the pooling of interests
method of accounting; and
- the analysis prepared by Morgan Stanley and presented to SMART's board of
directors and the opinion of Morgan Stanley that, as of September 13,
1999, the exchange ratio set forth in the reorganization agreement was
fair, from a financial point of view, to the holders of SMART common
stock, as described more fully in the text of the entire opinion attached
as Annex D to this proxy statement-prospectus.
In assessing the transaction, SMART's board of directors considered a
variety of information, including the following:
- historical information concerning the businesses operations, positions
and results of operations, technology and management style, competitive
position, industry trends and prospects of SMART and Solectron;
- information contained in SEC filings by Solectron;
- current and historical market prices, volatility and trading data for the
two companies;
- information and advice based on due diligence investigations by members
of SMART's board of directors and management and SMART's legal, financial
and accounting advisors concerning the business, technology, services,
operations, properties, assets, financial condition, operating results
and prospects of Solectron, trends in Solectron's business and financial
results and capabilities of Solectron's management team; and
- reports from Morgan Stanley on companies comparable to Solectron and
other financial analyses performed by Morgan Stanley.
SMART's board of directors also identified and considered a number of
uncertainties and risks in its deliberations concerning the merger, including
the following:
- the risk that the potential benefits sought in the merger might not be
fully realized, if at all;
- the risk that the combined company might experience slow growth relative
to the prior growth rate of the individual companies;
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- the risk that the stock option agreement, if exercisable, would diminish
the ability of a third party acquiror to account for an acquisition of
SMART using the pooling of interests method of accounting, which would
reduce the number of potential acquirors; and
- the other risks associated with the businesses of Solectron, SMART and
the merged companies and the merger described in this proxy
statement-prospectus under "Risk Factors."
As a result of the foregoing considerations, SMART's board of directors
determined that the potential advantages of the merger outweighed the benefits
of remaining a separate company. SMART's board of directors believes that the
combined company will have a far greater opportunity than SMART alone to compete
in its industry.
In view of the variety of factors considered in connection with its
evaluation of the merger, SMART's board of directors did not find it practicable
to quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination and did not do so. In addition, many of
the factors contained elements which may affect the fairness of the merger in
both a positive and negative way. Except as described above, SMART's board of
directors, as a whole, did not attempt to analyze each individual factor
separately to determine how it impacted the fairness of the merger.
Consequently, individual members of SMART's board of directors may have given
different weights to different factors and may have viewed different factors as
affecting the determination of fairness differently.
RECOMMENDATION OF SMART'S BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, SMART'S BOARD OF DIRECTORS UNANIMOUSLY, EXCEPT
FOR MR. BRAHAM, WHO ABSTAINED ON ADVICE OF COUNSEL, DETERMINED THE MERGER TO BE
FAIR TO YOU AND IN YOUR BEST INTEREST AND DECLARED THE MERGER ADVISABLE. SMART'S
BOARD OF DIRECTORS APPROVED THE REORGANIZATION AGREEMENT AND RECOMMENDS YOUR
ADOPTION OF THE REORGANIZATION AGREEMENT.
In considering the recommendation of SMART's board of directors with
respect to the reorganization agreement, you should be aware that some directors
and officers of SMART have interests in the merger that are different from, or
are in addition to the interests of SMART shareholders generally. Please see the
section entitled "Interests of Certain SMART Directors, Officers and Affiliates
in the Merger" on page 34 of this proxy statement-prospectus.
OPINION OF SMART'S FINANCIAL ADVISOR
Under an engagement letter dated August 18, 1999, SMART retained Morgan
Stanley to provide it with financial advisory services and a financial fairness
opinion in connection with the Merger. SMART's board of directors selected
Morgan Stanley to act as its financial advisor based on Morgan Stanley's
qualifications, expertise and reputation and its knowledge of the business and
affairs of SMART. At the meeting of SMART's board of directors on September 13,
1999, Morgan Stanley rendered its oral opinion, subsequently confirmed in
writing, that as of September 13, 1999, based upon and subject to the various
considerations set forth in the opinion, the exchange ratio pursuant to the
reorganization agreement was fair from a financial point of view to holders of
shares of SMART common stock.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED SEPTEMBER 13,
1999 IS ATTACHED AS ANNEX D TO THIS PROXY STATEMENT-PROSPECTUS AND SETS FORTH,
AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY MORGAN
STANLEY IN RENDERING ITS OPINION. SMART'S SHAREHOLDERS ARE URGED TO, AND SHOULD,
READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS
DIRECTED TO SMART'S BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS OF THE
EXCHANGE RATIO PURSUANT TO THE REORGANIZATION AGREEMENT FROM A FINANCIAL POINT
OF VIEW TO HOLDERS OF SHARES OF SMART COMMON STOCK AS OF THE DATE OF THE
OPINION. IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SMART COMMON STOCK AS TO HOW TO
VOTE AT THE SMART SPECIAL MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY
SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION.
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In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed publicly available financial statements and other information of
SMART;
- reviewed financial and operating data concerning SMART prepared by the
management of SMART;
- reviewed financial projections prepared by the management of SMART;
- discussed the past and current operations and financial condition and the
prospects of SMART, including information relating to strategic,
financial and operational benefits anticipated from the merger, with
senior executives of SMART;
- reviewed publicly available financial statements and other information of
Solectron;
- reviewed financial and operating data concerning Solectron prepared by
the management of Solectron;
- discussed the past and current operations and financial condition and the
prospects of Solectron, including a review of publicly available
projections from equity research analyst estimates, with senior
executives of Solectron;
- reviewed the reported prices and trading activity for SMART common stock
and Solectron common stock;
- compared the financial performance of SMART and Solectron and the prices
and trading activity of SMART common stock and Solectron common stock
with that of comparable publicly-traded companies and their securities;
- analyzed the pro forma financial impact of the merger on the earnings per
share of Solectron;
- reviewed the financial terms, to the extent publicly available, of
comparable acquisition transactions;
- participated in discussions and negotiations among representatives of
SMART and Solectron and their financial and legal advisors;
- reviewed the draft reorganization agreement and related transactional
documents; and
- performed such other analyses and considered such other factors as Morgan
Stanley has deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by Morgan Stanley for
the purposes of its opinion. With respect to the financial projections,
including information relating to strategic, financial, and operational benefits
anticipated from the merger, Morgan Stanley assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of SMART. Morgan Stanley relied
upon the assessment by the managements of SMART and Solectron of their ability
to retain key employees of SMART. Morgan Stanley also relied upon, without
independent verification, the assessment by the managements of SMART and
Solectron of the strategic and other benefits expected to result from the
merger. Morgan Stanley also relied upon, without independent verification, the
assessment by the managements of SMART and Solectron of:
- SMART's technologies and products;
- the timing and risks associated with the integration of SMART and
Solectron; and
- the validity of, and risks associated with, SMART's and Solectron's
existing and future products and technologies.
In rendering its opinion, Morgan Stanley did not make any independent
valuation or appraisal of the assets or liabilities or technology of SMART or
Solectron, nor has it been furnished with any such appraisals. Morgan Stanley
assumed that the merger will be consummated in accordance with the terms set
forth in the reorganization agreement and the related transaction documents. In
addition, Morgan Stanley assumed that the merger will be accounted for as a
pooling-of-interests business combination in accordance with U.S. Generally
Accepted
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Accounting Principles and will be treated as a tax-free reorganization and/or
exchange, each pursuant to the Internal Revenue Code of 1986. Morgan Stanley's
opinion is necessarily based on economic, market and other conditions on, and
the information made available to it as of, the date of its opinion.
The following is a brief summary of some of the analyses Morgan Stanley
performed in connection with its oral opinion and the preparation of its opinion
letter dated September 13, 1999. Some of these summaries of financial analyses
include information presented in tabular format. In order to understand fully
the financial analyses used by Morgan Stanley, the tables must be read together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses.
SMART Stock Price Performance. Morgan Stanley reviewed the recent stock
price performance of SMART common stock over various time periods ending on
September 10, 1999. Morgan Stanley observed the following:
<TABLE>
<CAPTION>
SMART COMMON STOCK
CLOSING PRICE
--------------------
PERIOD ENDING SEPTEMBER 10, 1999 HIGH LOW
-------------------------------- ------ ------
<S> <C> <C>
Last Twelve Months..................................... $28.13 $12.38
Last 90 Days........................................... 23.69 13.69
September 10, 1999..................................... 23.50(1)
</TABLE>
Note: (1) Closing price
Comparative Stock Price Performance. Morgan Stanley reviewed the recent
stock price performance of SMART and Solectron and compared their performance
with that of two groups of companies. The first group, called the "Large Cap
Contract Manufacturing Index" included Celestica, Inc., Flextronics
International, Ltd., Jabil Circuit, Inc., Sanmina Corp. and SCI Systems, Inc.
The second group called the "Mid Cap Contract Manufacturing Index" included
ACT Manufacturing, Inc., Benchmark Electronics, Inc., DII Group, Inc. and Plexus
Corp.
Morgan Stanley observed the following percentage changes in SMART common
stock, Solectron common stock, the Large Cap Contract Manufacturing Index, the
Mid Cap Contract Manufacturing Index and the NASDAQ Index, as of September 10,
1999:
PERCENTAGE PRICE CHANGE (AS OF 9/10/99)
<TABLE>
<CAPTION>
LAST TWELVE
MONTHS
-----------
<S> <C>
SMART....................................................... 38%
Solectron................................................... 273%
Large Cap Contract Manufacturing Index...................... 208%
Mid Cap Contract Manufacturing Index........................ 146%
NASDAQ Index................................................ 82%
</TABLE>
Comparable Company Trading Analysis. Morgan Stanley compared financial
information of SMART and Solectron with publicly available information for the
companies comprising the Large Cap Contract Manufacturing Index and Mid Cap
Contract Manufacturing Index as described above. Based on estimates from
securities research analysts and using the closing prices of SMART and Solectron
common stock on September 10, 1999 of $23.50 and $77.50, respectively, the
following table presents the price to earnings, or
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<PAGE> 40
P/E, ratios for calendar year 2000, and the P/E to long term earnings per share
growth rates for calendar year 2000:
<TABLE>
<CAPTION>
P/E P/E TO GROWTH
CY2000 CY2000
------ -------------
<S> <C> <C>
SMART................................................. 14.2x 0.71x
Solectron............................................. 47.0 1.57
Large Cap Contract Manufacturing
Sanmina Corp........................................ 29.6x 0.99x
Jabil Circuit, Inc.................................. 30.5 1.02
SCI Systems, Inc.................................... 18.4 0.92
Flextronics International, Ltd...................... 32.4 1.08
Celestica, Inc...................................... 27.2 0.91
----- -----
Mean................................................ 27.6 0.98
Mid Cap Contract Manufacturing
DII Group, Inc...................................... 17.7x 0.71x
Plexus Corp......................................... 16.0 0.80
Benchmark Electronics, Inc.......................... 18.6 0.74
ACT Manufacturing, Inc.............................. 16.0 0.64
----- -----
Mean................................................ 17.1 0.72
</TABLE>
No company used in the peer group comparison analysis is identical to SMART
or Solectron. In evaluating the peer groups, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of SMART and Solectron, such as the impact of competition on the
businesses of SMART and Solectron and the industry in general, industry growth
and the absence of any adverse material change in the financial condition and
prospects of SMART and Solectron or the industry or in the financial markets in
general. Mathematical analysis, such as determining the average or median, is
not in itself a meaningful method of using peer group data.
Exchange Ratio Analysis. Morgan Stanley reviewed the ratios of the closing
prices of SMART common stock divided by the corresponding closing prices of
Solectron common stock over various periods during the twelve month period
ending September 10, 1999. Morgan Stanley examined the premia represented by the
exchange ratio over the averages of these daily ratios over various periods:
<TABLE>
<CAPTION>
PERIOD TRANSACTION PREMIUM
AVERAGE TO PERIOD AVERAGE
PERIOD ENDING SEPTEMBER 10, 1999 EXCHANGE RATIO EXCHANGE RATIO
-------------------------------- -------------- -------------------
<S> <C> <C>
Last Twelve Months.......................... .446x 14%
Last 120 Days............................... .286 78%
Last 90 Days................................ .289 76%
Last 60 Days................................ .283 80%
Last 30 Days................................ .275 85%
Last 20 Days................................ .274 86%
Last 10 Days................................ .282 81%
Last 5 Days................................. .295 73%
September 10, 1999.......................... .303 68%
</TABLE>
Analysis of Selected Precedent Transactions. Morgan Stanley compared
statistics based on publicly available information for selected transactions in
the electronics manufacturing services and printed circuit board industries to
the relevant financial statistics for SMART based on the value of SMART implied
by the exchange ratio and the closing share price of Solectron common stock on
September 10, 1999. The following
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<PAGE> 41
table presents the implied multiples paid to the last twelve months, or LTM,
earnings and LTM revenue for the selected precedent transactions:
<TABLE>
<CAPTION>
EQUITY VALUE TO AGGREGATE VALUE TO
TARGET/ACQUIROR LTM EARNINGS LTM REVENUE
--------------- --------------- ------------------
<S> <C> <C>
IMS Inc./Celestica, Inc...................... 19.1x 0.4x
Altron Inc./Sanmina Corp..................... 15.7 1.0
Continential Circuits Corp./Hadco Corp....... 21.1 1.6
Elexsys Intl./Sanmina Corp................... 26.6 1.6
Zycon Corp./Hadco Corp....................... 16.2 1.0
Electrostar/Tyco Intl........................ 31.5 1.6
SMART/Solectron.............................. 36.1 2.0
</TABLE>
No transaction used as a comparison in the selected precedent transactions
analysis is identical to the merger. In evaluating the transactions listed
above, Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of SMART and Solectron, such
as the impact of competition on SMART, Solectron or the industry or in the
financial markets in general. Mathematical analysis, such as determining the
average or median, is not in itself a meaningful method of using precedent
transaction data.
Analysis of Stock Price Premia Paid. Morgan Stanley compared publicly
available statistics selected by Morgan Stanley for precedent acquisition
transactions involving U.S. technology public companies greater than $250
million from January 1, 1994 to August 23, 1999. The following table presents
the premia paid above the one day prior to announcement closing share price and
four weeks prior to announcement closing share price for these transactions and
for this transaction:
<TABLE>
<CAPTION>
PREMIUM TO
--------------------------
1 DAY 4 WEEKS
PRIOR PRICE PRIOR PRICE
----------- -----------
<S> <C> <C>
Mean.................................................. 36% 51%
Median................................................ 31% 45%
Transaction Premium................................... 68% 123%
</TABLE>
Discounted Equity Value. Morgan Stanley performed an analysis of the
present value per share of the implied value of SMART common stock on a
standalone basis based on SMART's projected future equity value. The following
table presents the discounted equity value of SMART common stock based on the
specified assumed variable ranges:
<TABLE>
<CAPTION>
NEXT TWELVE MONTHS FULLY DILUTED
P/E RATIO DISCOUNT RATES PRICE PER SHARE
------------------ -------------- ---------------
<S> <C> <C>
15x - 20x................................ 15% - 25% $23.81 - $34.50
</TABLE>
Pro Forma Merger Analysis. Morgan Stanley analyzed the pro forma impact of
the merger on Solectron's combined projected earnings per share for calendar
year 1999 and 2000. This analysis was based on average earnings projections by
securities research analysts for SMART and Solectron. Morgan Stanley observed
that the merger would result in earnings per share accretion for Solectron,
prior to giving effect to any synergies, of 7.6% for calendar year 1999 and 8.0%
for calendar year 2000.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of SMART or Solectron. In performing its
analyses, Morgan Stanley made numerous
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<PAGE> 42
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of SMART or
Solectron. Any estimates contained in Morgan Stanley's analyses are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by such estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the exchange ratio pursuant to the reorganization
agreement from a financial point of view to holders of shares of SMART common
stock and were conducted in connection with the delivery of the Morgan Stanley
opinion to SMART's board of directors. The analyses do not purport to be
appraisals or to reflect the prices at which SMART or Solectron might actually
be sold.
The exchange ratio pursuant to the reorganization agreement was determined
through arm's-length negotiations between SMART and Solectron and was approved
by SMART's board of directors. Morgan Stanley provided advice to SMART during
such negotiations; however, Morgan Stanley did not recommend any specific
exchange ratio to SMART or that any specific exchange ratio constituted the only
appropriate exchange ratio for the merger.
In addition, Morgan Stanley's opinion and presentation to SMART's board of
directors was one of many factors taken into consideration by SMART's board of
directors in making its decision to approve the merger. Consequently, the Morgan
Stanley analyses as described above should not be viewed as determinative of the
opinion of SMART's board of directors with respect to the exchange ratio or of
whether SMART's board of directors would have been willing to agree to a
different exchange ratio.
SMART's board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate, estate and other purposes. In the past, Morgan Stanley
and its affiliates have provided financing services for SMART and Solectron, and
have received fees for the rendering of these services. In the ordinary course
of Morgan Stanley's trading and brokerage activities, Morgan Stanley or its
affiliates may at any time hold long or short positions, may trade or otherwise
effect transactions, for its own account or for the account of customers in the
equity securities of SMART, Solectron or any other parties involved in the
transaction.
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the Merger, and
SMART agreed to pay Morgan Stanley a customary fee. In addition, SMART has also
agreed to indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against possible liabilities and
expenses, including possible liabilities under the federal securities laws,
related to or arising out of Morgan Stanley's engagement.
INTERESTS OF CERTAIN SMART DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER
When considering the recommendation of SMART's board of directors, you
should be aware that SMART's directors and officers have interests in the merger
that are different from, or are in addition to, your interests. In particular,
some of the directors and officers of SMART participate in arrangements and have
continuing indemnification against liabilities that provide them with interests
in the merger that are different from, or are in addition to, your interests.
Under the reorganization agreement, Solectron has agreed to honor SMART's
obligations under indemnification agreements between SMART and its directors and
officers in effect before the completion of the merger and any indemnification
provisions of SMART's articles of incorporation and bylaws. Solectron has also
agreed to provide for indemnification provisions in the articles of
incorporation and bylaws of the surviving corporation of the merger that are at
least as favorable as SMART's provisions and to maintain these provisions for at
least six years from the completion of the merger.
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<PAGE> 43
In addition, Solectron has agreed to maintain SMART's directors' and
officers' liability insurance for six years from the completion of the merger,
provided that Solectron is not required to pay more than 150% of the premium for
SMART's insurance as of September 13, 1999.
Solectron has agreed to guaranty these obligations or make arrangements to
have them assumed in the event of a subsequent sale of SMART to a third party.
Tor Braham is a member of SMART's board of directors and also serves as a
Managing Director of Warburg Dillon Read LLC, which provided advisory services
to SMART in connection with the merger. Mr. Braham abstained from voting for the
merger at SMART's board of directors meeting.
As a result of these interests, these directors and officers of SMART could
be more likely to vote to approve the reorganization agreement than if they did
not hold these interests. SMART's shareholders should consider whether these
interests may have influenced these directors and officers to support or
recommend the merger.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including adoption of the reorganization
agreement by the shareholders of SMART. The merger will become effective upon
the filing of an agreement of merger with the State of California.
Solectron and SMART are working towards completing the merger as quickly as
possible and hope to complete the merger by the end of 1999.
STRUCTURE OF THE MERGER AND CONVERSION OF SMART COMMON STOCK
In accordance with the reorganization agreement and California law, SM
Acquisition, will be merged with and into SMART. As a result of the merger, the
separate corporate existence of SM Acquisition will cease and SMART will survive
the merger as a wholly-owned subsidiary of Solectron.
Upon completion of the merger, each outstanding share of SMART common
stock, other than shares held by Solectron and its subsidiaries will be
converted into the right to receive 0.51 of a fully paid and nonassessable share
of Solectron common stock. The number of shares of Solectron common stock
issuable in the merger will be proportionately adjusted for any additional
future stock split, stock dividend or similar event with respect to SMART common
stock or Solectron common stock effected between the date of the reorganization
agreement and the completion of the merger.
No certificate or scrip representing fractional shares of Solectron common
stock will be issued in connection with the merger. Instead you will receive
cash, without interest, in lieu of a fraction of a share of Solectron common
stock equal to the product of the fraction and the average closing price of one
share of Solectron common stock for the five most recent trading days before the
effective time of the merger.
EXCHANGE OF SMART STOCK CERTIFICATES FOR SOLECTRON STOCK CERTIFICATES
When the merger is completed, the exchange agent will mail to you a letter
of transmittal and instructions for use in surrendering your SMART stock
certificates in exchange for Solectron stock certificates. When you deliver your
SMART stock certificates to the exchange agent along with a properly executed
letter of transmittal and any other required documents, your SMART stock
certificates will be canceled and you will receive Solectron stock certificates
representing the number of full shares of Solectron common stock to which you
are entitled under the reorganization agreement. You will receive payment in
cash, without interest, in lieu of any fractional shares of Solectron common
stock which would have been otherwise issuable to you as a result of the merger.
35
<PAGE> 44
YOU SHOULD NOT SUBMIT YOUR SMART STOCK CERTIFICATES FOR EXCHANGE UNLESS AND
UNTIL YOU RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT.
You are not entitled to receive any dividends or other distributions on
Solectron common stock until the merger is completed and you have surrendered
your SMART stock certificates in exchange for Solectron stock certificates.
If there is any dividend or other distribution on Solectron common stock
with a record date after the merger and a payment date prior to the date you
surrender your SMART stock certificates in exchange for Solectron stock
certificates, you will receive it with respect to the whole shares of Solectron
common stock issued to you promptly after they are issued. If there is any
dividend or other distribution on Solectron common stock with a record date
after the merger and a payment date after the date you surrender your SMART
stock certificates in exchange for Solectron stock certificates, you will
receive it with respect to the whole shares of Solectron common stock issued to
you promptly after the payment date.
Solectron will only issue a Solectron stock certificate or a check in lieu
of a fractional share in a name other than the name in which a surrendered SMART
stock certificate is registered if you present the exchange agent with all
documents required to show and effect the unrecorded transfer of ownership and
show that you paid any applicable stock transfer taxes.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER
In the opinion of Morrison & Foerster LLP and Wilson Sonsini Goodrich &
Rosati, Professional Corporation, the following are the material United States
federal income tax considerations of the merger. These opinions and the
following discussion are based on and subject to the Internal Revenue Code of
1986, the regulations promulgated thereunder, existing administrative
interpretations and court decisions, all of which are subject to change,
possibly with retroactive effect, and assumptions, limitations, representations
and covenants, including those contained in certificates of officers of
Solectron and SMART expected to be executed as of the completion of the merger.
This discussion does not address all aspects of United States federal income
taxation that may be important to you in light of your particular circumstances
or if you are subject to special rules, such as rules relating to:
- shareholders who are not citizens or residents of the United States;
- shareholders subject to the alternate minimum tax provisions of the tax
code;
- financial institutions;
- tax-exempt organizations;
- insurance companies;
- dealers in securities;
- shareholders who acquired their shares of SMART common stock pursuant to
the exercise of options or similar derivative securities or otherwise as
compensation; and
- shareholders who hold their shares of SMART common stock as part of a
hedge, straddle or other risk reduction, constructive sale or conversion
transaction.
This discussion assumes you hold your shares of SMART common stock as
capital assets within the meaning of Section 1221 of the Internal Revenue Code.
Solectron's and SMART's obligations to complete the merger are conditioned
on, among other things, (1) the delivery of an opinion dated as of the
completion of the merger to SMART from Morrison & Foerster LLP and (2) the
delivery of an opinion dated as of the completion of the merger to Solectron
from Wilson Sonsini Goodrich & Rosati, Professional Corporation, in each case
stating that the merger will constitute a tax-free reorganization under Section
368(a) of the Internal Revenue Code. Alternatively, this condition will also be
satisfied upon the delivery of such tax opinion to Solectron and SMART from
either Morrison & Foerster LLP or Wilson Sonsini Goodrich & Rosati, Professional
Corporation. The opinions of counsel contained herein and the
36
<PAGE> 45
opinions to be provided at the completion of the merger will assume the absence
of changes in existing facts and will rely on assumptions, representations and
covenants including those contained in certificates executed by officers of
Solectron, SMART and SM Acquisition and dated as of the completion of the
merger. The opinions neither bind the IRS nor preclude the IRS from adopting a
contrary position and it is possible that the IRS may successfully assert a
contrary position in litigation or other proceedings. Neither Solectron nor
SMART intends to obtain a ruling from the IRS with respect to the tax
consequences of the merger.
Tax Implications to Solectron Stockholders. No gain or loss will be
recognized for United States federal income tax purposes by current shareholders
of Solectron solely as a result of the merger.
Tax Implications to SMART Shareholders. Except as discussed below, you will
not recognize gain or loss for United States federal income tax purposes when
you exchange your SMART common stock for Solectron common stock pursuant to the
merger. The aggregate tax basis of the Solectron common stock you receive as a
result of the merger will be the same as your aggregate tax basis in the SMART
common stock you surrender in exchange for the Solectron common stock, reduced
by the tax basis of any shares of SMART common stock for which you receive cash
instead of fractional shares of Solectron common stock. The holding period of
the Solectron common stock you receive as a result of the exchange will include
the period during which you held the SMART common stock you exchange in the
merger.
You will recognize gain or loss for United States federal income tax
purposes with respect to the cash you receive instead of a fractional share
interest in Solectron common stock. Your gain or loss will be measured by the
difference between the amount of cash you receive and the portion of the tax
basis of your shares of SMART common stock allocable to the shares of SMART
common stock exchanged for such fractional share interest. This gain or loss
will be capital gain or loss and will be a long-term capital gain or loss if you
have held your shares of SMART common stock for more than one year at the time
the merger is completed.
You will also recognize gain or loss for United States federal income tax
purposes if you dissent from the merger and exercise your dissenters' rights
with respect to your SMART common stock under California law. Your gain or loss
will be a capital gain or loss measured by the difference between the amount of
cash you receive and the basis of such common stock, provided that the payment
is not treated as a dividend distribution for tax purposes. The payment should
generally not be treated as a dividend distribution if you own no SMART or
Solectron common stock, either actually or constructively, after receiving the
payment. If you recognize a capital gain or loss as a result to your exercise of
dissenters' rights, that capital gain or loss will be a long-term gain or loss
if you have held your shares of SMART common stock for more than one year.
Tax Implications to Solectron, SMART and SM Acquisition. Solectron, SMART
and SM Acquisition will not recognize gain or loss for United States federal
income tax purposes solely as a result of the merger.
THE FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OR
ANY OTHER CONSEQUENCES OF THE MERGER. IN ADDITION, THE DISCUSSION DOES NOT
ADDRESS TAX CONSEQUENCES WHICH MAY VARY WITH, OR ARE CONTINGENT ON, YOUR
INDIVIDUAL CIRCUMSTANCES. MOREOVER, THE DISCUSSION DOES NOT ADDRESS ANY
NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE MERGER.
ACCORDINGLY, YOU ARE STRONGLY URGED TO CONSULT WITH YOUR TAX ADVISOR TO
DETERMINE THE PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME
OR OTHER TAX CONSEQUENCES TO YOU OF THE MERGER.
ACCOUNTING TREATMENT OF THE MERGER
Solectron intends to account for the merger as a pooling of interests
business combination. It is a condition to completion of the merger that
Solectron be advised by KPMG LLP that they concur with Solectron management's
conclusion that the transactions contemplated by the reorganization agreement
can properly be accounted for as a pooling of interests business combination,
although this condition may be waived by Solectron. In addition, Solectron must
receive from Arthur Andersen LLP a copy of a letter addressed to SMART stating
their concurrence with SMART management's conclusion that no conditions related
to SMART exist that would preclude Solectron from accounting for the merger as a
pooling of interests.
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<PAGE> 46
Under the pooling of interests method of accounting, each of Solectron's
and SMART's historical recorded assets and liabilities will be carried forward
to the combined company at their recorded amounts. In addition, the operating
results of the combined company will include Solectron's and SMART's operating
results for the entire fiscal year in which the merger is completed and
Solectron's and SMART's historical reported operating results for prior periods
will be combined and restated as the operating results of the combined company.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 which prevents some transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and related waiting periods end or expire. Solectron, SMART and Mr. Ajay Shah
have made the required filings with the Department of Justice or the Federal
Trade Commission but the applicable waiting periods have not yet expired.
Solectron and SMART intend to comply with all requests for information from any
government entity. The requirements of Hart-Scott-Rodino will be satisfied if
the merger is completed within one year from the termination of the waiting
period.
However, the Antitrust Division of the Department of Justice or the Federal
Trade Commission may challenge the merger on antitrust grounds either before or
after expiration of the waiting period. Accordingly, at any time before or after
the completion of the merger, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws as it deems necessary or desirable in the public interest, or another
person could take action under the antitrust laws, including seeking to enjoin
the merger. Additionally, at any time before or after the completion of the
merger, notwithstanding that the applicable waiting period expired or ended, any
state could take action under the antitrust laws as it deems necessary or
desirable in the public interest. Solectron and SMART cannot be sure that a
challenge to the merger will not be made or that, if a challenge is made,
Solectron and SMART will prevail.
The merger is also subject to regulatory approval by foreign government
entities, including Germany and Ireland. In particular, under the laws of
Germany, a pre-merger notification filing will be made to the Federal Cartel
Office, and the applicable waiting period has not yet expired. In addition,
under the laws of Ireland, a short form notification was made to the Department
of Enterprise, Trade and Employment seeking confirmation from such department
that the merger is not subject to the Irish Mergers and Takeover Act. We expect
that the merger will not violate any foreign antitrust laws and that all the
foreign antitrust regulatory authorities, the approval or clearance of which is
required, will approve or clear the merger. We cannot be sure, however, that a
challenge to the merger on antitrust grounds will not be made, or, if such a
challenge is made, what the result will be. Solectron and SMART intend to comply
with any foreign antitrust requirements to obtain regulatory approval.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF SMART AND SOLECTRON
The shares of Solectron common stock to be issued in connection with the
merger will be registered under the Securities Act of 1933 and will be freely
transferable under the Securities Act, except for shares of Solectron common
stock issued to any person who is deemed to be an affiliate of either Solectron
or SMART at the time of the special meeting. Persons who may be deemed to be
affiliates include individuals or entities that control, are controlled by, or
are under common control of either Solectron or SMART and may include some of
our officers and directors, as well as our principal shareholders. Some
affiliates of SMART entered into affiliate agreements in connection with the
merger. See "The Merger -- Affiliate Agreements." Affiliates may not sell their
shares of Solectron common stock acquired in connection with the merger except
under:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act;
and
- any other applicable exemption under the Securities Act.
Solectron's registration statement on Form S-4, of which this proxy
statement-prospectus forms a part, does not cover the resale of shares of
Solectron common stock to be received by affiliates in the merger.
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<PAGE> 47
LISTING ON THE NEW YORK STOCK EXCHANGE OF SOLECTRON COMMON STOCK TO BE ISSUED IN
THE MERGER
It is a condition to closing the merger that Solectron cause the shares of
Solectron common stock to be issued in the merger to be approved for listing on
the New York Stock Exchange, subject to official notice of issuance.
DISSENTERS' RIGHTS
THE REQUIRED PROCEDURE FOR EXERCISING DISSENTERS' RIGHTS SET FORTH IN
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW MUST BE FOLLOWED EXACTLY OR
ANY DISSENTERS' RIGHTS MAY BE LOST.
Your rights as a shareholder of SMART common stock, to dissent from the
merger and demand payment for your shares are governed by Chapter 13 of the
California General Corporation Law, the full text of which is reprinted as Annex
E. The summary of these rights set forth below is not intended to be complete
and is qualified in its entirety by reference to Annex E.
Under California law, shareholders of SMART common stock will not have any
dissenters' rights with respect to the merger unless demands for payment are
duly filed with respect to five percent or more of the outstanding shares of
SMART common stock. If the holders of five percent or more of the outstanding
shares of SMART common stock vote against the merger, duly file demands for
payment and fully comply with Chapter 13 of the California General Corporation
Law, they will have dissenters' rights consisting of the right to be paid in
cash the fair market value of their shares. If holders of less than five percent
of the outstanding shares of SMART common stock vote against the merger and
exercise dissenters' rights, no SMART shareholders will be entitled to
dissenters' rights.
Under California law, fair market value is determined as of September 12,
1999, the day before the first announcement of the terms of the reorganization
agreement and the merger, excluding any appreciation or depreciation as a
consequence of the merger, but adjusted for any stock split, reverse stock split
or share dividend becoming effective after that date. If the parties are unable
to agree on a fair market value or SMART denies that the shares are dissenting
shares, the dissenting shareholder may request the Superior Court for the County
of Alameda to determine the fair market value of the shares. The court's
decision would be subject to appellate review.
The terms of the reorganization agreement were publicly announced on
September 13, 1999. On September 10, 1999, the last trading day prior to the
public announcement, the high and low sales prices for SMART common stock were
$23 5/8 and $22, respectively.
DISSENTERS' RIGHTS CANNOT BE VALIDLY EXERCISED BY PERSONS OTHER THAN
SHAREHOLDERS OF RECORD REGARDLESS OF THE BENEFICIAL OWNERSHIP OF THE SHARES.
Persons who are beneficial owners of shares held of record by another
person, such as a broker, a bank or a nominee, should instruct the record holder
to follow the procedures outlined below if the beneficial owners wish to dissent
from the approval of the merger.
As described more fully below, in order to perfect their dissenters'
rights, shareholders of record must:
- make written demand for the purchase of their dissenting shares to
SMART or its transfer agent on or before the date of the special
meeting;
- vote their dissenting shares against approval of the merger; and
- within 30 days after the mailing to shareholders by SMART of notice
of approval of the merger, submit the certificates representing
their dissenting shares to SMART or its transfer agent, for notation
thereon that they represent dissenting shares.
Failure to follow any of these procedures may result in the loss of
statutory dissenters' rights.
As a condition to the parties' obligations to consummate the merger,
effective demands for payment under Chapter 13 of the California General
Corporation Law must not be made by holders of more than five percent of the
outstanding shares of SMART common stock.
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<PAGE> 48
Demand for Purchase. A shareholder of SMART electing to exercise
dissenters' rights must also make written demand upon SMART Modular
Technologies, Inc. at its principal office, 4305 Cushing Parkway, Fremont,
California, 94538, Attn: Secretary or upon SMART's transfer agent, EquiServe at
150 Royall Street, Canton, Massachusetts 02021, Attn: Shareholder Services, to
purchase the dissenting shares and to pay the shareholder their fair market
value in cash. A demand will not be made effective unless it is received by not
later than the date of the special meeting.
The notice must state the number and class of shares held of record which
the shareholder demands to be purchased and the amount claimed to be the fair
market value of those shares on September 12, 1999. That statement of fair
market value will constitute an offer by the dissenting shareholder to sell his
or her shares at that price.
Dissenting shareholders may not withdraw their demand for payment without
the consent of SMART's board of directors. The rights of dissenting shareholders
to demand payment terminate:
- if the merger is abandoned, although, in such event, dissenting
shareholders will be entitled upon demand to reimbursement of necessary
expenses incurred in a good faith assertion of their dissenters' rights;
- if the shares are transferred prior to submission for endorsement as
dissenting shares; or
- if SMART and the dissenting shareholders do not agree upon the status of
the shares as dissenting shares or upon the purchase price, and neither
files a complaint or intervenes in a pending action within six months
after the date on which notice of approval of the merger was mailed to
the shareholders.
No shareholder who has a right to demand payment of cash for his or her
shares will have any right to attack the validity of the merger or have the
merger set aside or rescinded, except in an action to test whether SMART has
received the number of shares required to approve the merger.
Vote Against Approval of the Merger. Dissenting shareholders must vote
their dissenting shares against adoption of the reorganization agreement. Record
shareholders may vote part of the shares that they are entitled to vote in favor
of the merger or abstain from voting a part of these shares without jeopardizing
their dissenters' rights as to other shares. Voting against the merger will not
of itself, absent compliance with the provisions of Chapter 13 of the California
General Corporation Law summarized herein, satisfy the requirements for exercise
and perfection of dissenters' rights.
Notice of Approval. If shareholders have a right to require SMART to
purchase their shares for cash under the dissenters' rights provisions of the
California General Corporation Law, SMART will mail to each of these
shareholders a notice of adoption of the reorganization agreement within ten
days after the date of shareholder approval, stating the price determined by it
to represent the fair market value of the dissenting shares. The statement of
price will constitute an offer to purchase any dissenting shares at that price.
Submission of Stock Certificates. Within 30 days after the mailing of the
notice of approval of the merger, dissenting shareholders must submit to SMART
or its transfer agent, at the address set forth above, the certificates
representing the dissenting shares to be purchased, to be stamped or endorsed
with a statement that the shares are dissenting shares or are to be exchanged
for certificates of appropriate denomination so stamped or endorsed. The notice
of approval of the merger will specify the date by which the submission of
certificates for endorsement must be made, and a submission made after that date
will not be effective for any purpose.
Purchase of Dissenting Shares. If a dissenting shareholder and SMART agree
that the shares are dissenting shares and agree upon the price of the shares,
SMART will, upon surrender of the certificates, make payment of that amount,
plus interest thereon at the legal rate on judgments from the date of the
agreement within 30 days after the agreement on price. Any agreement between
dissenting shareholders and SMART fixing the fair market value of any dissenting
shares must be filed with the Secretary of SMART. If SMART denies that the
shares are dissenting shares, or SMART and a dissenting shareholder fail to
agree upon the fair market value of the shares, the dissenting shareholder may,
within six months after the date on which notice of approval of the merger was
mailed to the shareholder, but not thereafter file a complaint, or
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intervene in a pending action, if any, in the Superior Court for the County of
Alameda, State of California, requesting that the Superior Court determine
whether the shares are dissenting shares and the fair market value of the
dissenting shares. The Superior Court may determine, or appoint one or more
impartial appraisers to determine the fair market value per share of the
dissenting shares. The costs of the action, including reasonable compensation to
the appraisers to be fixed by the court, will be assessed or apportioned as the
Superior Court considers equitable, but if the fair market value is determined
to exceed the price offered to the shareholder by SMART, then SMART will be
required to pay these costs, including, in the discretion of the Superior Court,
attorneys' fees, fees of expert witnesses and interest at the legal rate on
judgments.
ANY SHAREHOLDERS INTENDING TO EXERCISE DISSENTERS' RIGHTS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE MERGER AND SUCH RELATED TRANSACTIONS. PLEASE SEE THE DISCUSSION OF
THE MATERIAL FEDERAL INCOME TAX CONSIDERATIONS OF EXERCISING DISSENTERS' RIGHTS
UNDER "MATERIAL UNITED STATES INCOME TAX CONSIDERATIONS OF THE MERGER -- TAX
IMPLICATIONS TO SMART SHAREHOLDERS" AT PAGE 37.
DELISTING AND DEREGISTRATION OF SMART COMMON STOCK AFTER THE MERGER
If the merger is completed, SMART common stock will be delisted from the
Nasdaq National Market and will be deregistered under the Securities Exchange
Act of 1934.
DIVIDEND POLICY
Neither Solectron nor SMART has ever paid a cash dividend on its common
stock since their inception and do not anticipate paying any cash dividends in
the foreseeable future.
THE REORGANIZATION AGREEMENT
Representations and Warranties. Solectron and SMART each made a number of
customary representations and warranties in the reorganization agreement
regarding aspects of their respective businesses, financial condition, structure
and other facts pertinent to the merger.
The representations given by SMART cover the following topics, among
others, as they relate to SMART and its subsidiaries:
- SMART's corporate organization and its qualification to do business;
- SMART's articles of incorporation and bylaws;
- SMART's capitalization;
- authorization of the reorganization agreement and stock option agreement
by SMART;
- regulatory approvals required to complete the merger;
- the effect of the merger on obligations of SMART and under applicable
laws;
- SMART's filings and reports with the Securities and Exchange Commission;
- SMART's financial statements;
- SMART's liabilities;
- changes in SMART's business since October 31, 1998 or, in some cases,
July 31, 1999;
- SMART's title to the properties it owns and leases;
- SMART's material contracts;
- the possession of and compliance with permits required to conduct SMART's
business;
- litigation involving SMART;
- SMART's compliance with applicable laws;
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- information supplied by SMART in this proxy statement-prospectus and the
related registration statement filed by Solectron;
- SMART's employee benefit plans;
- SMART's taxes and tax returns;
- environmental laws that apply to SMART;
- restrictions on the conduct of SMART's business;
- intellectual property owned or used by SMART;
- the treatment of the merger as a pooling of interests and a tax-free
reorganization;
- identification of SMART's affiliates;
- SMART's brokers; and
- SMART's financial advisors.
The representations given by Solectron cover the following topics, among
others, as they relate to Solectron and its subsidiaries:
- Solectron's corporate organization and its qualification to do business;
- Solectron's certificate of incorporation and bylaws;
- Solectron's and SM Acquisition's capitalization;
- authorization of the reorganization agreement and stock option agreement
by Solectron and SM Acquisition;
- regulatory approvals required to complete the merger;
- the effect of the merger on obligations of Solectron and under applicable
laws;
- Solectron's filings and reports with the Securities and Exchange
Commission;
- litigation affecting Solectron's ability to complete the merger;
- Solectron's financial statements;
- Solectron's title to properties it owns and leases;
- information supplied by Solectron in this proxy statement-prospectus and
the related registration statement filed by Solectron; and
- the treatment of the merger as a pooling of interests.
The representations and warranties in the reorganization agreement are
complicated and not easily summarized. You are urged to carefully read the
articles of the reorganization agreement entitled "Representations and
Warranties of Company" and "Representations and Warranties of Parent and Merger
Sub."
SMART's Conduct of Business Before Completion of the Merger. SMART agreed
that until the earlier of the completion of the merger or the termination of the
reorganization agreement or unless Solectron consents in writing, SMART and its
subsidiaries will operate its businesses in the usual, regular and ordinary
course and use commercially reasonable efforts to:
- preserve intact its assets and current business organizations;
- keep available the services of its current officers and employees; and
- maintain its material contracts and preserving its relationships with:
- customers,
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- suppliers,
- distributors,
- licensors,
- licensees, and
- others having business dealings with SMART and its subsidiaries.
SMART also agreed that until the earlier of the completion of the merger or
the termination of the reorganization agreement or unless Solectron consents in
writing, SMART and its subsidiaries would conduct their business in compliance
with specific restrictions relating to, among other things, the following:
- the issuance and redemption of securities;
- the issuance of dividends or other distributions;
- the liquidation or restructuring of, or merger involving SMART;
- modification of SMART's articles of incorporation and bylaws;
- the incurrence of indebtedness;
- the acquisition of assets or other entities;
- the disposition of SMART's assets;
- capital expenditures;
- the entrance into, termination or modification of contracts;
- employees and employee benefits;
- accounting policies and procedures;
- liens;
- settlement of litigation and claims;
- tax elections and liabilities;
- the transfer or license of intellectual property;
- interference with Solectron's ability to account for the merger as a
pooling of interests; and
- treatment of the merger as a reorganization under Section 368(a) of the
Internal Revenue Code.
Solectron's Conduct of Business Before Completion of the Merger. Solectron
agreed that until the earlier of the completion of the merger or termination of
the reorganization agreement or unless SMART consents in writing, Solectron will
not engage in any action that could reasonably be expected to:
- cause the merger to fail to qualify as a reorganization under Section
368(a) of the Internal Revenue Code; and
- interfere with Solectron's ability to account for the merger as a pooling
of interests.
The agreements related to the conduct of SMART's business in the
reorganization agreement are complicated and not easily summarized. You are
urged to carefully read the article of the reorganization agreement entitled
"Conduct Prior to the Effective Time."
No Other Negotiations Involving SMART. Until the merger is completed or the
reorganization agreement is terminated, SMART has agreed, subject to limited
exceptions, that neither it nor any of its subsidiaries will, directly or
indirectly:
- solicit, initiate, encourage or induce the making, submission or
announcement of any acquisition proposal, as defined below;
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- participate in any discussions or negotiations regarding any acquisition
proposal;
- furnish to any person any nonpublic information with respect to any
acquisition proposal;
- take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to any
acquisition proposal;
- engage in discussions with any person with respect to any acquisition
proposal, except as to the existence of the acquisition proposal
provisions in the reorganization agreement;
- subject to limited exceptions in the event of a superior offer, defined
below, approve, endorse or recommend any acquisition proposal; and
- enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any
acquisition transaction, as defined below.
For purposes of the foregoing, any violation of any of the restrictions in
the immediately preceding paragraph by any officer or director of SMART or any
of its subsidiaries or any investment banker, attorney or other advisor or
representative of SMART or any of its subsidiaries is deemed to be a breach of
the relevant restriction by SMART.
Between the date of the reorganization agreement and the earlier of the
completion of the merger or the termination of the reorganization agreement, the
reorganization agreement allows SMART to furnish nonpublic information regarding
SMART and its subsidiaries to, and to enter into a confidentiality agreement
with or to enter into discussions with, any person or group in response to a
superior offer submitted by the person or group, and not withdrawn, if all of
the following conditions are met:
- neither SMART nor any representatives of SMART or its subsidiaries has
breached the non-solicitation provisions contained in the reorganization
agreement;
- SMART's board of directors concludes in good faith, after consultation
with its outside legal counsel, that such action is required in order for
SMART's board of directors to comply with its fiduciary obligations to
SMART's shareholders under applicable law;
- at least two business days prior to furnishing any such nonpublic
information to, or entering into discussions or negotiations with, the
person or group, SMART gives Solectron written notice of the identity of
such person or group and of SMART's intention to furnish nonpublic
information to, or enter into discussions or negotiations with, such
person or group and SMART receives from such person or group, an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to
such person or group by or on behalf of SMART; and
- contemporaneously with furnishing any nonpublic information to the person
or group, SMART furnishes the same information to Solectron, to the
extent the nonpublic information has not been previously furnished by
SMART to Solectron.
SMART has agreed to promptly inform Solectron of any request for nonpublic
information that SMART reasonably believes would lead to an acquisition
proposal, or of any acquisition proposal, or any inquiry with respect to or
which SMART reasonably should believe would lead to any acquisition proposal,
the material terms and conditions of such request, acquisition proposal or
inquiry, and the identity of the person or group making any such request,
acquisition proposal or inquiry. SMART further agreed to keep Solectron informed
in all material respects of the status and details, including material
amendments or proposed amendments of any such request, acquisition proposal or
inquiry.
Under the reorganization agreement, SMART's board of directors are allowed
to withhold, withdraw, amend or modify their recommendation in favor of the
merger if a superior offer is made and not withdrawn, neither SMART nor any of
its representatives has breached the non-solicitation provisions of the
reorganization agreement, and SMART's board of directors concludes in good
faith, after consultation with its outside counsel that, in light of the
superior offer, the withholding, withdrawal, amendment or modification of its
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recommendation is required in order for SMART's board of directors to comply
with their fiduciary obligations to SMART's shareholders under applicable law;
provided that Solectron is given at least 72 hours notice of such withholding,
withdrawal, amendment or modification and the opportunity to meet with SMART and
its counsel.
Regardless of whether there has been a superior offer, SMART is obligated
under the reorganization agreement to hold and convene the SMART special
meeting.
An "acquisition proposal" is any offer or proposal, other than an offer or
proposal by Solectron, relating to any acquisition transaction. An "acquisition
transaction" is any transaction or series of related transactions other than the
transactions contemplated by the reorganization agreement involving:
- any acquisition or purchase from SMART by any person or "group" as
defined under Section 13(d) of the Securities Exchange Act and the rules
and regulations thereunder of more than a five percent interest in the
total outstanding voting securities of SMART or any of its subsidiaries
or any tender offer or exchange offer that if consummated would result in
any person or group beneficially owning five percent or more of the total
outstanding voting securities of SMART or any of its subsidiaries;
- any merger, consolidation, business combination or similar transaction
involving SMART in which the shareholders of SMART immediately preceding
such transaction hold less than 95% of the equity interests in the
surviving or resulting entity of such transaction;
- any sale, lease, other than in the ordinary course of business, exchange,
transfer, license, other than in the ordinary course of business,
acquisition or disposition of more than five percent of the assets of
SMART; or
- any liquidation or dissolution of SMART.
A "superior offer" is an unsolicited, bona fide written offer made by a
third party to consummate any of the following transactions on terms that
SMART's board of directors determines, in its reasonable judgment, based on
written advice of a financial advisor of nationally recognized reputation, to be
more favorable to SMART's shareholders from a financial point of view than the
terms of the merger involving Solectron:
- a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving SMART pursuant
to which the shareholders of SMART immediately preceding such transaction
hold less than 51% of the equity interest in the surviving or resulting
entity of such transaction;
- a sale or other disposition by SMART of assets, excluding inventory and
used equipment sold in the ordinary course of business, representing in
excess of 51% of the fair market value of SMART's business immediately
prior to such sale; or
- the acquisition by any person or group, including by way of a tender
offer or an exchange offer or issuance by SMART, directly or indirectly,
of beneficial ownership or a right to acquire beneficial ownership of
shares representing in excess of 51% of the voting power of the then
outstanding shares of capital stock of SMART.
However, an offer will not be considered a superior offer if any financing
required to consummate the transaction contemplated by such offer is not
committed and is not likely in the judgment of SMART's board of directors to be
obtained by such third party on a timely basis.
SMART's Employee Benefit Plans. Individuals who are employed by SMART, when
the merger is completed will become employees of Solectron or one of Solectron's
subsidiaries, although Solectron, unless prohibited by any employment contract
or like arrangement assumed by Solectron in connection with the merger, may
terminate these employees at any time. Solectron will give these former SMART
employees full credit for their service with SMART and its subsidiaries for
purposes of:
- eligibility, including service and waiting period requirements;
- vesting;
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- benefit accrual; and
- determination of the level of benefits under any employee benefit plans
or arrangements maintained by Solectron or its subsidiaries to the same
extent recognized by SMART and its subsidiaries immediately before the
merger.
Solectron will also waive some limitations as to preexisting conditions,
exclusions, and waiting periods under any welfare benefit plans that former
SMART employees may be eligible to participate in after completion of the
merger. Solectron will provide former SMART employees with credit for any
co-payments and deductibles paid before completion of the merger, as shown on
SMART's records, in satisfying any applicable deductible or out-of-pocket
requirements under any welfare benefit plans that former SMART employees are
eligible to participate in after the merger.
Treatment of SMART Stock Options. Upon completion of the merger, each
outstanding option to purchase SMART common stock will be converted, in
accordance with its terms, into an option to purchase the number of shares of
Solectron common stock equal to 0.51 times the number of shares of SMART common
stock which could have been obtained before the merger upon the exercise of each
option, rounded down to the nearest whole share. The exercise price will be
equal to the exercise price per share of SMART common stock subject to the
option before conversion divided by 0.51, rounded up to the nearest whole cent.
The other terms of each option and the SMART option plans referred to above
under which the options were issued will continue to apply in accordance with
their terms, including any provisions providing for acceleration. Upon
completion of the merger, each outstanding award, including restricted stock,
stock equivalents and stock units, under any employee incentive or benefit
plans, programs or arrangements maintained by SMART which provide for grants of
equity-based awards will be amended or converted into a similar instrument of
Solectron, with adjustments to preserve their value. The other terms of each
SMART award, and the plans or agreements under which they were issued, will
continue to apply in accordance with their terms, including any provisions
providing for acceleration.
Solectron will file a registration statement on Form S-8 for the shares of
Solectron common stock issuable with respect to options under the SMART stock
option plans and will use its commercially reasonable efforts to maintain the
effectiveness of that registration statement for as long as any of the options
remain outstanding, to the same extent as Solectron maintains the effectiveness
of its existing Forms S-8.
SMART Employee Stock Purchase Plan. Pursuant to the reorganization
agreement all purchase rights under SMART's employee stock purchase plan shall
be exercised at the time of completion of the merger in accordance with such
plan, and will be converted into the right to receive Solectron common stock on
the same terms as SMART's other shareholders.
Indemnification. Solectron has agreed to honor SMART's obligations under
indemnification agreements between SMART and its directors and officers in
effect before the completion of the merger and any indemnification provisions of
SMART's articles of incorporation and bylaws. Solectron has also agreed to
provide for indemnification provisions in the articles of incorporation and
bylaws of the surviving corporation of the merger that are at least as favorable
as SMART's provisions, to maintain share provisions for at least six years from
the completion of the merger. Solectron has agreed to guaranty these obligations
or make arrangements
In addition, Solectron has agreed to maintain SMART's directors' and
officers' liability insurance for six years from the completion of the merger,
provided that Solectron is not required to pay more than 150% of the premium for
SMART's insurance as of September 13, 1999. Solectron has agreed to guaranty
these obligations or make arrangements to have them assumed in the event of a
subsequent sale of SMART to a third party.
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CONDITIONS TO COMPLETION OF THE MERGER
The obligations of Solectron and SMART to complete the merger and the other
transactions contemplated by the reorganization agreement are subject to the
satisfaction or waiver of each of the following conditions before completion of
the merger:
- the reorganization agreement must be approved and adopted and the merger
must be approved by the holders of a majority of outstanding shares of
SMART common stock entitled to vote;
- Solectron's registration statement must be effective, no stop order
suspending its effectiveness will be in effect and no proceedings for
suspension of its effectiveness will be pending before or threatened by
the Securities and Exchange Commission;
- no law, regulation, injunction or other order must be enacted or issued
which has the effect of making the merger illegal or otherwise
prohibiting completion of the merger substantially on the terms
contemplated by the reorganization agreement;
- all applicable waiting periods under applicable antitrust laws must have
expired or been terminated;
- Solectron and SMART must each receive from their respective tax counsel,
an opinion to the effect that the merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code and such opinions must not have been withdrawn. However, if
counsel to either Solectron or SMART does not render this opinion, this
condition will be satisfied if counsel to the other party renders the
opinion to such party;
- Solectron shall have received from KPMG LLP, independent accountants for
Solectron, a letter to Solectron to the effect that KPMG LLP concurs with
Solectron management's conclusion that the merger can be accounted for as
a pooling of interests; and
- the shares of Solectron common stock to be issued in the merger must be
authorized for listing on the NYSE, subject to notice of issuance.
SMART's obligations to complete the merger and the other transactions
contemplated by the reorganization agreement are subject to the satisfaction or
waiver of each of the following additional conditions before completion of the
merger:
- Solectron's representations and warranties must be true and correct as of
September 13, 1999 and as of the date the merger is to be completed as if
made at and as of such time except:
- to the extent Solectron's representations and warranties address matters
only as of a particular date, they must be true and correct as of that
date,
- if any of these representations and warranties are not true and correct
but the effect in each case, or in the aggregate, of the inaccuracies of
these representations and breaches of these warranties, is not and does
not have a material adverse effect on Solectron, then this condition
will be deemed satisfied, and
- for changes contemplated by the reorganization agreement; and
- Solectron must perform or comply in all material respects with all of its
agreements and covenants required by the reorganization agreement to be
performed or complied with by Solectron at or before completion of the
merger.
Solectron's obligations to complete the merger and the other transactions
contemplated by the reorganization agreement are subject to the satisfaction or
waiver of each of the following additional conditions before completion of the
merger:
- SMART's representations and warranties must be true and correct as of
September 13, 1999 and at and as of the date the merger is to be
completed as if made at and as of such time except:
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- to the extent SMART's representations and warranties address matters
only as of a particular date, they must be true and correct as of that
date,
- if any of these representations and warranties are not true and correct
but the effect in each case, or in the aggregate, of the inaccuracies of
these representations and breaches of these warranties, other than those
concerning the aggregate number of shares of SMART common stock
outstanding and reserved for issuance under outstanding stock options
which must be correct in all respects, is not and does not have a
material adverse effect on SMART, then this condition will be deemed
satisfied, and
- for changes contemplated by the reorganization agreement;
- SMART must perform or comply in all material respects with all of its
agreements and covenants required by the reorganization agreement to be
performed or complied with by SMART at or before completion of the
merger;
- holders of no more than five percent of the outstanding shares of SMART
common stock shall have exercised, nor shall they have any right to
exercise, appraisal, dissenters' or similar rights under applicable law
with respect to their shares;
- each of SMART's affiliates shall have entered into an affiliate agreement
and each of the agreements shall be in full force and effect as of the
date of the merger; and
- Solectron shall have received from Arthur Andersen LLP, independent
accountants for SMART, a copy of a letter addressed to SMART in substance
reasonably satisfactory to Solectron to the effect that Arthur Andersen
LLP agrees with SMART management's conclusion that no conditions related
to SMART exist that would preclude Solectron from accounting for the
merger as a pooling of interests.
TERMINATION OF THE REORGANIZATION AGREEMENT
The reorganization agreement may be terminated at any time prior to
completion of the merger, whether before or after the approval and adoption of
the reorganization agreement and approval of the merger by SMART shareholders:
- by mutual written consent of Solectron and SMART;
- by Solectron or SMART, if the merger is not completed before March 31,
2000, except that this right to terminate the reorganization agreement is
not available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the merger to occur on
or before March 31, 2000, and such action or failure to act constitutes a
breach of the reorganization agreement;
- by Solectron or SMART, if there is any order, decree or ruling of a court
or governmental authority having the effect of permanently restraining,
enjoining or prohibiting the completion of the merger which is final and
nonappealable;
- by Solectron or SMART, if the reorganization agreement fails to receive
the requisite vote for approval and adoption and the merger fails to
receive the requisite vote for approval by the shareholders of SMART at
the SMART special meeting or at any adjournment of that meeting, except
that this right to terminate the reorganization agreement is not
available to SMART where the failure to obtain SMART shareholder approval
was caused by SMART's action or failure to act and such action or failure
to act constitutes a breach by SMART of the reorganization agreement;
- by SMART, upon a breach of any representation, warranty, covenant or
agreement on the part of Solectron in the reorganization agreement, or if
any of Solectron's representations or warranties are or become untrue so
that the corresponding condition to completion of the merger would not be
met. However, if the breach or inaccuracy is curable by Solectron through
the exercise of its commercially reasonable efforts, and Solectron
continues to exercise such commercially reasonable efforts, SMART may not
terminate the reorganization agreement for 30 days after delivery of
written notice from
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SMART to Solectron of the breach. If the breach is cured during those 30
days, or if SMART shall otherwise be in material breach of the
reorganization agreement, SMART may not exercise this termination right;
- by Solectron, upon a breach of any representation, warranty, covenant or
agreement on the part of SMART set forth in the reorganization agreement,
or if any of SMART's representations or warranties are or become untrue
so that the corresponding condition to completion of the merger would not
be met. However, if the breach or inaccuracy is curable by SMART through
the exercise of its commercially reasonable efforts, and SMART continues
to exercise such commercially reasonable efforts, Solectron may not
terminate the reorganization agreement for 30 days after delivery of
written notice from Solectron to SMART of the breach. If the breach is
cured during those 30 days, or if Solectron shall otherwise be in
material breach of the reorganization agreement, Solectron may not
exercise this termination right;
- by Solectron upon SMART's breach of the non-solicitation provisions of
the reorganization agreement; and
- by Solectron if a triggering event shall have occurred.
A "triggering event" occurs if:
- SMART's board of directors withdraws or amends or modifies in a manner
adverse to Solectron its recommendation in favor of the adoption and
approval of the reorganization agreement or the approval of the merger;
- SMART fails to include in this proxy statement-prospectus the
recommendation of SMART's board of directors in favor of the adoption and
approval of the reorganization agreement and the approval of the merger;
- SMART's board of directors fails to reaffirm its recommendation in favor
of the adoption and approval of the reorganization agreement and approval
of the merger within ten business days after Solectron requests in
writing that such recommendation be reaffirmed at any time following the
announcement of an acquisition proposal;
- SMART's board of directors approves or recommends any acquisition
proposal;
- SMART enters into any letter of intent or similar document or any
agreement, contract or commitment accepting any acquisition proposal; and
- a tender or exchange offer relating to the securities of SMART is
commenced by a person unaffiliated with Solectron, and SMART does not
send to its securityholders, within ten business days after such tender
or exchange offer is first published, sent or given, a statement
disclosing that SMART recommends rejection of such tender or exchange
offer.
PAYMENT OF TERMINATION FEE
If the reorganization agreement is terminated by Solectron because of the
occurrence of a triggering event or because SMART breaches the nonsolicitation
provisions of the reorganization agreement, SMART will pay Solectron a
termination fee of $60 million within one business day upon demand by Solectron.
Further, SMART will pay to Solectron within one business day upon demand by
Solectron a termination fee of $60 million if the reorganization agreement is
terminated by Solectron or SMART because the merger is not consummated by March
31, 2000 or because SMART's shareholders do not approve the reorganization
agreement and the merger, and either of the following occur:
- prior to the termination of the reorganization agreement, a third party
has announced an acquisition proposal and within 12 months following the
termination of the reorganization agreement a company acquisition is
consummated; or
49
<PAGE> 58
- prior to the termination of the reorganization agreement, a third party
has announced an acquisition proposal and within 12 months following the
termination of the reorganization agreement SMART enters into an
agreement or letter of intent providing for a company acquisition.
A "company acquisition" is any of the following:
- a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving SMART pursuant
to which the shareholders of SMART immediately preceding such transaction
hold less than 50% of the aggregate equity interests in the surviving or
resulting entity of such transaction;
- a sale or other disposition by SMART of assets representing in excess of
50% of the aggregate fair market value of SMART's business immediately
prior to such sale; or
- the acquisition by any person or group, including by way of a tender
offer or an exchange offer or issuance by SMART, directly or indirectly,
of beneficial ownership or a right to acquire beneficial ownership of
shares representing in excess of 50% of the voting power of the then
outstanding shares of capital stock of SMART.
EXTENSION, WAIVER AND AMENDMENT OF THE REORGANIZATION AGREEMENT
Subject to applicable law, Solectron and SMART may amend the reorganization
agreement before completion of the merger by mutual written consent.
Either Solectron or SMART may extend the other's time for the performance
of any of the obligations or other acts under the reorganization agreement,
waive any inaccuracies in the other's representations and warranties and waive
compliance by the other with any of the agreements or conditions contained in
the reorganization agreement.
THE STOCK OPTION AGREEMENT
The stock option agreement grants Solectron the option to acquire up to a
number of shares of SMART common stock that represent 19.9% of the issued and
outstanding SMART common stock, as of the first date, if any, upon which the
option is exercisable. The exercise price of the option is $39.3656 per share of
SMART common stock, payable in cash. The number of shares issuable upon exercise
of the option and the exercise price of the option are subject to adjustment to
prevent dilution. Based on the number of shares of SMART common stock
outstanding on October 13, 1999, the option would be exercisable for
approximately 9,247,100 shares of SMART common stock. Solectron required SMART
to enter into the stock option agreement as a condition to entering into the
reorganization agreement.
The option is intended to increase the likelihood that the merger will be
completed. Some of the aspects of the stock option agreement may have the effect
of discouraging persons who might now or at any time be interested in acquiring
all or a significant interest in SMART or its assets before completion of the
merger.
If the option becomes exercisable, SMART would not be able to account for
future transactions under the pooling-of-interests accounting method for some
period of time.
The full text of the stock option agreement is attached as Annex B to this
proxy statement-prospectus and you are urged to read the entire stock option
agreement in its entirety.
Exercise Events. Solectron may exercise the option, in whole or part, at
any time or from time to time, upon the occurrence of any of the following
events:
- the termination of the reorganization agreement by Solectron because of
the occurrence of a triggering event or
- if either Solectron or SMART terminates the reorganization agreement
because (1) the merger is not consummated by March 31, 2000 or (2) the
shareholders of SMART fail to approve and adopt the reorganization
agreement and approve the merger and:
50
<PAGE> 59
- the consummation of a company acquisition occurs within 12 months
after the termination of the reorganization agreement if a third party
announced an acquisition proposal after September 13, 1999 and prior
to the termination of the reorganization agreement or
- SMART enters into an agreement or letter of intent providing for a
company acquisition within 12 months after the termination of the
reorganization agreement if a third party announced an acquisition
proposal after September 13, 1999 and prior to the termination of the
reorganization agreement.
Termination. The option will terminate and cease to be exercisable upon the
earliest of any of the following:
- completion of the merger;
- 12 months after termination of the reorganization agreement based on a
failure of the merger to be consummated by March 31, 2000 or the failure
to obtain the required approval of SMART shareholders if no event causing
the termination fee to become payable has occurred;
- 18 months after termination of the reorganization agreement based on the
occurrence of a triggering event or a breach of the nonsolicitation
provisions of the reorganization agreement by SMART;
- 18 months after payment of the termination fee if the reorganization
agreement is terminated based on a failure of the merger to be completed
by March 31, 2000 or the failure to obtain the required approval of SMART
shareholders and an event causing the termination fee to become payable
has occurred;
- the date on which the reorganization agreement is terminated if neither a
triggering event nor the announcement of an acquisition proposal by a
third party has occurred on or prior to the date of such termination; or
- if the option becomes exercisable but cannot be exercised by Solectron
because of a government order or because a waiting period under antitrust
laws has not expired, ten business days after prohibition to exercise, if
the prohibition has been removed or has become final and not subject to
any appeal.
Repurchase at the Option of Solectron. During the period when the option is
exercisable, Solectron may require SMART to repurchase from Solectron the
unexercised portion of the option and all the shares of SMART common stock
purchased by Solectron under the option that Solectron then owns.
Economic Benefit to Solectron is Limited. The stock option agreement limits
the cash payment, including the amount, if any, paid to Solectron as a
termination fee under the reorganization agreement, which may be received by
Solectron on exercise of its put right, to $120 million plus the amount paid by
Solectron to exercise the option minus any amount paid by SMART to Solectron as
a termination fee or otherwise in connection with the termination of the
reorganization agreement.
Registration Rights. The stock option agreement grants registration rights
to Solectron with respect to the shares of SMART common stock represented by the
option, including the right to demand that SMART register all or part of such
shares with the Securities and Exchange Commission, provided that Solectron will
only be able to make three such demands and the right to register all or part of
such shares if SMART otherwise registers shares.
VOTING AGREEMENTS
As a condition to Solectron's entering into the reorganization agreement,
Solectron and each of Ajay Shah, Lata Krishnan, Mukesh Patel, Tor Braham, Erik
Anderson, Shah Family Partners LP and Patel Family Partners, LP entered into
voting agreements. By entering into the voting agreements these SMART
shareholders have irrevocably appointed Solectron as their lawful attorney and
proxy. These proxies give Solectron the limited right to vote the shares of
SMART common stock beneficially owned by these SMART shareholders, including
shares of SMART common stock acquired after the date of the voting agreements,
in favor of the approval and adoption of the reorganization agreement, in favor
of the merger and in favor of each
51
<PAGE> 60
other matter that could reasonably be expected to facilitate the merger. These
SMART shareholders may vote their shares of SMART common stock on all other
matters.
As of the record date, these individuals and entities collectively
beneficially owned 17,121,412 shares of SMART common stock which represented
approximately 36.8% of the outstanding SMART common stock. None of the SMART
shareholders who are parties to the voting agreements were paid additional
consideration in connection with them.
Under these voting agreements, and except as otherwise waived by Solectron,
Ajay Shah, Lata Krishnan, Mukesh Patel, Tor Braham, Erik Anderson, Shah Family
Partners LP and Patel Family Partners LP agreed not to sell the SMART common
stock and options owned, controlled or acquired, either directly or indirectly,
by that person until the earlier of the termination of the reorganization
agreement or the completion of the merger, unless the transfer is in accordance
with any affiliate agreement between the shareholder and Solectron and each
person to which any shares or any interest in any shares is transferred agrees
to be bound by the terms and provisions of the voting agreement.
These voting agreements will terminate upon the earlier to occur of the
termination of the reorganization agreement and the completion of the merger.
The form of voting agreement is attached to this proxy statement-prospectus as
Annex C, and you are urged to read it in its entirety.
AFFILIATE AGREEMENTS
As a condition to Solectron's entering into the reorganization agreement,
each member of SMART's board of directors and some officers of SMART executed
affiliate agreements. Under the affiliate agreements, each of these persons has
agreed not to sell or otherwise dispose of, or to reduce their risk relative to,
any shares of SMART common stock owned by them during the period beginning 35
days prior to the merger and ending two trading days after Solectron publicly
announces financial results covering at least 30 days of combined operations of
Solectron and SMART. Also under the affiliate agreements, Solectron will be
entitled to place appropriate legends on the certificates evidencing any
Solectron common stock to be received by these persons and to issue stop
transfer instructions to the transfer agent for the Solectron common stock.
Further, these persons have also acknowledged the resale restrictions imposed by
Rule 145 under the Securities Act on shares of Solectron common stock to be
received by them in the merger.
NONCOMPETITION AND NONSOLICITATION AGREEMENT
In connection with the merger, Ajay Shah, the Chairman and Chief Executive
Officer of SMART, agreed to enter into a noncompetition and nonsolicitation
agreement with Solectron. Under the noncompetition and nonsolicitation
agreement, Mr. Shah agreed to neither solicit Solectron's employees nor compete
with Solectron in the design, manufacture, marketing or sale of memory modules,
memory cards and single board computers. Until the later to occur of two years
from the date of completion of the merger or the end of his employment with
Solectron.
OPERATIONS AFTER THE MERGER
Following the merger, SMART will continue its operations as a wholly-owned
subsidiary of Solectron for some period of time determined by Solectron. The
membership of Solectron's board of directors will remain unchanged as a result
of the merger. The shareholders of SMART will become shareholders of Solectron,
and their rights as stockholders will be governed by the Solectron stock
certificate of incorporation, as currently in effect, the Solectron bylaws and
the laws of the State of Delaware. See "Comparison of Rights of Holders of SMART
Common Stock and Solectron Common Stock" on page 60 of this proxy
statement-prospectus.
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<PAGE> 61
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
gives effect to the merger using the pooling of interests method of accounting,
after giving effect to the pro forma adjustments described in the accompanying
notes. The unaudited pro forma condensed combined financial information should
be read in conjunction with the audited historical consolidated financial
statements and related notes thereto of Solectron and SMART, which are
incorporated by reference into this proxy statement-prospectus.
Since the fiscal years for Solectron and SMART differ, the unaudited
selected pro forma condensed combined balance sheet data combines Solectron's
consolidated balance sheet as of May 31, 1999 with SMART's consolidated balance
sheet as of July 31, 1999. The unaudited pro forma condensed combined income
statements combine Solectron's consolidated income statements for the nine-month
period ended May 31, 1999 and fiscal years ended August 31, 1998, 1997 and 1996
with SMART's nine-month period ended July 31, 1999 and fiscal years ended
October 31, 1998, 1997 and 1996, respectively. It is expected that upon the
consummation of the merger, SMART will change its fiscal year end to coincide
with Solectron's.
The unaudited pro forma condensed combined financial information is
presented for illustrative purposes only and does not purport to be indicative
of the operating results or financial position that would have actually occurred
if the merger had been in effect on the dates indicated, nor is it necessarily
indicative of future operating results or financial position of the merged
companies. The pro forma adjustments are based on the information and
assumptions available at the time of the printing of this proxy
statement-prospectus.
53
<PAGE> 62
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
OF SOLECTRON AND SMART
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
SOLECTRON SMART PRO FORMA
MAY 31, JULY 31, -------------------------------
1999 1999 ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and
short-term investments........... $ 707,906 $194,974 $ -- $ 902,880
Accounts receivable, net............ 903,209 92,022 (2,025)(g) 993,206
Inventories......................... 945,528 64,318 (569)(g) 1,009,277
Deferred income taxes............... -- 5,080 (5,080)(c) --
Prepaid expenses and other current
assets........................... 130,521 6,905 5,080(c) 142,506
---------- -------- --------- ----------
Total current assets........ 2,687,164 363,299 (2,594) 3,047,869
Net property and equipment............ 607,824 48,465 -- 656,289
Other assets.......................... 159,587 1,471 -- 161,058
---------- -------- --------- ----------
Total assets................ $3,454,575 $413,235 $ (2,594) $3,865,216
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt..................... $ 16,562 $ -- $ -- $ 16,562
Accounts payable.................... 700,847 67,408 (2,025)(g) 766,230
Accrued employee compensation....... 69,216 -- 5,825(d) 75,041
Accrued bonuses..................... -- 1,668 (1,668)(d) --
Accrued expenses.................... 81,868 8,253 15,000(b)
(4,157)(d) 100,964
Income taxes payable................ -- 13,886 (13,886)(e) --
Other current liabilities........... 31,452 -- 13,886(e)
(222)(g) 45,116
---------- -------- --------- ----------
Total current liabilities... 899,945 91,215 12,753 1,003,913
Long-term debt........................ 917,668 -- -- 917,668
Other long-term liabilities........... 16,032 699 -- 16,731
---------- -------- --------- ----------
Total liabilities........... 1,833,645 91,914 12,753 1,938,312
---------- -------- --------- ----------
Stockholders' equity:
Common stock........................ 253 135,413 (135,390)(a)(f) 276
Additional paid-in capital.......... 803,162 -- 135,390(a)(f) 938,552
Retained earnings................... 882,411 185,908 (15,000)(b)
(347)(g) 1,052,972
Accumulated other comprehensive
losses........................... (64,896) -- -- (64,896)
---------- -------- --------- ----------
Total stockholders'
equity.................... 1,620,930 321,321 (15,347) 1,926,904
---------- -------- --------- ----------
Total liabilities and
stockholders' equity...... $3,454,575 $413,235 $ (2,594) $3,865,216
========== ======== ========= ==========
</TABLE>
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<PAGE> 63
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
OF SOLECTRON AND SMART
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
NINE MONTHS ENDED
----------------------
SOLECTRON SMART PRO FORMA
MAY 31, JULY 31, ----------------------------
1999 1999 ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales................................ $6,005,270 $745,539 $(21,353)(g) $6,729,456
Cost of sales............................ 5,449,411 649,883 (21,432)(g) 6,077,862
---------- -------- -------- ----------
Gross profit................... 555,859 95,656 79 651,594
Operating expenses:
Selling, general and administrative.... 219,412 34,824 (7)(h) 254,229
Research & development................. 24,563 7,910 -- 32,473
Acquisition costs...................... 2,864 -- -- 2,864
---------- -------- -------- ----------
Operating income............... 309,020 52,922 86 362,028
Interest income.......................... 18,605 4,793 -- 23,398
Interest expense......................... (26,015) (44) -- (26,059)
Other, net............................... -- 7 (7)(h) --
---------- -------- -------- ----------
Income before income taxes..... 301,610 57,678 79 359,367
Income taxes............................. 96,516 18,450 31(g) 114,997
---------- -------- -------- ----------
Net income..................... $ 205,094 $ 39,228 $ 48 $ 244,370
========== ======== ======== ==========
Net income per share:(i)
Basic.................................. $ 0.92
Diluted................................ $ 0.87
Weighted average number of shares:
Basic.................................. 242,339 45,082 265,331
Diluted................................ 261,153 46,729 284,985
</TABLE>
55
<PAGE> 64
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
OF SOLECTRON AND SMART
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
YEAR ENDED
-------------------------
SOLECTRON SMART PRO FORMA
AUGUST 31, OCTOBER 31, ----------------------------
1998 1998 ADJUSTMENTS COMBINED
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales............................... $5,288,294 $714,651 $(24,603)(g) $5,978,342
Cost of sales........................... 4,749,988 595,279 (24,139)(g) 5,321,128
---------- -------- -------- ----------
Gross profit.................. 538,306 119,372 (464) 657,214
Operating expenses:
Selling, general and administrative... 218,377 41,781 410(h) 260,568
Research & development................ 20,940 8,945 -- 29,885
---------- -------- -------- ----------
Operating income.............. 298,989 68,646 (874) 366,761
Interest income......................... 24,753 7,548 -- 32,301
Interest expense........................ (24,759) (73) -- (24,832)
Other, net.............................. -- (410) 410(h) --
---------- -------- -------- ----------
Income before income taxes.... 298,983 75,711 (464) 374,230
Income taxes............................ 100,159 24,228 (181)(g) 124,206
---------- -------- -------- ----------
Net income.................... $ 198,824 $ 51,483 $ (283) $ 250,024
========== ======== ======== ==========
Net income per share:(i)
Basic................................. $ 0.99
Diluted............................... $ 0.94
Weighted average number of shares:
Basic................................. 231,666 43,445 -- 253,823
Diluted............................... 253,135 46,902 -- 277,055
</TABLE>
56
<PAGE> 65
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
OF SOLECTRON AND SMART
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
YEAR ENDED
-------------------------
SOLECTRON SMART PRO FORMA
AUGUST 31, OCTOBER 31, ----------------------------
1997 1997 ADJUSTMENTS COMBINED
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales............................... $3,694,385 $694,675 $ (5,068)(g) $4,383,992
Cost of sales........................... 3,266,106 582,515 (5,062)(g) 3,843,559
---------- -------- -------- ----------
Gross profit.................. 428,279 112,160 (6) 540,433
Operating expenses:
Selling, general and administrative... 172,872 37,163 26(h) 210,061
Research & development................ 14,985 8,496 -- 23,481
Acquisition costs..................... 4,000 -- -- 4,000
---------- -------- -------- ----------
Operating income.............. 236,422 66,501 (32) 302,891
Interest income......................... 28,536 2,615 -- 31,151
Interest expense........................ (26,551) (225) -- (26,776)
Other, net.............................. -- (26) 26(h) --
---------- -------- -------- ----------
Income before income taxes.... 238,407 68,865 (6) 307,266
Income taxes............................ 80,348 23,418 (3)(g) 103,763
---------- -------- -------- ----------
Net income.................... $ 158,059 $ 45,447 $ (3) $ 203,503
========== ======== ======== ==========
Net income per share:(i)
Basic................................. $ 0.84
Diluted............................... $ 0.80
Weighted average number of shares:
Basic................................. 223,004 38,895 -- 242,840
Diluted............................... 230,642 43,892 -- 253,027
</TABLE>
57
<PAGE> 66
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
OF SOLECTRON AND SMART
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
YEAR ENDED
-------------------------
SOLECTRON SMART PRO FORMA
AUGUST 31, OCTOBER 31, ----------------------------
1996 1996 ADJUSTMENTS COMBINED
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales............................... $2,817,191 $401,774 $ (7,867)(g) $3,211,098
Cost of sales........................... 2,534,813 329,644 (7,689)(g) 2,856,768
---------- -------- ----------- ----------
Gross profit.................. 282,378 72,130 (178) 354,330
Operating expenses:
Selling, general and administrative... 100,260 28,544 (295)(h) 128,509
Research & development................ 6,693 5,933 -- 12,626
---------- -------- ----------- ----------
Operating income.............. 175,425 37,653 117 213,195
Interest income......................... 13,302 2,252 -- 15,554
Interest expense........................ (15,650) (309) -- (15,959)
Other, net.............................. -- 295 (295)(h) --
---------- -------- ----------- ----------
Income before income taxes.... 173,077 39,891 (178) 212,790
Income taxes............................ 58,845 14,760 (69)(g) 73,536
---------- -------- ----------- ----------
Net income.................... $ 114,232 $ 25,131 $ (109) $ 139,254
========== ======== =========== ==========
Net income per share:(i)
Basic................................. $ 0.63
Diluted............................... $ 0.60
Weighted average number of shares:
Basic................................. 203,352 36,459 -- 221,946
Diluted............................... 213,436 41,748 -- 234,727
</TABLE>
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<PAGE> 67
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS OF SOLECTRON AND SMART
The unaudited pro forma condensed combined financial statements reflect the
merger, and gives effect to the following:
(a) On September 13, 1999, Solectron entered into a definitive merger agreement
with SMART. According to the merger agreement, each share of SMART common
stock will be exchanged for 0.51 of a share of Solectron common stock.
Based on this exchange ratio, the pro forma adjustment reflects the
issuance of 23.1 million shares of Solectron common stock with a par value
of $0.001, as if the merger occurred as of May 31, 1999. The actual shares
of Solectron common stock to be issued will be determined at the effective
date of the merger based on the actual shares of SMART common stock
outstanding at such date.
(b) Solectron and SMART will incur certain direct transaction costs associated
with the merger including transaction fees for investment bankers,
attorneys, accountants, financial printing and other related charges. These
costs are estimated to be approximately $15 million. Actual costs could not
be determined since the merger has not been completed. The pro forma
condensed combined balance sheet as of May 31, 1999 includes the effect of
these costs as if the merger occurred at such date. The pro forma condensed
combined statement of income for the nine-month period ended May 31, 1999
excludes the effect of these costs.
(c) The adjustment to the pro forma condensed combined balance sheet as of May
31, 1999 reflects the reclassification of deferred income taxes of SMART to
prepaid expenses and other current assets to conform with Solectron's
financial statement presentation.
(d) The adjustment to the pro forma condensed combined balance sheet as of May
31, 1999 reflects the reclassification of certain employee benefit accrual
expenses and accrued bonuses of SMART to accrued employee compensation to
conform with Solectron's financial statement presentation.
(e) The adjustment to the pro forma condensed combined balance sheet as of May
31, 1999 reflects the reclassification of income tax payable of SMART to
other current liabilities to conform with Solectron's financial statement
presentation.
(f) The adjustment to the pro forma condensed combined balance sheet as of May
31, 1999 reflects the reclassification of SMART's no par value common stock
to additional paid-in capital to conform with Solectron's financial
statement presentation.
(g) The adjustment to the pro forma condensed combined balance sheet as of May
31, 1999 reflects the elimination of accounts receivable, accounts payable,
income taxes payable and inventory related to sales between SMART and
Solectron. The adjustments to the pro forma condensed combined statements
of income for the nine-month period ended May 31, 1999 and for the fiscal
years ended August 31, 1998, 1997 and 1996 reflect the elimination of net
sales, cost of sales and income taxes related to shipments between SMART
and Solectron.
(h) The adjustments to the pro forma condensed combined statements of income
for the nine-month period ended May 31, 1999 and for the fiscal years ended
August 31, 1998, 1997 and 1996 reflects the reclassification of other, net
of SMART to selling, general and administrative to conform with Solectron's
financial statement presentation.
(i) The pro forma combined net income per share is based on the combined
weighted-average number of common and potential common shares of Solectron
common stock and weighted-average number of common and potential common
shares of SMART common stock for each period presented multiplied by the
exchange ratio of 0.51 shares of Solectron common stock for each share of
SMART common stock.
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<PAGE> 68
COMPARISON OF RIGHTS OF HOLDERS OF SMART COMMON STOCK AND
SOLECTRON COMMON STOCK
This section of the proxy statement-prospectus describes the material
differences between the rights of holders of SMART common stock and Solectron
common stock. While Solectron and SMART believe that the description covers the
material differences between the two, this summary may not contain all of the
information that is important to you. You should carefully read this entire
document and the other documents we refer to for a more complete understanding
of the differences between being a shareholder of SMART and being a stockholder
of Solectron.
Solectron is incorporated under the laws of the State of Delaware and the
rights of its stockholders are governed by Delaware law, Solectron's certificate
of incorporation and Solectron's bylaws. SMART is incorporated under the laws of
the State of California and the rights of its shareholders are governed by
California law, SMART's articles of incorporation and SMART's bylaws. If the
merger is completed, shareholders of SMART will become stockholders of Solectron
and the rights of shareholders of SMART will be governed by Delaware law, the
Solectron certificate and Solectron bylaws. The following summarizes differences
in the charter documents of SMART and Solectron that could materially affect the
rights of shareholders of SMART after completion of the merger. A number of the
provisions of Solectron's charter documents may have the effect of delaying,
deferring or preventing a change in control of Solectron.
NUMBER OF DIRECTORS
Solectron's bylaws fix the authorized number of directors at ten.
Solectron's board of directors or stockholders may change such number by
amending the bylaws or Solectron's certificate.
Under California law, although changes in the number of directors must in
general be approved by the shareholders, the board of directors may fix the
exact number of directors within a stated range set forth in the articles of
incorporation or bylaws, if the stated range has been approved by the
shareholders. SMART's bylaws permit SMART's board of directors to adjust the
size of the board from a minimum of four to a maximum of seven directors. The
current number of directors is fixed at four.
CUMULATIVE VOTING FOR DIRECTORS
Under Delaware law, unless the corporation's or certificate of
incorporation provides otherwise, there can be no cumulative voting for the
election of directors. Solectron's certificate provides for cumulative voting.
Under California law, shareholders of a California corporation may, unless the
corporation's articles of incorporation or bylaws expressly eliminate cumulative
voting, cumulate their votes in the election of directors so long as at least
one shareholder has given notice of an intent to cumulate his or her votes at
the meeting prior to the voting. SMART's bylaws do contain provision eliminating
cumulative voting.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one to which some, but not all, of the directors are
elected on a rotating basis each year. Delaware law permits, but does not
require, a classified board of directors, with staggered terms under which
one-half or one-third of the directors are elected for terms of two or three
years, respectively. Under California law, California corporations meeting the
required qualifications may amend their articles of incorporation to provide for
a classified board, but for corporations not so qualified directors must be
elected annually and a classified board is not permitted. This method of
electing directors makes changes in the composition of the board of directors,
and thus a potential change in control of a corporation, a lengthier and more
difficult process. Neither Solectron nor SMART currently has a classified board.
DIRECTOR VOTING
Solectron's bylaws and SMART's bylaws provide that the number of directors
constituting a quorum shall be a majority of the number of authorized directors.
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<PAGE> 69
REMOVAL OF DIRECTORS
Under Delaware law, unless otherwise restricted by the certificate of
incorporation or by the corporation's bylaws, any director or the entire board
of directors may be removed with or without cause by the holders of a majority
of the shares then entitled to vote at an election of directors; provided,
however, that so long as stockholders of the corporation are entitled to
cumulative voting, as are Solectron's stockholders, no individual director may
be removed without cause, unless the entire board is removed, if the number of
votes cast against such removal would be sufficient to elect the director if
then cumulatively voted at an election of the class of directors of which the
director is a part. Whenever the holders of any class or series are entitled to
elect one or more directors by the certificate of incorporation, such director
or directors may be removed without cause only if there are sufficient votes by
the holders of the outstanding shares of that class or series. A vacancy created
by the removal of a director may be filled only by the approval of the
stockholders.
Under Delaware law, no reduction of the authorized number of directors
shall have the effect of removing any director prior to the expiration of such
director's term of office.
Under California law, any or all of the directors of a California
corporation may be removed if such removal is approved by the affirmative vote
of a majority of the outstanding shares; provided, however, that no director of
such corporation may be removed, unless the entire board of directors of such
corporation is removed, when the votes cast against removal, or not consenting
in writing to the removal, would be sufficient to elect the director if voted
cumulatively at an election at which the same total number of votes were cast,
or, if the action is taken by written consent, all shares entitled to vote were
voted, and for a corporation such as SMART without a classified board, the
entire number of directors authorized at the time of the director's most recent
election were then being elected. SMART's articles and SMART's bylaws do not
contain any provisions which are inconsistent with California law with respect
to removal of directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, vacancies and newly created directorships may be filled
by a majority of the directors then in office, even though less than a quorum,
unless otherwise provided in the certificate of incorporation or bylaws and
unless the certificate of incorporation directs that a particular class is to
elect such director, in which case any other directors elected by such class, or
a sole remaining director, shall fill such vacancy. Solectron's bylaws allow any
vacancy on the board of directors to be filled by a majority of the directors
then in office, although less than a quorum.
Under California law, any vacancy on the board of directors may be filled
by the unanimous written consent of the directors then in office, by the
affirmative vote of a majority of the directors at a meeting held pursuant to
notice or waivers of notice or by a sole remaining director. Under SMART's
bylaws, a vacancy created by the removal of a director by the shareholders or
court order may be filled only by the approval of the shareholders.
ADVANCE NOTICE OF STOCKHOLDER/SHAREHOLDER PROPOSALS
Solectron's bylaws provide that no matter proposed by Solectron's
stockholders will be considered at an annual meeting or special stockholder
meeting unless
- it is specified in the notice of meeting;
- it is brought by or at the direction of the board of directors; or
- it is brought by a stockholder of the corporation who was a stockholder
of record on the record date and written notice of such matter is
provided to Solectron in compliance with the time frames set forth in
Solectron's bylaws.
SMART's bylaws do not expressly require advance notice of shareholder proposals.
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<PAGE> 70
POWER TO CALL SPECIAL MEETINGS OF STOCKHOLDERS/SHAREHOLDERS
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the certificate
of incorporation or the bylaws. Pursuant to Solectron's bylaws, special meetings
may be called by the chairman of the board, the board of directors, the
president, the secretary or stockholders entitled to cast ten percent or more of
the votes at such meeting.
Under California law and pursuant to SMART's bylaws, a special meeting of
shareholders may be called by the board of directors, the chairman of the board,
the president, the holders of shares entitled to cast not less than ten percent
of the votes at such meeting and such additional persons as are authorized by
the articles of incorporation or the bylaws.
BUSINESS COMBINATION FOLLOWING A CHANGE OF CONTROL
In the last several years, a number of states, but not California, have
adopted special laws designed to make some kinds of "unfriendly" corporate
takeovers, or other transactions involving a corporation and one or more of its
significant shareholders, more difficult. Under Section 203 of the Delaware
General Corporation Law, some business combinations by Delaware corporations
with interested shareholders are subject to a three-year moratorium unless
specified conditions are met. Section 203 prohibits a Delaware corporation from
engaging in a business combination with an interested stockholder for three
years following the date that such person becomes an interested stockholder.
With some exceptions, an interested stockholder is generally a person or group
who or which owns 15% or more of the corporation's outstanding voting stock,
including any rights to acquire stock pursuant to an option, warrant, agreement,
arrangement or understanding, or upon the exercise of conversion or exchange
rights, and stock with respect to which the person has voting rights only, or is
an affiliate or associate of the corporation and was the owner of 15% or more of
such voting stock at any time within the previous three years.
Under Section 1203 of the California General Corporation Law, some business
combinations with a majority shareholder are subject to specified conditions,
but there is no equivalent provision to Section 203 of the Delaware General
Corporation Law, which addresses business combinations with a significant but
not majority shareholder.
AMENDMENT OF CHARTER DOCUMENTS
Generally, under Delaware law, an amendment to a corporation's certificate
of incorporation requires the approval of the board of directors and the
approval of holders of a majority of the outstanding stock entitled to vote
thereon. The holders of the outstanding shares of a class are entitled to vote
as a separate class on a proposed amendment that would increase or decrease the
aggregate number of authorized shares of such class, increase or decrease the
par value of the shares of such class, or alter or change the powers,
preferences or special rights of the shares of such class so as to affect them
adversely. Solectron's certificate can be amended, altered or repealed in any
manner now or hereafter prescribed by Delaware law. Solectron's bylaws may be
altered, amended or repealed at any meeting of the board of directors by a
majority vote of the directors present at the meeting or by the stockholders.
Generally, under California law, a corporation's articles of incorporation
can be amended by the affirmative vote of the majority of the board of directors
of the corporation and of the holders of a majority of the outstanding shares
entitled to vote, unless the corporation's articles of incorporation require the
vote of a larger portion of the shares. SMART's articles do not require a larger
percentage affirmative vote than a majority of the shares entitled to vote
thereon. SMART's bylaws generally can be amended by a majority vote of the
directors.
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<PAGE> 71
INDEMNIFICATION
Solectron's certificate indemnifies directors and officers to the fullest
extent permissible under Delaware law, as such law exists currently or as it may
be amended in the future. Under Delaware law, such provision may not indemnify
directors' or officers' liability for:
- breaches of the director's or officer's duty of loyalty to the
corporation or its stockholders;
- acts or omissions not in good faith or involving intentional misconduct
or knowing violations of law;
- the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
- transactions in which the director or officer received an improper
personal benefit.
Solectron's bylaws authorize it to provide insurance for its directors,
officers and/or agents, against any expense, liability or loss, whether or not
Solectron would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
SMART's articles and SMART's bylaws provide that SMART is authorized to
provide indemnification of directors and officers to the extent permitted under
California law. SMART's bylaws authorize insurance for directors, officers,
employees and/or agents. The reorganization agreement provides that Solectron
will use its best efforts for a period of six years to maintain in effect the
directors' and officers' liability policies maintained by SMART.
RESTRICTION ON SALES OF STOCK
Solectron is a public company the shares of which are listed and traded on
the New York Stock Exchange. As a result, Solectron's certificate and
Solectron's bylaws do not provide for any restrictions on the transfer of
outstanding shares, other than those imposed by federal or other securities laws
for shares offered under exempt transactions.
INSPECTION OF STOCKHOLDERS/SHAREHOLDERS LIST
Delaware law permits any stockholder upon written demand under oath stating
the purpose thereof to inspect, during regular business hours, a corporation's
stock ledger, a list of its stockholders and its other books and records and to
make copies of extracts therefrom for any proper purpose. If the corporation
refuses such request, or fails to respond within five business days after the
demand has been made, the stockholder may petition the court for an order to
compel such inspection. The court may prescribe limitations or conditions upon
the inspection, or award any other or further relief the court deems just and
proper.
California law permits any shareholder to inspect and copy a corporation's
shareholder list for a purpose reasonably related to such person's interest as a
shareholder. California law also provides for an absolute right to inspect and
copy the corporation's shareholder list by persons holding an aggregate of five
percent or more of a corporation's voting shares, or shareholders holding an
aggregate of one percent or more of such shares who have filed a proxy statement
with the Securities and Exchange Commission.
APPRAISAL/DISSENTERS' RIGHTS
Under both Delaware law and California law, a stockholder/shareholder of a
corporation participating in some major corporate transactions may, under
varying circumstances, be entitled to appraisal or dissenters' rights pursuant
to which such stockholder/shareholder may receive cash in the amount of the fair
market value of his or her shares in lieu of the consideration he or she would
otherwise receive in the transaction.
Under Delaware law, such appraisal rights are not available:
- with respect to a merger or consolidation by a corporation the shares of
which are either listed on a national securities exchange designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or are held of record by
more than 2,000 holders; or
63
<PAGE> 72
- to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the
merger because the reorganization agreement does not amend the existing
certificate of incorporation, each share of the surviving corporation
outstanding prior to the merger is an identical outstanding or treasury
share after the merger, and the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger and if other conditions are
met.
Because Solectron is listed on the New York Stock Exchange, Solectron's
stockholders are not entitled to appraisal rights under Delaware Law.
Shareholders of a California corporation whose shares are listed on a
national securities exchange or on a list of over-the-counter margin stocks
issued by the Board of Governors of the Federal Reserve System generally do not
have dissenters' rights unless the holders of at least five percent of the class
of outstanding shares claim the right. Dissenters' rights are also unavailable
to shareholders if the shareholders of a corporation or the corporation itself,
or both, immediately prior to the reorganization will own immediately after the
reorganization equity securities, but not warrants or other rights to purchase
equity securities, constituting more than five-sixths of the voting power of the
surviving or acquiring corporation or its parent entity or if the shares of the
surviving corporation have the same rights, preferences, privileges and
restrictions as the shares of the disappearing corporation that are surrendered
in exchange. Dissenters' rights may be available to shareholders of SMART with
respect to the merger. See "The Merger -- Dissenters' Rights" and Annex E.
SHARE OWNERSHIP BY PRINCIPAL SHAREHOLDERS,
MANAGEMENT AND DIRECTORS OF SMART
The following table sets forth information concerning the beneficial
ownership of common stock of SMART as of October 13, 1999 for the following:
- each person or entity who is known by SMART to own beneficially more than
five percent of the outstanding shares of SMART common stock;
- each of SMART's current directors;
- the chief executive officer and other highly compensated officers of
SMART; and
- all directors and executive officers of SMART as a group.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the individual
or entity has voting power or investment power and any shares that the
individual has the right to acquire within 60 days of October 13, 1999 through
the exercise of any stock option or other right. Unless otherwise indicated in
the footnotes or table, each person or entity has sole voting and investment
power, or shares such powers with his or her spouse, with respect to the shares
shown as beneficially owned and has an address of c/o SMART Modular
Technologies, Inc., 4305 Cushing Parkway, Fremont, California 94538.
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<PAGE> 73
Certain shareholders of SMART, as indicated below, have entered into a
voting agreement with Solectron agreeing to vote their shares of SMART common
stock in favor of the merger.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------
DIRECTORS, EXECUTIVE OFFICERS AND 5% SHAREHOLDERS NUMBER PERCENT
------------------------------------------------- ----------- -----------
<S> <C> <C>
Ajay Shah................................................... 10,388,205 22.4%
Lata Krishnan............................................... 10,388,205 22.4%
Mukesh Patel................................................ 6,632,599 14.3%
Keith McDonald.............................................. 43,749 *
Alan Marten................................................. 567,991 1.2%
David B. Mullin............................................. 87,239 *
Charles W. Welch............................................ 43,534 *
Bayside Development Corporation............................. 2,872,500 6.2%
c/o International Service Co.
Apartado 7440
Panama
Attention: Dr. Sharma
J. & W. Seligman & Co. Incorporated......................... 4,594,800 9.9%
100 Park Avenue
New York, New York 10017
William C. Morris........................................... 4,594,800 9.9%
100 Park Avenue
New York, New York 10017
Seligman Communications & Information Fund, Inc............. 3,900,000 8.4%
100 Park Avenue
New York, New York 10017
Erik Anderson............................................... 60,505 *
Tor R. Braham............................................... 40,103 *
All directors and executive officers as a group (9
persons).................................................. 17,863,925 38.2%
</TABLE>
- ---------------
* Less than 1%
The shares indicated for Mr. Shah include 6,449,330 shares held by Mr. Shah
and 6,975 shares owned by Mr. Shah in the form of options exercisable as of
October 13, 1999 or within 60 days thereafter. Includes 2,084,750 shares held by
Ms. Krishnan and 7,150 shares owned by Ms. Krishnan in the form of options
exercisable as of October 13, 1999 or within 60 days thereafter. Also includes
1,840,000 shares which are held in Krishnan-Shah Family Partners LP, a
California limited partnership, in which Mr. Shah and Ms. Krishnan are the
general partners. Mr. Shah and Ms. Krishnan are married to each other. Mr. Shah
has entered into a voting agreement with Solectron agreeing to vote his shares
of SMART common stock in favor of the merger.
The shares indicated for Ms. Krishnan include 2,084,750 shares held by Ms.
Krishnan and 7,150 shares owned by Ms. Krishnan in the form of options
exercisable as of October 13, 1999 or within 60 days thereafter. Includes
6,449,330 shares held by Mr. Shah and 6,975 shares owned by Mr. Shah in the form
of options exercisable as of October 13, 1999 or within 60 days thereafter. Also
includes 1,840,000 shares which are held in Krishnan-Shah Family Partners LP, a
California limited partnership in which Mr. Shah and Ms. Krishnan are the
general partners. Mr. Shah and Ms. Krishnan are married to each other. Ms.
Krishnan has entered into a voting agreement with Solectron agreeing to vote her
shares of SMART common stock in favor of the merger.
The shares indicated for Mr. McDonald include 43,749 shares owned by Mr.
McDonald in the form of options exercisable as of October 13, 1999 or 60 days
thereafter.
The shares indicated for Mr. Patel include 2,599 shares owned by Mr. Patel
in the form of options exercisable as of October 13, 1999 or within 60 days
thereafter. Also includes 1,715,000 shares which are held in Patel Family
Partners LP, a California limited partnership, in which Mr. Patel and his spouse
are the general partners. Mr. Patel has entered into a voting agreement with
Solectron agreeing to vote his shares of SMART common stock in favor of the
merger.
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<PAGE> 74
The shares indicated for Mr. Marten include 78,791 shares owned by Mr.
Marten in the form of options exercisable as of October 13, 1999 or within 60
days thereafter.
The shares indicated for Mr. Mullin include 56,661 shares owned by Mr.
Mullin in the form of options exercisable as of October 13, 1999 or within 60
days thereafter.
The shares indicated for Mr. Welch include 32,806 shares owned by Mr. Welch
in the form of options exercisable as of October 13, 1999 or within 60 days
thereafter.
Bayside Development Corporation is beneficially owned by Tej Kaur Sharma.
The beneficial ownership information for Bayside Development Corporation
was obtained from a Schedule 13G filed with the Securities and Exchange
Commission on February 11, 1999.
Beneficial ownership of J. & W. Seligman & Co. Incorporated was obtained
from a Schedule 13G filed on May 10, 1999, with the Securities and Exchange
Commission. J. & W. Seligman & Co. Incorporated, as investment adviser for
Seligman Communications and Information Fund, Inc., may be deemed to
beneficially own the shares reported by Seligman Communications and Information
Fund, Inc. Accordingly, the shares reported by J. & W. Seligman & Co.
Incorporated include those shares separately reported by Seligman Communications
and Information Fund, Inc.
Beneficial ownership information of William C. Morris was obtained from a
Schedule 13G filed on May 10, 1999 with the Securities and Exchange Commission.
William C. Morris, as the owner of a majority of the outstanding voting
securities of J. & W. Seligman & Co. Incorporated, may be deemed to beneficially
own the shares reported by J. & W. Seligman & Co. Incorporated. Accordingly, the
shares reported by William C. Morris include those shares separately reported by
J. & W. Seligman & Co. Incorporated.
Beneficial ownership of Seligman Communications & Information Fund, Inc.
was obtained from a Schedule 13G filed May 10, 1999, with the Securities and
Exchange Commission.
The shares indicated for Mr. Anderson include 15,005 shares owned by Mr.
Anderson in the form of options exercisable as of October 13, 1999 or within 60
days thereafter. Mr. Anderson has entered into a voting agreement with Solectron
agreeing to vote his shares of SMART common stock in favor of the merger.
The shares indicated for Mr. Braham include 15,005 shares owned by Mr.
Braham in the form of options exercisable as of October 13, 1999 or 60 days
thereafter. On August 31, 1995, Mr. Braham received an option to purchase 60,000
shares of SMART common stock. On June 1, 1999, Mr. Braham exercised the 60,000
share option, 19,500 shares of which were issued to Mr. Braham and 40,500 shares
of which were issued to the applicable partnership investment account of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, in which Mr. Braham has a
pecuniary interest. Mr. Braham disclaims beneficial ownership of the 40,500
shares except as to his pecuniary interest. Mr. Braham has entered into a voting
agreement with Solectron agreeing to vote his shares of SMART common stock in
favor of the merger.
The shares indicated for directors and executives as a group include
258,741 shares owned by the nine directors and executive officers listed above
in the form of options exercisable as of October 13, 1999 or within 60 days
thereafter.
LEGAL MATTERS
The validity of the shares of Solectron common stock offered by this proxy
statement-prospectus and certain legal matters with respect to the federal
income tax consequences of the merger will be passed upon for Solectron by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Some legal matters with respect to federal income tax consequences
of the merger will be passed upon for SMART by Morrison & Foerster LLP, San
Francisco, California.
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<PAGE> 75
EXPERTS
The audited consolidated financial statements and schedule of Solectron
Corporation as of August 31, 1998 and 1997, and for each of the years in the
three-year period ended August 31, 1998 have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent public accountants, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
The audited consolidated financial statements of SMART incorporated by
reference in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
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<PAGE> 76
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING OF
SMART SHAREHOLDERS IF THE MERGER IS NOT COMPLETED
SMART will hold a 2000 annual meeting of SMART shareholders only if the
merger is not completed before the previously scheduled date of the annual
meeting. The deadline for submission of shareholder proposals for inclusion in
SMART's proxy materials for the 2000 annual meeting of SMART shareholders has
passed.
If the merger is not completed, SMART shareholders may present proper
proposals for consideration at the next annual meeting of SMART shareholders by
submitting their proposal in writing to the Secretary of SMART in a timely
manner. However, in order for such shareholder proposals to be eligible to be
brought before SMART's shareholders at the next annual meeting of SMART's
shareholders, the shareholder submitting the proposal must also comply with the
procedures, including the deadlines, required by the articles of incorporation
and bylaws of SMART. Shareholder nominations of directors are not shareholder
proposals within the meaning of Rule 14a-8 and are not eligible for inclusion in
SMART's proxy statement.
THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT-PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH OR INCORPORATED INTO THIS PROXY STATEMENT-PROSPECTUS BY REFERENCE OR IN
OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS. THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS WITH RESPECT TO SMART AND ITS
SUBSIDIARIES WAS PROVIDED BY SMART AND THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT-PROSPECTUS WITH RESPECT TO SOLECTRON WAS PROVIDED BY SOLECTRON.
68
<PAGE> 77
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SOLECTRON CORPORATION,
SM ACQUISITION CORP.
AND
SMART MODULAR TECHNOLOGIES, INC.
DATED AS OF SEPTEMBER 13, 1999
A-1
<PAGE> 78
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER............................................... A-4
1.1 The Merger.................................................. A-4
1.2 Effective Time; Closing..................................... A-4
1.3 Effect of the Merger........................................ A-5
1.4 Articles of Incorporation; Bylaws........................... A-5
1.5 Directors and Officers...................................... A-5
1.6 Effect on Capital Stock..................................... A-5
1.7 Dissenting Shares........................................... A-6
1.8 Surrender of Certificates................................... A-6
1.9 No Further Ownership Rights in Company Common Stock......... A-8
1.10 Lost, Stolen or Destroyed Certificates...................... A-8
1.11 Tax and Accounting Consequences............................. A-8
1.12 Taking of Necessary Action; Further Action.................. A-8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY............... A-8
2.1 Organization and Qualification; Subsidiaries................ A-8
2.2 Articles of Incorporation and Bylaws........................ A-9
2.3 Capitalization.............................................. A-9
2.4 Authority Relative to this Agreement........................ A-10
2.5 No Conflict; Required Filings and Consents.................. A-11
2.6 Compliance; Permits......................................... A-11
2.7 SEC Filings; Financial Statements........................... A-12
2.8 No Undisclosed Liabilities.................................. A-12
2.9 Absence of Certain Changes or Events........................ A-12
2.10 Absence of Litigation....................................... A-13
2.11 Employee Benefit Plans...................................... A-13
2.12 Registration Statement; Proxy Statement..................... A-14
2.13 Restrictions on Business Activities......................... A-15
2.14 Title to Property........................................... A-15
2.15 Taxes....................................................... A-15
2.16 Brokers..................................................... A-16
2.17 Intellectual Property....................................... A-17
2.18 Agreements, Contracts and Commitments....................... A-19
2.19 Opinion of Financial Advisor................................ A-20
2.20 Board Approval.............................................. A-20
2.21 Vote Required............................................... A-20
2.22 Pooling of Interests........................................ A-20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB............................................................... A-21
3.1 Organization and Qualification; Subsidiaries................ A-21
3.2 Certificate of Incorporation and Bylaws..................... A-21
3.3 Capitalization.............................................. A-21
3.4 Authority Relative to this Agreement........................ A-21
3.5 No Conflict; Required Filings and Consents.................. A-22
3.6 SEC Filings; Financial Statements........................... A-22
3.7 No Undisclosed Liabilities.................................. A-23
3.8 Absence of Litigation....................................... A-23
3.9 Registration Statement; Proxy Statement..................... A-23
3.10 Title to Property........................................... A-23
3.11 Pooling of Interests........................................ A-23
</TABLE>
A-2
<PAGE> 79
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................... A-23
4.1 Conduct of Business by Company.............................. A-23
4.2 Conduct of Business by Parent............................... A-25
ARTICLE V ADDITIONAL AGREEMENTS.................................... A-26
5.1 Proxy Statement/Prospectus; Registration Statement; Other
Filings; Board Recommendations.............................. A-26
5.2 Meeting of Company Stockholders............................. A-26
5.3 Confidentiality; Access to Information...................... A-28
5.4 No Solicitation............................................. A-28
5.5 Public Disclosure........................................... A-29
5.6 Reasonable Efforts; Notification............................ A-29
5.7 Third Party Consents........................................ A-30
5.8 Stock Options and Employee Benefits......................... A-30
5.9 Form S-8.................................................... A-31
5.10 Indemnification............................................. A-31
5.11 NYSE Listing................................................ A-32
5.12 Company Affiliate Agreement................................. A-32
5.13 Regulatory Filings; Reasonable Efforts...................... A-32
ARTICLE VI CONDITIONS TO THE MERGER................................ A-32
6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... A-32
6.2 Additional Conditions to Obligations of Company............. A-33
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub.................................................. A-34
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...................... A-34
7.1 Termination................................................. A-34
7.2 Notice of Termination; Effect of Termination................ A-35
7.3 Fees and Expenses........................................... A-36
7.4 Amendment................................................... A-36
7.5 Extension; Waiver........................................... A-36
ARTICLE VIII GENERAL PROVISIONS.................................... A-37
8.1 Non-Survival of Representations and Warranties.............. A-37
8.2 Notices..................................................... A-37
8.3 Interpretation; Knowledge................................... A-37
8.4 Counterparts................................................ A-38
8.5 Entire Agreement; Third Party Beneficiaries................. A-38
8.6 Severability................................................ A-38
8.7 Other Remedies; Specific Performance........................ A-38
8.8 Governing Law............................................... A-39
8.9 Rules of Construction....................................... A-39
8.10 Assignment.................................................. A-39
8.11 WAIVER OF JURY TRIAL........................................ A-39
</TABLE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Company Voting Agreement
Exhibit B Form of Stock Option Agreement
Exhibit C Form of Company Affiliate Agreement
</TABLE>
A-3
<PAGE> 80
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
September 13, 1999, among Solectron Corporation, a Delaware corporation
("PARENT"), SM Acquisition Corp., a California corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), and SMART Modular Technologies, Inc., a
California corporation ("COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the California Corporations
Code ("CALIFORNIA LAW"), Parent and Company intend to enter into a business
combination transaction.
B. The Board of Directors of Company (i) has determined that the Merger (as
defined in Section 1.1) is consistent with and in furtherance of the long-term
business strategy of Company and fair to, and in the best interests of, Company
and its shareholders, (ii) has approved this Agreement, the Merger (as defined
in Section 1.1) and the other transactions contemplated by this Agreement and
(iii) has determined to recommend that the shareholders of Company adopt and
approve this Agreement and approve the Merger.
C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
affiliates of Company are entering into Voting Agreements in substantially the
form attached hereto as Exhibit A (the "COMPANY VOTING AGREEMENTS").
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, Company
shall execute and deliver a Stock Option Agreement in favor of Parent in
substantially the form attached hereto as Exhibit B (the "STOCK OPTION
AGREEMENT"). The Board of Directors of Company has approved the Stock Option
Agreement.
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
affiliates of Company (the "COMPANY AFFILIATES") are entering into Company
Affiliate Agreements in substantially the form attached hereto as Exhibit C (the
"COMPANY AFFILIATE AGREEMENTS").
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
G. It is also intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of California Law, Merger Sub shall be merged with and
into Company (the "MERGER"), the separate corporate existence of Merger Sub
shall cease and Company shall continue as the surviving corporation. Company as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "SURVIVING CORPORATION."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing this
Agreement (or other entities of merger) with the Secretary of State of the State
of California in accordance with the relevant provisions of California Law (the
"MERGER DOCUMENTS") (the time of such filing (or such later time as may be
agreed in writing by Company and Parent and specified in the Merger Documents)
being the "EFFECTIVE TIME") as soon as practicable on or after the
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Closing Date (as herein defined). Unless the context otherwise requires, the
term "AGREEMENT" as used herein refers collectively to this Agreement and Plan
of Reorganization and the Certificate of Merger. The closing of the Merger (the
"CLOSING") shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, at a time and date to be specified by the parties,
which shall be no later than the second business day after the satisfaction or
waiver of the conditions set forth in Article VI, or at such other time, date
and location as the parties hereto agree in writing (the "CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
California Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of Company and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Articles of Incorporation of the Surviving Corporation;
provided, however, that at the Effective Time the Articles of Incorporation of
the Surviving Corporation shall be amended so that the name of the Surviving
Corporation shall be "SMART Modular Technologies, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, Company or the holders of any of the following
securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock, no par
value per share, of Company (the "COMPANY COMMON STOCK") issued and outstanding
immediately prior to the Effective Time, other than any shares of Company Common
Stock to be canceled pursuant to Section 1.6(b) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7), will be canceled and
extinguished and automatically converted (subject to Sections 1.6(e) and (f))
into the right to receive 0.51 shares of Common Stock of Parent (the "PARENT
COMMON STOCK") (the "EXCHANGE RATIO") upon surrender of the certificate
representing such share of Company Common Stock in the manner provided in
Section 1.8 (or in the case of a lost, stolen or destroyed certificate, upon
delivery of an affidavit (and bond, if required) in the manner provided in
Section 1.10). If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with Company, then the shares of Parent
Common Stock issued in exchange for such shares of Company Common Stock will
also be unvested and subject to the same repurchase option, risk of forfeiture
or other condition, and the certificates representing such shares of Parent
Common Stock may accordingly be marked with appropriate legends. Company shall
take all action that may be necessary to ensure that, from and after the
Effective Time, Parent is entitled to exercise any such repurchase option or
other right set forth in any such restricted stock purchase agreement or other
agreement.
(b) Cancellation of Parent-Owned Stock. Each share of Company Common Stock
held by Company or owned by Merger Sub, Parent or any direct or indirect
wholly-owned subsidiary of Company or of Parent immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Stock Options; Employee Stock Purchase Plans. At the Effective Time,
all options to purchase Company Common Stock then outstanding under Company's
1989 Incentive Stock Plan, 1995 Director
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Option Plan and 1995 Stock Plan (the "COMPANY OPTION PLANS") shall be assumed by
Parent in accordance with Section 5.8 hereof. Purchase rights outstanding under
Company's 1995 Employee Stock Purchase Plan (the "ESPP") shall be treated as set
forth in Section 5.8.
(d) Capital Stock of Merger Sub. Each share of Common Stock, no par value
per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of Common Stock, no par value per
share, of the Surviving Corporation. Each certificate evidencing ownership of
shares of Merger Sub Common Stock shall evidence ownership of such shares of
capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect appropriately the effect of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock or Company Common Stock), extraordinary cash dividends,
reorganization, recapitalization, reclassification, combination, exchange of
shares or other like change with respect to Parent Common Stock or Company
Common Stock occurring on or after the date hereof and prior to the Effective
Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock will
be issued by virtue of the Merger, but in lieu thereof each holder of shares of
Company Common Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock that otherwise would be received by such holder) shall, upon surrender of
such holder's Certificates(s) (as defined in Section 1.8(c)) receive from Parent
an amount of cash (rounded to the nearest whole cent), without interest, equal
to the product of (i) such fraction, multiplied by (ii) the average closing
price of one share of Parent Common Stock for the five (5) most recent days that
Parent Common Stock has traded ending on the trading day immediately prior to
the Effective Time, as reported on the New York Stock Exchange ("NYSE")
Composite Transaction Tape.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Company Common Stock held by a holder who has demanded and perfected
dissenters' rights for such shares in accordance with the California Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
dissenters' rights ("Dissenting Shares") shall not be converted into or
represent a right to receive Parent Common Stock pursuant to Section 1.6, but
the holder thereof shall only be entitled to such rights as are granted by the
California Law.
(b) Notwithstanding the provisions of subsection (a) above, if any holder
of shares of Company Common Stock who demands purchase of such shares under the
California Law shall effectively withdraw or lose (through failure to perfect or
otherwise) such holder's dissenters' rights, then, as of the later of (i) the
Effective Time or (ii) the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Parent
Common Stock as provided in Section 1.6, without interest thereon, upon
surrender of the certificate representing such shares.
(c) Company shall give Parent (i) prompt notice of its receipt of any
written demands for purchase of any shares of Company Common Stock, withdrawals
of such demands, and any other instruments relating to the Merger served
pursuant to the California Law and received by Company and (ii) the opportunity
to participate in all negotiations and proceedings with respect to demands for
purchase of any shares of Company Common Stock under the California Law. Company
shall not, except with the prior written consent of Parent or as may be required
under applicable law, voluntarily make any payment with respect to any demands
for purchase of Company Common Stock or offer to settle or settle any such
demands
1.8 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust company reasonably
acceptable to Company to act as the exchange agent (the "EXCHANGE AGENT") in the
Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent, for exchange in accordance
with this Article I, the shares of Parent Common Stock
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issuable pursuant to Section 1.6 in exchange for outstanding shares of Company
Common Stock, and cash in an amount sufficient for payment in lieu of fractional
shares pursuant to Section 1.6(f) and any dividends or distributions to which
holders of shares of Company Common Stock may be entitled pursuant to Section
1.8(d).
(c) Exchange Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (as of the Effective
Time) of a certificate or certificates (the "CERTIFICATES"), which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock whose shares were converted into the right to receive shares of Parent
Common Stock pursuant to Section 1.6, cash in lieu of any fractional shares
pursuant to Section 1.6(f) and any dividends or other distributions pursuant to
Section 1.8(d), (i) a letter of transmittal in customary form (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall contain such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock, cash in
lieu of any fractional shares pursuant to Section 1.6(f) and any dividends or
other distributions pursuant to Section 1.8(d). Upon surrender of Certificates
for cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which their
shares of Company Common Stock were converted at the Effective Time, payment in
lieu of fractional shares which such holders have the right to receive pursuant
to Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.8(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.8(d) as to
dividends and other distributions, to evidence only the ownership of the number
of full shares of Parent Common Stock into which such shares of Company Common
Stock shall have been so converted and the right to receive an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section 1.6(f)
and any dividends or distributions payable pursuant to Section 1.8(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date of this Agreement with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holders of any unsurrendered Certificates with respect to the shares of
Parent Common Stock represented thereby until the holders of record of such
Certificates shall surrender such Certificates. Subject to applicable law,
following surrender of any such Certificates, the Exchange Agent shall deliver
to the record holders thereof, without interest, certificates representing whole
shares of Parent Common Stock issued in exchange therefor along with payment in
lieu of fractional shares pursuant to Section 1.6(f) hereof and the amount of
any such dividends or other distributions with a record date after the Effective
Time payable with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If certificates representing shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of Parent Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
(as advised by tax counsel for Parent) to be deducted or withheld therefrom
under the Code or under any provision of state, local or foreign tax law or
under any other applicable legal requirement. To the extent such amounts are so
deducted or withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the person to whom such amounts would otherwise
have been paid.
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(g) No Liability. Notwithstanding anything to the contrary in this Section
1.8, neither the Exchange Agent, Parent, the Surviving Corporation nor any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Section 1.6(f) and 1.8(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to Section
1.6, cash for fractional shares, if any, as may be required pursuant to Section
1.6(f) and any dividends or distributions payable pursuant to Section 1.8(d);
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Parent
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.11 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Code. The parties hereto
adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger shall be treated
as a pooling of interests for accounting purposes.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub will take all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Sub, subject to such
exceptions as are specifically disclosed in writing in the disclosure letter
supplied by Company to Parent dated as of the date hereof and certified by a
duly authorized officer of Company, which disclosure shall provide an exception
to or otherwise qualify the representations or warranties of Company
specifically referred to in such disclosure and such other representations and
warranties to the extent such disclosure shall reasonably appear to be
applicable to such other representations or warranties (the "COMPANY SCHEDULE"),
as follows:
2.1 Organization and Qualification; Subsidiaries.
(a) Each of Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted, except where the failure to do so would not, individually, or
in the aggregate, have a Material
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Adverse Effect on Company. Each of Company and its subsidiaries is in possession
of all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, approvals and orders ("APPROVALS") necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure to
have such Approvals would not, individually or in the aggregate, have a Material
Adverse Effect on Company.
(b) Company has no significant subsidiaries (as defined in SEC Regulation
S-X) ("SIGNIFICANT SUBSIDIARIES") except for the corporations identified in the
Company SEC Reports (as hereinafter defined). Neither Company nor any of its
subsidiaries has agreed nor is obligated to make nor is bound by any written,
oral or other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan, commitment or undertaking of any nature, as of
the date hereof or as may hereafter be in effect (a "CONTRACT") under which it
may become obligated to make, any future investment in or capital contribution
to any other entity. Neither Company nor any of its subsidiaries directly or
indirectly owns any equity or similar interest in or any interest convertible,
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business, association or
entity.
(c) Company and each of its subsidiaries is qualified to do business as a
foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of their business requires such qualification and
where the failure to so qualify would have a Material Adverse Effect (as defined
in Section 8.3) on the Company.
2.2 Articles of Incorporation and Bylaws. Company has previously furnished
to Parent a complete and correct copy of its Articles of Incorporation and
Bylaws as amended to date (together, the "COMPANY CHARTER DOCUMENTS"). Such
Company Charter Documents and equivalent organizational documents of each of its
subsidiaries are in full force and effect. Company is not in violation of any of
the provisions of the Company Charter Documents, and no subsidiary of Company is
in violation of its equivalent organizational documents except where the
violation of any such equivalent organizational documents of a subsidiary of
Company would not, individually or in the aggregate, have a Material Adverse
Effect on Company.
2.3 Capitalization.
(a) The authorized capital stock of Company consists of 200,000,000 shares
of Company Common Stock and 30,000,000 shares of Preferred Stock ("COMPANY
PREFERRED STOCK"), each having no par value per share. As of September 9, 1999,
(i) 45,380,699 shares of Company Common Stock were issued and outstanding, all
of which were validly issued, fully paid and nonassessable; (ii) no shares of
Company Preferred Stock were issued and outstanding; (iii) no shares of Company
Common Stock were held by subsidiaries of Company; (iv) 699,859 shares of
Company Common Stock were available for future issuance pursuant to Company's
ESPP; (v) 7,731,095 shares of Company Common Stock were reserved for issuance
upon the exercise of outstanding options to purchase Company Common Stock under
the Company Option Plans; and (vi) 53,111,794 shares of Company Common Stock are
issued and outstanding or reserved for issuance upon the exercise of outstanding
options to purchase Company Common Stock. Section 2.3(a) of the Company Schedule
sets forth the following information with respect to the Company Stock Options
(as defined in Section 5.8) outstanding as of the date of this Agreement: the
number of shares of Company Common Stock subject to such Company Stock Options;
(ii) the average exercise price of such Company Stock Options as of September 9,
1999; (iii) the number of options and applicable vesting schedule for each
officer of the Company; and (iv) whether the exercisability of any Company Stock
Option will be accelerated in any way by the transactions contemplated by this
Agreement, and indicates the extent of acceleration. Company has made available
to Parent accurate and complete copies of all stock option plans pursuant to
which the Company has granted such Company Stock Options that are currently
outstanding and the form of all stock option agreements evidencing such Company
Stock Options. Section 2.3(a) of the Company Disclosure Schedule also has
attached to it the form of the Company's option schedule. All shares of Company
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instrument pursuant to which they are issuable,
would be duly authorized, validly issued, fully paid and nonassessable. Except
as set forth in Section 2.3(a) of the Company Schedule, there are no
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commitments or agreements of any character to which the Company is bound
obligating the Company to accelerate the vesting of any Company Stock Option as
a result of the Merger. All outstanding shares of Company Common Stock, all
outstanding Company Stock Options, and all outstanding shares of capital stock
of each subsidiary of the Company have been issued and granted in compliance
with (i) all applicable securities laws and other applicable Legal Requirements
(as defined below) and (ii) all requirements set forth in applicable Contracts.
For the purposes of this Agreement, "LEGAL REQUIREMENTS" means any federal,
state, local, municipal, foreign or other law, statute, constitution, principle
of common law, resolution, ordinance, code, edict, decree, rule, regulation,
ruling or requirement issues, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Entity
(as defined below) and (ii) all requirements set forth in applicable contracts,
agreements, and instruments.
(b) Except for securities Company owns free and clear of all liens,
pledges, hypothecations, charges, mortgages, security interests, encumbrances,
claims, infringements, interferences, options, right of first refusals,
preemptive rights, community property interests or restriction of any nature
(including any restriction on the voting of any security, any restriction on the
transfer of any security or other asset, any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset) directly
or indirectly through one or more subsidiaries, and except for shares of capital
stock or other similar ownership interests of subsidiaries of the Company that
are owned by certain nominee equity holders as required by the applicable law of
the jurisdiction of organization of such subsidiaries (which shares or other
interests do not materially affect the Company's control of such subsidiaries),
as of the date of this Agreement, there are no equity securities, partnership
interests or similar ownership interests of any class of equity security of any
subsidiary of the Company, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 2.3(b) of the Company Schedule or as set forth in Section
2.3(a) hereof and except for the Stock Option Agreement, there are no
subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which Company or any of its
subsidiaries is a party or by which it is bound obligating Company or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of the Company or any of its subsidiaries or
obligating the Company or any of its subsidiaries to grant, extend, accelerate
the vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement. As of the date of this
Agreement, except as contemplated by this Agreement, there are no registration
rights and there is, except for the Company Voting Agreements, no voting trust,
proxy, rights plan, antitakeover plan or other agreement or understanding to
which the Company or any of its subsidiaries is a party or by which they are
bound with respect to any equity security of any class of the Company or with
respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries.
2.4 Authority Relative to this Agreement. Company has all necessary
corporate power and authority to execute and deliver this Agreement and the
Stock Option Agreement and to perform its obligations hereunder and thereunder
and, subject to obtaining the approval of the stockholders of Company of the
Merger, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Stock Option Agreement by
Company and the consummation by Company of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action on the part of Company and no other corporate proceedings on the part of
Company are necessary to authorize this Agreement, the Stock Option Agreement or
to consummate the transactions so contemplated (other than the approval and
adoption of this Agreement and the Merger by holders of a majority of the
outstanding shares of Company Common Stock in accordance with California Law and
the Company Charter Documents). This Agreement and the Stock Option Agreement
have been duly and validly executed and delivered by Company and, assuming the
due authorization, execution and delivery by Parent and Merger Sub, constitute
legal and binding obligations of Company, enforceable against Company in
accordance with their respective terms.
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2.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement and the Stock Option
Agreement by Company do not, and the performance of this Agreement and the Stock
Option Agreement by Company shall not, (i) conflict with or violate the Company
Charter Documents or the equivalent organizational documents of any of Company's
subsidiaries, (ii) subject to obtaining the approval of Company's stockholders
of this Agreement and the Merger and compliance with the requirements set forth
in Section 2.5(b) below, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Company or any of its subsidiaries or by
which its or any of their respective properties is bound or affected, or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or materially impair
Company's or any of its subsidiaries' rights or alter the rights or obligations
of any third party under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the properties or assets of Company or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Company or any of its subsidiaries is a party or by which
Company or any of its subsidiaries or its or any of their respective properties
are bound or affected.
(b) The execution and delivery of this Agreement and the Stock Option
Agreement by Company do not, and the performance of this Agreement by Company
shall not, require any consent, approval, authorization or permit of, or filing
with or notification to, any court, administrative agency, commission,
governmental or regulatory authority, domestic or foreign (a "GOVERNMENTAL
ENTITY"), except (i) for applicable requirements, if any, of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT"), state securities laws ("BLUE SKY LAWS"), the
pre-merger notification requirements (the "HSR APPROVAL") of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT")
and of foreign Governmental Entities and the rules and regulations thereunder,
the rules and regulations of the Nasdaq National Market System ("NASDAQ"), and
the filing and recordation of the Agreement of Merger as required by California
Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, (A) could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Company or, after the Effective Time, Parent, or (B) would not
prevent consummation of the Merger or otherwise prevent the parties hereto from
performing their obligations under this Agreement.
2.6 Compliance; Permits.
(a) Neither Company nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule (including environmental laws),
regulation, order, judgment or decree applicable to Company or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Company or any of its subsidiaries is a party or by which Company or
any of its subsidiaries or its or any of their respective properties is bound or
affected, except for any conflicts, defaults or violations that (individually or
in the aggregate) would not cause the Company to lose any material benefit or
incur any material liability. No investigation or review by any governmental or
regulatory body or authority is pending or, to the knowledge of Company,
threatened against Company or its subsidiaries, nor has any governmental or
regulatory body or authority indicated to the Company an intention to conduct
the same, other than, in each such case, those the outcome of which could not,
individually or in the aggregate, reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of the Company or any
of its subsidiaries, any acquisition of material property by the Company or any
of its subsidiaries or the conduct of business by the Company or any of its
subsidiaries.
(b) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to operation of the business of Company and its subsidiaries taken as a
whole (collectively, the "COMPANY PERMITS"). Company and its subsidiaries are in
compliance in all material respects with the terms of the Company Permits.
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2.7 SEC Filings; Financial Statements.
(a) Company has made available to Parent a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Company with the Securities and Exchange Commission ("SEC") since
December 31, 1996 (the "COMPANY SEC REPORTS"), which are all the forms, reports
and documents required to be filed by Company with the SEC since December 31,
1996. The Company SEC Reports (A) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
(B) did not at the time they were filed (and if amended or superseded by a
filing prior to the date of this Agreement then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of Company's subsidiaries is required to file any reports or
other documents with the SEC.
(b) Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports and the set of
consolidated financial students set forth on Section 2.7 of the Company Schedule
(the "JULY 31 FINANCIAL STATEMENT") was prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes as permitted by Form 10-Q
of the Exchange Act) and each fairly presents in all material respects the
consolidated financial position of Company and its subsidiaries at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal adjustments which were not or are not
expected to be material in amount.
(c) Company has previously furnished to Parent a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Company with the SEC pursuant to
the Securities Act or the Exchange Act.
2.8 No Undisclosed Liabilities. Neither Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of
a nature required to be disclosed on a balance sheet or in the related notes to
the consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations, assets or financial condition of Company and its subsidiaries taken
as a whole, except (i) liabilities provided for in Company's balance sheet as of
July 31, 1999 set forth in the July Financial Statements or (ii) liabilities
incurred since July 31, 1999 in the ordinary course of business, none of which
is material to the business, results of operations or financial condition of
Company and its subsidiaries, taken as a whole.
2.9 Absence of Certain Changes or Events. Since October 31, 1998 (or, in
the case of clauses (i), (ii), (iii) and (v), July 31, 1999), there has not
been: (i) any Material Adverse Effect on Company, (ii) any declaration, setting
aside or payment of any dividend on, or other distribution (whether in cash,
stock or property) in respect of, any of Company's or any of its subsidiaries'
capital stock, or any purchase, redemption or other acquisition by Company of
any of Company's capital stock or any other securities of Company or its
subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or purchase
agreements, (iii) any split, combination or reclassification of any of Company's
or any of its subsidiaries' capital stock, (iv) any granting by Company or any
of its subsidiaries of any increase in compensation or fringe benefits, except
for normal increases of cash compensation in the ordinary course of business
consistent with past practice, or any payment by Company or any of its
subsidiaries of any bonus, except for bonuses made in the ordinary course of
business consistent with past practice, or any granting by Company or any of its
subsidiaries of any increase in severance or termination pay or any entry by
Company or any of its subsidiaries into any currently effective employment,
severance, termination or indemnification agreement or any agreement the
benefits of which are contingent or the terms of which are materially altered
upon the occurrence of a transaction involving Company of the nature
contemplated hereby, (v) entry by Company or any of its subsidiaries into any
licensing or other agreement with regard to the acquisition or
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disposition of any Intellectual Property (as defined in Section 2.19) other than
licenses in the ordinary course of business consistent with past practice or any
amendment or consent with respect to any licensing agreement filed or required
to be filed by Company with the SEC, (vi) any material change by Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (vii) any revaluation by Company of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable or any sale of assets of the Company
other than in the ordinary course of business.
2.10 Absence of Litigation. Except as a specifically disclosed in the
Company SEC Reports as of the date hereof, there are no claims, actions, suits
or proceedings pending or, to the knowledge of Company, threatened (or, to the
knowledge of Company, any governmental or regulatory investigation pending or
threatened) against Company or any of its subsidiaries or any properties or
rights of Company or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign.
2.11 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document and including, without limitation, all "employee benefit
plans" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) covering any active, former
employee, director or consultant of Company, any subsidiary of Company or any
trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with Company within the
meaning of Section 414 of the Code (an "AFFILIATE"), or with respect to which
Company has liability, are listed in Section 2.11(a) of the Company Schedule
(the "PLANS"). Company has provided to Parent: (i) correct and complete copies
of all documents embodying each Plan including (without limitation) all
amendments thereto, all related trust documents, and all material written
agreements and contracts relating to each such Plan; (ii) the three (3) most
recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Plan; (iii) the most recent summary plan description
together with the summary(ies) of material modifications thereto, if any,
required under ERISA with respect to each Plan; (iv) all IRS or DOL
determination, opinion, notification and advisory letters; (v) all material
correspondence to or from any governmental agency relating to any Plan; (vi) all
COBRA forms and related notices; (vii) all discrimination tests for each Plan
for the most recent three (3) plan years; (viii) the most recent annual
actuarial valuations, if any, prepared for each Plan; (xi) if the Plan is
funded, the most recent annual and periodic accounting of Plan assets; (x) all
material written agreements and contracts relating to each Plan, including, but
not limited to, administrative service agreements, group annuity contracts and
group insurance contracts; (xi) all material communications to employees or
former employees regarding in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability under any Plan or proposed Plan; (xii) all policies
pertaining to fiduciary liability insurance covering the fiduciaries for each
Plan; and (xiii) all registration statements, annual reports (Form 11-K and all
attachments thereto) and prospectuses prepared in connection with any Plan.
(b) Each Plan has been maintained and administered in all material respects
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such Plans. No suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Plan activities) has been brought or, to the knowledge of Company, is
threatened, against or with respect to any such Plan. There are no audits,
inquiries or proceedings pending or, to the knowledge of Company, threatened by
the Internal Revenue Service (the "IRS") or Department of Labor (the "DOL") with
respect to any Plans. All contributions, reserves or premium payments required
to be made or accrued as of the date hereof to the Plans have been timely made
or accrued. Any Plan intended to be qualified under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code (i) has
either obtained a favorable determination, notification, advisory and/or opinion
letter, as applicable, as to its qualified status from the IRS or still has a
remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter
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and to make any amendments necessary to obtain a favorable determination, and
(ii) incorporates or has been amended to incorporate all provisions required to
comply with the Tax Reform Act of 1986 and subsequent legislation to the extent
such amendment or incorporation is required as of the Closing Date. Company does
not have any plan or commitment to establish any new Plan, to modify any Plan
(except to the extent required by law or to conform any such Plan to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any new
Plan. Each Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent,
Company or any of its Affiliates (other than ordinary administration expenses
and expenses for benefits accrued but not yet paid).
(c) Neither Company, any of its subsidiaries, nor any of their Affiliates
has at any time ever maintained, established, sponsored, participated in, or
contributed to any plan subject to Title IV of ERISA or Section 412 of the Code
and at no time has Company or any of its subsidiaries contributed to or been
requested to contribute to any "multiemployer plan," as such term is defined in
ERISA or to any plan described in Section 413(c) of the Code. Neither Company,
any of its subsidiaries, nor any officer or director of Company or any of its
subsidiaries is subject to any liability or penalty under Section 4975 through
4980B of the Code or Title I of ERISA. No "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 408 of ERISA, has occurred with respect to any
Plan which could subject Company or its subsidiaries to material liabilities.
(d) None of the Plans promises or provides retiree medical or other retiree
welfare benefits to any person except as required by applicable law, and neither
Company nor any of its subsidiaries has represented, promised or contracted
(whether in oral or written form) to provide such retiree benefits to any
employee, former employee, director, consultant or other person, except to the
extent required by statute.
(e) Neither Company nor any of its subsidiaries is bound by or subject to
(and none of its respective assets or properties is bound by or subject to) any
arrangement with any labor union. No employee of Company or any of its
subsidiaries is represented by any labor union or covered by any collective
bargaining agreement and, to the knowledge of Company, no campaign to establish
such representation is in progress. There is no pending or, to the knowledge of
Company, threatened labor dispute involving Company or any of its subsidiaries
and any group of its employees nor has Company or any of its subsidiaries
experienced any labor interruptions over the past three (3) years, and Company
and its subsidiaries consider their relationships with their employees to be
good. The Company and its subsidiaries are in compliance in all material
respects with all applicable material foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours.
(f) Except as disclosed on Schedule 2.11(f) of the Company Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any stockholder, director or employee of Company or any of its
subsidiaries under any Plan or otherwise, (ii) materially increase any benefits
otherwise payable under any Plan, or (iii) result in the acceleration of the
time of payment or vesting of any such benefits.
(g) Each International Employee Plan (as defined below) has been
established, maintained and administered in compliance with its terms and
conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities that, as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent the Company or Parent
from terminating or amending any International Employee Plan at any time for any
reason. For purposes of this Section "INTERNATIONAL EMPLOYEE PLAN" shall mean
each Plan that has been adopted or maintained by the Company or any of its
subsidiaries, whether informally or formally, for the benefit of current or
former employees of the Company or any of its subsidiaries outside the United
States.
2.12 Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by Company for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of the Parent Common Stock in or as a
result of the
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Merger (the "S-4") will, at the time the S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading; and (ii) the proxy statement/prospectus to be filed with the SEC
by Company pursuant to Section 5.1(a) hereof (the "PROXY STATEMENT/PROSPECTUS")
will, at the dates mailed to the stockholders of Company, at the times of the
stockholders meeting of Company (the "COMPANY STOCKHOLDERS' MEETING") in
connection with the transactions contemplated hereby and as of the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to any information
supplied by Parent or Merger Sub which is contained in any of the foregoing
documents.
2.13 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Company or its
subsidiaries or to which the Company or any of its subsidiaries is a party which
has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of Company or any of its
subsidiaries, any acquisition of property by Company or any of its subsidiaries
or the conduct of business by Company or any of its subsidiaries as currently
conducted.
2.14 Title to Property. Neither Company nor any of its subsidiaries owns
any material real property. Company and each of its subsidiaries have good and
defensible title to all of their material properties and assets, free and clear
of all liens, charges and encumbrances except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or materially interfere with the present
use of the property affected thereby; and all leases pursuant to which Company
or any of its subsidiaries lease from others material real or personal property
are in good standing, valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing material default
or event of default of Company or any of its subsidiaries or, to the Company's
knowledge, any other party (or any event which with notice or lapse of time, or
both, would constitute a material default and in respect of which Company or
subsidiary has not taken adequate steps to prevent such default from occurring).
All the plants, structures and equipment of Company and its subsidiaries, except
such as may be under construction, are in good operating condition and repair,
in all material respects.
2.15 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for Taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) The Company and each of its subsidiaries have timely filed all federal,
state, local and foreign returns, estimates, forms, information statements and
reports ("RETURNS") relating to Taxes required to be filed by the Company and
each of its subsidiaries with any Tax authority, except such Returns which are
not, individually or in the aggregate, material to the Company. The Company and
each of its subsidiaries have paid all Taxes shown to be due on such Returns.
(ii) The Company and each of its subsidiaries as of the Effective Time will
have withheld with respect to its employees all federal and state income Taxes,
Taxes pursuant to the Federal Insurance Contribution Act, Taxes pursuant to the
Federal Unemployment Tax Act and other Taxes required to be withheld, except
such Taxes which are not, individually or in the aggregate, material to the
Company.
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(iii) Neither the Company nor any of its subsidiaries has been delinquent
in the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against the Company or any of its
subsidiaries, nor has the Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extension of any period for
the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company or any of
its subsidiaries by any Tax authority is presently in progress, nor has the
Company or any of its subsidiaries been notified of any request for such an
audit or other examination.
(v) No adjustment relating to any Returns filed or required to be filed by
the Company or any of its subsidiaries has been proposed in writing, formally or
informally, by any Tax authority to the Company or any of its subsidiaries or
any representative thereof.
(vi) Neither the Company nor any of its subsidiaries has any liability for
any material unpaid Taxes (whether or not shown to be done on any Return) which
has not been accrued for or reserved on the Company balance sheet dated July 31,
1999 in accordance with GAAP, whether asserted or unasserted, contingent or
otherwise, which is material to the Company, other than any liability for unpaid
Taxes that may have accrued since August 1, 1999 in connection with the
operation of the business of the Company and its subsidiaries in the ordinary
course. There are no liens with respect to Taxes on any of the assets of the
Company or any of its subsidiaries, other than liens which are not individually
or in the aggregate material, or customary liens for current Taxes not yet due
and payable
(vii) There is no contract, agreement, plan or arrangement to which the
Company or any of its subsidiaries is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, that,
individually or collectively, should give rise to the payment of any amount that
would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
There is no contract, agreement, plan or arrangement to which the Company or any
of its subsidiaries is a party or by which it is bound to compensate any
individual for excise taxes paid pursuant to Section 4999 of the Code.
(viii) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company or any of its
subsidiaries.
(ix) Neither the Company nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation agreement or
arrangement.
(x) None of the Company's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(xi) Neither the Company nor any of its subsidiaries has constituted either
a "distributing corporation" or a "controlled corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (x) in the
two years prior to the date of this Agreement or (y) in a distribution which
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
(xii) The Company and each of its subsidiaries are in full compliance with
all terms and conditions of any Tax exemptions, Tax holiday or other Tax
reduction agreement or order of a territorial or foreign government and the
consummation of the Merger will not have any adverse effect on the continued
validity and effectiveness of any such Tax exemptions, Tax holiday or other Tax
reduction agreement or order.
2.16 Brokers. Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders fees or agent's commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
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2.17 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
worldwide common law and statutory rights in, arising out of, or associated
therewith: (i) patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof ("PATENTS"); (ii) inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing; (iii)
copyrights, copyrights registrations and applications therefor, and all
other rights corresponding thereto throughout the world; (iv) domain names,
uniform resource locators ("URLS") and other names and locators associated
with the Internet ("DOMAIN NAMES"); (v) industrial designs and any
registrations and applications therefor; (vi) trade names, logos, common
law trademarks and service marks, trademark and service mark registrations
and applications therefor; (vii) all databases and data collections and all
rights therein; (viii) all moral and economic rights of authors and
inventors, however denominated, and (ix) any similar or equivalent rights
to any of the foregoing (as applicable).
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Company and it subsidiaries.
"REGISTERED INTELLECTUAL PROPERTY" means all Intellectual Property that is
the subject of an application, certificate, filing, registration or other
document issued, filed with, or recorded by any private, state, government
or other legal authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or any
of its subsidiaries.
(a) Section 2.17(a) of the Company Schedule is a complete and accurate list
of all Company Registered Intellectual Property and specifies, where applicable,
the jurisdictions in which each such item of Company Registered Intellectual
Property has been issued or registered and lists any proceedings or actions
before any court or tribunal (including the United States Patent and Trademark
Office (the "PTO") or equivalent authority anywhere in the world) related to any
of the Company Registered Intellectual Property.
(b) No Company Intellectual Property or product or service offering of
Company or any of its subsidiaries (a "COMPANY PRODUCT") is subject to any
proceeding or outstanding decree, order, judgment, contract, license, agreement,
or stipulation restricting in any manner the use, transfer, or licensing thereof
by Company or any of its subsidiaries, or which may affect the validity, use or
enforceability of such Company Intellectual Property.
(c) Each material item of Company Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual Property
have been made and all necessary documents, recordations and certificates in
connection with such Company Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Company Registered Intellectual Property.
(d) Company owns and has good and exclusive title to, each material item of
Company Intellectual Property owned by it free and clear of any lien or
encumbrance (excluding non-exclusive licenses and related restrictions granted
in the ordinary course). Without limiting the foregoing: (i) Company is the
exclusive owner of all trademarks and trade names used in connection with the
operation or conduct of the business of Company and its subsidiaries, including
the sale, distribution or provision of any Company Products by Company or its
subsidiaries; (ii) Company owns exclusively, and has good title to, all
copyrighted works that are Company Products or which Company or any of its
subsidiaries otherwise purports to own; and (iii) to the extent that any Patents
would be infringed by any Company Products, Company is the exclusive owner of
such Patents.
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(e) To the extent that any material technology, software or Intellectual
Property has been developed or created independently or jointly by a third party
for Company or any of its subsidiaries or is incorporated into any of the
Company Products, Company has a written agreement with such third party with
respect thereto and Company thereby either (i) has obtained ownership of, and is
the exclusive owner of, or (ii) has obtained a perpetual, non-terminable license
(sufficient for the conduct of its business as currently conducted and as
proposed to be conducted) to all such third party's Intellectual Property in
such work, material or invention by operation of law or by valid assignment, to
the fullest extent it is legally possible to do so.
(f) Neither Company nor any of its subsidiaries has transferred ownership
of, or granted any exclusive license with respect to, any Intellectual Property
that is material Company Intellectual Property, to any third party, or knowingly
permitted Company's rights in such material Company Intellectual Property to
lapse or enter the public domain.
(g) Section 2.17(g) of the Company Schedule lists all material contracts,
licenses and agreements to which Company or any of its subsidiaries is a party:
(i) with respect to Company Intellectual Property licensed or transferred to any
third party (other than end-user licenses in the ordinary course); or (ii)
pursuant to which a third party has licensed or transferred any material
Intellectual Property to Company.
(h) All material contracts, licenses and agreements relating to either (i)
Company Intellectual Property or (ii) Intellectual Property of a third party
licensed to Company or any of its subsidiaries, are in full force and effect.
The consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination or
suspension of such contracts, licenses and agreements. Each of Company and its
subsidiaries is in material compliance with, and has not materially breached any
term of any such contracts, licenses and agreements and, to the knowledge of
Company, all other parties to such contracts, licenses and agreements are in
compliance with, and have not materially breached any term of, such contracts,
licenses and agreements. Following the Closing Date, the Surviving Corporation
will be permitted to exercise all of Company's rights under such contracts,
licenses and agreements to the same extent Company and its subsidiaries would
have been able to had the transactions contemplated by this Agreement not
occurred and without the payment of any additional amounts or consideration
other than ongoing fees, royalties or payments which Company would otherwise be
required to pay. Neither this Agreement nor the transactions contemplated by
this Agreement, including the assignment to Parent or Merger Sub by operation of
law or otherwise of any contracts or agreements to which the Company is a party,
will result in (i) either Parent's or the Merger Sub's granting to any third
party any right to or with respect to any material Intellectual Property right
owned by, or licensed to, either of them, (ii) either the Parent's or the Merger
Sub's being bound by, or subject to, any non-compete or other material
restriction on the operation or scope of their respective businesses, or (iii)
either the Parent's or the Merger Sub's being obligated to pay any royalties or
other material amounts to any third party in excess of those payable by Parent
or Merger Sub, respectively, prior to the Closing.
(i) To the best of Company's knowledge, the operation of the business of
the Company and its subsidiaries as such business currently is conducted,
including (i) Company's and its subsidiaries' design, development, manufacture,
distribution, reproduction, marketing or sale of the products or services of
Company and its subsidiaries (including Company Products) and (ii) the Company's
use of any product, device or process, has not, does not and, to its knowledge,
will not infringe or misappropriate the Intellectual Property of any third party
or constitute unfair competition or trade practices under the laws of any
jurisdiction.
(j) Neither Company nor any of its subsidiaries has received written notice
from any third party that the operation of the business of Company or any of its
subsidiaries or any act, product or service of Company or any of its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction.
(k) To the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
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(l) Company and each of its subsidiaries has taken reasonable steps to
protect Company's and its subsidiaries' rights in Company's confidential
information and trade secrets that it wishes to protect or any trade secrets or
confidential information of third parties provided to Company or any of its
subsidiaries, and, without limiting the foregoing, each of Company and its
subsidiaries has and uses its best efforts to enforce a policy requiring each
employee and contractor to execute a proprietary information/confidentiality
agreement substantially in the form provided to Parent and all current and
former employees and contractors of Company and any of its subsidiaries have
executed such an agreement, except where the failure to do so is not reasonably
expected to be material to Company.
(m) All of the Company Products which have a calendar function (i) will
record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000, and will
calculate any information dependent on or relating to such dates in the same
manner, and with the same functionality, data integrity and performance, as the
products record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates (collectively, "YEAR 2000 COMPLIANT"), (ii) will lose no
functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000, and (iii) will, to the knowledge of
Company, be interoperable with other products used and distributed by Parent
that may reasonably deliver records to the Company's or any of its subsidiaries'
products or receive records from the Company's or any of its subsidiaries'
products, or interact with the Company's or any of its subsidiaries' products.
All of Company's or its subsidiaries' Information Technology (as defined below)
is Year 2000 Compliant, and will not cause an interruption in the ongoing
operations of the Company's or any of its subsidiaries' business on or after
January 1, 2000. For purposes of the foregoing, the term "INFORMATION
TECHNOLOGY" shall mean and include all software, hardware, firmware,
telecommunications systems, network systems, embedded systems and other systems,
components and/or services (other than general utility services including gas,
electric, telephone and postal) that are owned or used by the Company or any of
its subsidiaries in the conduct of their business, or purchased by the Company
or any of its subsidiaries from third-party suppliers.
2.18 Agreements, Contracts and Commitments. Neither Company nor any of its
subsidiaries is a party to or is bound by:
(a) any written employment or consulting agreement, contract or
commitment with any officer, director, Company employee currently earning
an annual salary in excess of $100,000 or member of Company's Board of
Directors, other than those that are terminable by Company or any of its
subsidiaries on no more than thirty (30) days' notice without liability or
financial obligation to the Company;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any material agreement of indemnification or any guaranty other
than any agreement of indemnification entered into in connection with the
sale of products in the ordinary course of business;
(d) any material agreement, contract or commitment containing any
covenant limiting in any respect the right of Company or any of its
subsidiaries to engage in any line of business or to compete with any
person or granting any exclusive distribution rights;
(e) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Company or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company or any of its
subsidiaries has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise other than
Company's subsidiaries;
(f) any dealer, distributor, joint marketing or development agreement
currently in force under which Company or any of its subsidiaries have
continuing material obligations to jointly market any product, technology
or service and which may not be canceled without penalty upon notice of
ninety
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(90) days or less, or any material agreement pursuant to which Company or
any of its subsidiaries have continuing material obligations to jointly
develop any intellectual property that will not be owned, in whole or in
part, by Company or any of its subsidiaries and which may not be canceled
without penalty upon notice of ninety (90) days or less;
(g) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any Company product,
service or technology or any agreement, contract or commitment currently in
force to sell or distribute any Company products, service or technology
except agreements with distributors or sales representative in the normal
course of business cancelable without penalty upon notice of ninety (90)
days or less and substantially in the form previously provided to Parent;
(h) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit; on
(i) any material settlement agreement under which the Company has
ongoing obligations; or
Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to a Company Contract (as defined below), is in breach, violation or
default under, and neither Company nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
material terms or conditions of any of the agreements, contracts or commitments
to which Company or any of its subsidiaries is a party or by which it is bound
that are required to be disclosed in the Company Schedule (any such agreement,
contract or commitment, a "COMPANY CONTRACT") in such a manner as would permit
any other party to cancel or terminate any such Company Contract, or would
permit any other party to seek material damages or other remedies (for any or
all of such breaches, violations or defaults, in the aggregate). Company has
made available to Parent true and correct copies of any contracts Company may
have with its top ten customers.
2.19 Opinion of Financial Advisor. Company has been advised in writing by
its financial advisor, Morgan Stanley & Co, Incorporated, that in its opinion,
as of the date of this Agreement, the Exchange Ratio is fair to the holders of
shares of Company Common Stock from a financial point of view.
2.20 Board Approval. The Board of Directors of Company has, as of the date
of this Agreement unanimously (subject to the abstention of Mr. Braham on the
advice of counsel (the "ABSTENTION")) (i) approved, subject to stockholder
approval, this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby, (ii) determined that the Merger is in the best
interests of the stockholders of Company and is on terms that are fair to such
stockholders and (iii) recommended that the stockholders of Company approve this
Agreement and the Merger.
2.21 Vote Required. The affirmative vote of a majority of the votes that
holders of the outstanding shares of Company Common Stock are entitled to vote
with respect to the Merger is the only vote of the holders of any class or
series of Company's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
2.22 Pooling of Interests. To its knowledge, based on consultation with
its independent accountants, neither the Company nor any of its directors,
officers or affiliates has taken any action which would interfere with (i)
Parent's ability to account for the Merger as a pooling of interests or (ii)
Parent's, Surviving Corporation's or the Company's ability to continue to
account for as a pooling of interests any past acquisition by the Company
currently accounted for as a pooling of interests.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
Company, subject to such exceptions as are specifically disclosed in writing in
the disclosure letter and referencing a specific representation supplied by
Parent to Company dated as of the date hereof and certified by a duly authorized
officer of Parent (the "PARENT SCHEDULE"), as follows:
3.1 Organization and Qualification; Subsidiaries. Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. Each
of Parent and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
Parent.
3.2 Certificate of Incorporation and Bylaws. Parent has previously
furnished to Company complete and correct copies of its Certificate of
Incorporation and Bylaws as amended to date (together, the "PARENT CHARTER
DOCUMENTS"). Such Company Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Parent is
not in violation of any of the provisions of the Company Charter Documents, and
no subsidiary of Company is in violation of any of its equivalent organizational
documents.
3.3 Capitalization. As of August 27, 1999, the authorized capital stock of
Parent consists of (i) 400,000,000 shares of Parent Common Stock, par value
$0.001 per share, and (ii) 1,200,000 shares of Preferred Stock, par value $0.001
per share ("PARENT PREFERRED STOCK"). At the close of business on August 27,
1999, (i) 269,807,125 shares of Parent Common Stock were issued and outstanding,
(ii) no shares of Parent Common Stock were held in treasury by Parent or by
subsidiaries of Parent, and (iii) 11,524,087 shares of Parent Common Stock were
reserved for issuance upon the exercise of outstanding options ("PARENT
OPTIONS") to purchase Parent Common Stock. As of the date hereof, no shares of
Parent Preferred Stock were issued or outstanding. The authorized capital stock
of Merger Sub consists of 1,000 shares of common stock, no par value per share,
all of which, as of the date hereof, are issued and outstanding. All of the
outstanding shares of Parent's and Merger Sub's respective capital stock have
been duly authorized and validly issued and are fully paid and nonassessable.
All shares of Parent Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall, and the shares of Parent Common Stock to be
issued pursuant to the Merger will be, duly authorized, validly issued, fully
paid and nonassessable. All of the outstanding shares of capital stock (other
than directors' qualifying shares) of each of Parent's subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and all such shares
(other than directors' qualifying shares) are owned by Parent or another
subsidiary free and clear of all security interests, liens, claims, pledges,
agreements, limitations in Parent's voting rights, charges or other encumbrances
of any nature whatsoever.
3.4 Authority Relative to this Agreement. Each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement and the Stock Option Agreement, and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Stock Option
Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement and the Stock Option Agreement, or to
consummate the transactions so contem-
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plated. This Agreement and the Stock Option Agreement have been duly and validly
executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery by Company, constitute legal and binding
obligations of Parent and Merger Sub, enforceable against Parent and Merger Sub
in accordance with their respective terms.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and Merger Sub
and the Stock Option Agreement by Parent do not, and the performance of this
Agreement by Parent and Merger Sub and the Stock Option Agreement by Parent
shall not, (i) conflict with or violate the Parent Charter Documents or
equivalent organizational documents or any of Parent's subsidiaries, (ii)
subject to compliance with the requirements set forth in Section 3.5(b) below,
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to Parent or any of its subsidiaries or by which it or their
respective properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair Parent's or any such subsidiary's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Parent or any of its subsidiaries pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries or its or
any of their respective properties are bound or affected, except to the extent
such conflict, violation, breach, default, impairment or other effect could not
in the case of clauses (ii) or (iii) individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent.
(b) The execution and delivery of this Agreement by Parent and Merger Sub
and the Stock Option Agreement by Parent do not, and the performance of this
Agreement by Parent and Merger Sub shall not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity except (i) for applicable requirements, if any, of the Securities Act,
the Exchange Act, Blue Sky Laws, the pre-merger notification requirements of the
HSR Act and of foreign governmental entities and the rules and regulations
thereunder, the rules and regulations of Nasdaq, and the filing and recordation
of the Agreement of Merger as required by California Law and (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, (A) would not prevent consummation of the
Merger or otherwise prevent Parent or Merger Sub from performing their
respective obligations under this Agreement or (B) could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Parent.
3.6 SEC Filings; Financial Statements.
(a) Parent has made available to Company a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Parent with the SEC on or after July 1, 1997 (the "PARENT SEC
REPORTS"), which are all the forms, reports and documents required to be filed
by Parent with the SEC since July 1, 1997. The Parent SEC Reports (A) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (B) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. None of Parent's subsidiaries is required to
file any reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, do not contain footnotes as permitted by Form 10-Q of the
Exchange Act) and each fairly presents in all material respects the consolidated
financial position of Parent and its subsidiaries at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated,
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except that the unaudited interim financial statements were or are subject to
normal adjustments which were not or are not expected to be material in amount.
(c) Since the date of the balance sheet included in Parent's report on Form
10-Q filed on May 28, 1999, and until the date hereof, there has not occurred
any Material Adverse Effect on Parent.
3.7 No Undisclosed Liabilities. Neither Parent nor any of its subsidiaries
has any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its subsidiaries taken as a
whole, except (i) liabilities provided for in Company's balance sheet as of May
28, 1999 or (ii) liabilities incurred since May 28, 1999 in the ordinary course
of business, none of which is material to the business, results of operations or
financial condition of Parent and its subsidiaries, taken as a whole.
3.8 Absence of Litigation. There are no claims, suits, actions or
proceedings that have a reasonable likelihood of success on the merits pending
or, to the knowledge of Parent, threatened against, relating to or affecting
Parent or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seek to
restrain or enjoin the consummation of the transactions contemplated by this
Agreement.
3.9 Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in (i) the S-4 will, at the time the S-4 becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading; and (ii) the Proxy Statement/Prospectus will, at the dates mailed to
the stockholders of Company, at the time of the Company Stockholders' Meeting
and as of the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated by the SEC thereunder. Notwithstanding the foregoing, Parent makes
no representation or warranty with respect to any information supplied by the
Company which is contained in any of the foregoing documents.
3.10 Title to Property. Parent and each of its subsidiaries have good and
defensible title to all of their material properties and assets, free and clear
of all liens, charges and encumbrances except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or materially interfere with the present
use of the property affected thereby; and all leases pursuant to which Parent or
any of its subsidiaries lease from others material real or personal property are
in good standing, valid and effective in accordance with their respective terms,
and there is not, under any of such leases, any existing material default or
event of default of Parent or any of its subsidiaries or, to Parent's knowledge,
any other party (or any event which with notice or lapse of time, or both, would
constitute a material default and in respect of which Parent or subsidiary has
not taken adequate steps to prevent such default from occurring). All the
plants, structures and equipment of Parent and its subsidiaries, except such as
may be under construction, are in good operating condition and repair, in all
material respects.
3.11 Pooling of Interests. To its knowledge, based on consultation with
its independent accountants, neither Parent nor any of its directors, officers
or affiliates has taken any action which would interfere with Parent's ability
to account for the Merger as a pooling of interests.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing,
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carry on its business, in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance with all
applicable laws and regulations, pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts consistent
with past practices and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has significant
business dealings.
In addition, except as permitted by the terms of this Agreement, and except
as provided in Section 4.1 of the Company Schedule, without the prior written
consent of Parent, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, Company shall not do any of the following and
shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date hereof and as previously disclosed in writing or made available to
Parent, or adopt any new severance plan, or amend or modify or alter in any
manner any severance plan, agreement or arrangement existing on the date
hereof;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property, or enter
into grants to transfer or license to any person future patent rights,
other than in the ordinary course of business consistent with past
practices, provided that in no event shall Company license on an exclusive
basis or sell any Company Intellectual Property (other than in connection
with the abandonment of immaterial Company Intellectual Property after the
provision of at least five business days' written notice to Parent);
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof (or any such agreements
entered into in the ordinary course consistent with past practice by
Company with employees hired after the date hereof);
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to, any shares of capital stock
or any securities convertible into shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into shares of capital stock, or enter
into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than (x) the
issuance delivery and/or sale of (i) shares of Company Common Stock
pursuant to the exercise of stock options outstanding as of the date of
this Agreement, and (ii) shares of Company Common Stock issuable to
participants in the ESPP consistent with the terms thereof and (y) the
granting of stock options to new hires (and the issuance of Common Stock
upon exercise thereof), in the ordinary course of business and consistent
with past practices.
(g) Cause, permit or propose any amendments to the Company Charter
Documents (or similar governing instruments of any of its Significant
Subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation,
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partnership, association or other business organization or division
thereof, or otherwise acquire or agree to enter into any joint ventures,
strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice, except for the sale, lease or
disposition (other than through licensing permitted by clause (c)) of
property or assets which are not material, individually or in the
aggregate, to the business of Company and its subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than in connection with the
financing of working capital consistent with past practice;
(k) Adopt or amend any employee benefit plan, policy or arrangement,
any employee stock purchase or employee stock option plan, or enter into
any employment contract or collective bargaining agreement (other than
offer letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable
"at will"), pay any special bonus or special remuneration to any director
or employee, or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its directors,
officers, employees or consultants except, in each case, as may be required
by law;
(l)(i) pay, discharge, settle or satisfy any litigation (whether or
not commenced prior to the date of this Agreement) or any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, or liabilities recognized or
disclosed in the most recent consolidated financial statements (or the
notes thereto) of Company included in the Company SEC Reports or incurred
since the date of such financial statements, or (ii) waive the benefits of,
agree to modify in any manner, terminate, release any person from or
knowingly fail to enforce any confidentiality or similar agreement to which
Company or any of its subsidiaries is a party or of which Company or any of
its subsidiaries is a beneficiary;
(m) Except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to
which Company or any subsidiary thereof is a party or waive, delay the
exercise of, release or assign any material rights or claims thereunder;
(n) Except as required by GAAP, revalue any of its assets or make any
change in accounting methods, principles or practices;
(o) Incur or enter into any agreement, contract or commitment
requiring Company or any of its subsidiaries to pay in excess of
$10,000,000;
(p) Engage in any action that could reasonably be expected to (i)
cause the Merger to fail to qualify as a "reorganization" under Section
368(a) of the Code or (ii) interfere with Parent's ability to account for
the Merger as a pooling of interests, whether or not (in each case)
otherwise permitted by the provisions of this Article IV;
(q) Make any Tax election or accounting method change inconsistent
with past practice that, individually or in the aggregate, is reasonably
likely to adversely affect in any material respect the Tax liability or Tax
attributes of Company or any of its subsidiaries, settle or compromise any
material Tax liability or consent to any extension or waiver of any
limitation period with respect to Taxes;
(r) Agree in writing or otherwise to take any of the actions described
in Section 4.1 (a) through (q) above.
4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, except as permitted by the terms of
this Agreement and the Stock Option Agreement and except as provided in
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Section 4.2 of the Parent Schedule, without the prior written consent of
Company, Parent shall not engage in any action that could reasonably be expected
to (i) cause the Merger to fail to qualify as a "reorganization" under Section
368(a) of the Code or (ii) interfere with Parent's ability to account for the
Merger as a pooling of interests.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings;
Board Recommendations.
(a) As promptly as practicable after the execution of this Agreement,
Company and Parent will prepare, and file with the SEC, the Proxy
Statement/Prospectus, and Parent will prepare and file with the SEC the S-4 in
which the Proxy Statement/Prospectus will be included as a prospectus. Each of
Parent and Company shall provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the Proxy Statement/Prospectus and the S-4, or in
any amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the Proxy
Statement/Prospectus and the S-4. Each of Company and Parent will respond to any
comments of the SEC, and will use its respective commercially reasonable efforts
to have the S-4 declared effective under the Securities Act as promptly as
practicable after such filing, and Company will cause the Proxy Statement/
Prospectus to be mailed to its shareholders at the earliest practicable time
after the S-4 is declared effective by the SEC. As promptly as practicable after
the date of this Agreement, each of Company and Parent will prepare and file any
other filings required to be filed by it under the Exchange Act, the Securities
Act or any other Federal, foreign or Blue Sky or related laws relating to the
Merger and the transactions contemplated by this Agreement (the "OTHER
FILINGS"). Each of Company and Parent will notify the other promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the S-4, the Proxy
Statement/Prospectus or any Other Filing or for additional information and will
supply the other with copies of all correspondence between such party or any of
its representatives, on the one hand, and the SEC or its staff or any other
government officials, on the other hand, with respect to the S-4, the Proxy
Statement/ Prospectus, the Merger or any Other Filing. Each of Company and
Parent will cause all documents that it is responsible for filing with the SEC
or other regulatory authorities under this Section 5.1(a) to comply in all
material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement/Prospectus,
the S-4 or any Other Filing, Company or Parent, as the case may be, will
promptly inform the other of such occurrence and cooperate in filing with the
SEC or its staff or any other government officials, and/or mailing to
shareholders of Company, such amendment or supplement.
(b) The Proxy Statement/Prospectus will include the unanimous (but for the
Abstention) recommendation of the Board of Directors of Company in favor of
adoption and approval of this Agreement and approval of the Merger (subject to
Section 5.2(c)).
5.2 Meeting of Company Stockholders.
(a) Promptly after the date hereof, Company will take all action necessary
in accordance with California Law and the Company Charter Documents to convene
the Company Shareholders' Meeting to be held as promptly as practicable after
the declaration of the effectiveness of the S-4 for the purpose of voting upon
this Agreement and the Merger. Subject to Section 5.2(c), Company will use its
commercially reasonable efforts to solicit from its shareholders proxies in
favor of the adoption and approval of this Agreement and the approval of the
Merger and will take all other action necessary or advisable to secure the vote
or consent of its stockholders required by the rules of Nasdaq or California Law
to obtain such approvals. Notwithstanding anything to the contrary contained in
this Agreement, Company may adjourn or postpone the Company Shareholders'
Meeting to the extent necessary to ensure that any necessary supplement or
amendment to the Prospectus/Proxy Statement is provided to Company's
shareholders in advance of a vote on the Merger and
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this Agreement or, if as of the time for which the Company Shareholders' Meeting
is originally scheduled (as set forth in the Prospectus/Proxy Statement) there
are insufficient shares of Company Common Stock represented (either in person or
by proxy) to constitute a quorum necessary to conduct the business of the
Company Shareholders' Meeting. Company shall ensure that the Company
Shareholders' Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited by Company in connection with the Company Shareholders'
Meeting are solicited, in compliance with California Law, the Company Charter
Documents, the rules of Nasdaq and all other applicable legal requirements.
Company's obligation to call, give notice of, convene and hold the Company
Shareholders' Meeting in accordance with this Section 5.2(a) shall not be
limited to or otherwise affected by the commencement, disclosure, announcement
or submission to Company of any Acquisition Proposal or any change in the Board
of Directors recommendation regarding the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of Company shall
unanimously (but for the Abstention) recommend that Company's shareholders vote
in favor of and adopt and approve this Agreement and the Merger at the Company
Shareholders' Meeting; (ii) the Prospectus/Proxy Statement shall include a
statement to the effect that the Board of Directors of the Company has
unanimously (but for the Abstention) recommended that Company's shareholders
vote in favor of and adopt and approve this Agreement and the Merger at the
Company Shareholders' Meeting; and (iii) neither the Board of Directors of
Company nor any committee thereof shall withdraw, amend or modify, or propose or
resolve to withdraw, amend or modify in a manner adverse to Parent, the
unanimous (but for the Abstention) recommendation of the Board of Directors of
Company that Company's shareholders vote in favor of and adopt and approve this
Agreement and the Merger. For purposes of this Agreement, said recommendation of
the Board of Directors shall be deemed to have been modified in a manner adverse
to Parent if said recommendation shall no longer be unanimous (but for the
Abstention).
(c) Nothing in this Agreement shall prevent the Board of Directors of
Company from withholding, withdrawing, amending or modifying its unanimous (but
for the Abstention) recommendation in favor of the Merger if (neither Company
nor any of its representatives shall have violated any of the restrictions set
forth in Section 5.4 and the Company is not then in breach of this Agreement,
and (ii) the Board of Directors of Company reasonably concludes in good faith,
after consultation with and receiving advice from its outside counsel concurring
with the Board of Directors, that, the withholding, withdrawal, amendment or
modification of such recommendation is required in order for the Board of
Directors of Company to comply with its fiduciary obligations to Company's
shareholders under applicable law; provided, however, that prior to any
commencement thereof the Company shall have given Parent at least 72 hours
notice thereof and the opportunity to meet with the Company and its counsel. No
such withholding, withdrawal, amendment or modification shall be publicly
announced prior to the mailing of the Prospectus/Proxy Statement. Nothing
contained in this Section 5.2 shall limit Company's obligation to hold and
convene the Company Shareholders' Meeting (regardless of whether the unanimous
(but for the Abstention) recommendation of the Board of Directors of the Company
shall have been withdrawn, amended or modified). For purposes of this Agreement,
"SUPERIOR OFFER" shall mean an unsolicited, bona fide written offer made by a
third party to consummate any of the following transactions: (i) a merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving Company pursuant to which the shareholders of
Company immediately preceding such transaction hold less than 51% of the equity
interest in the surviving or resulting entity of such transaction; (ii) a sale
or other disposition by Company of assets (excluding inventory and used
equipment sold in the ordinary course of business) representing in excess of 51%
of the fair market value of Company's business immediately prior to such sale,
or (iii) the acquisition by any person or group (including by way of a tender
offer or an exchange offer or issuance by Company), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing in excess of 51% of the voting power of the then outstanding shares
of capital stock of Company, in each case on terms that the Board of Directors
of Company determines, in its reasonable judgment (based on written advice of a
financial advisor of nationally recognized reputation) to be more favorable to
Company shareholders from a financial point of view than the terms of the
Merger; provided, however, that any such offer shall not be deemed to be a
"Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed
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and is not likely in the judgment of Company's Board of Directors to be obtained
by such third party on a timely basis.
5.3 Confidentiality; Access to Information. (a) The parties acknowledge
that Company and Parent have previously executed a Mutual Confidentiality
Agreement, dated as of August 9, 1999 (the "CONFIDENTIALITY AGREEMENT"), which
Confidentiality Agreement will continue in full force and effect in accordance
with its terms.
(b) Access to Information. Company will afford Parent and its accountants,
counsel and other representatives reasonable access during normal business
hours, upon reasonable notice, to the properties, books, records and personnel
of Company during the period prior to the Effective Time to obtain all
information concerning the business, including the status of product development
efforts, properties, results of operations and personnel of Company, as Parent
may reasonably request. No information or knowledge obtained by Parent in any
investigation pursuant to this Section 5.3 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.4 No Solicitation.
(a) From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article VII, Company and its
subsidiaries will not, nor will they authorize or permit any of their respective
officers, directors, affiliates or employees or any investment banker, attorney
or other advisor or representative retained by any of them to, directly or
indirectly (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal (as defined below), (ii) participate in
any discussions or negotiations regarding, or furnish to any person any
non-public information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes or may reasonably
be expected to lead to, any Acquisition Proposal, (iii) engage in discussions
with any person with respect to any Acquisition Proposal, (iv) subject to
Section 5.2(c), approve, endorse or recommend any Acquisition Proposal or (v)
enter into any letter of intent or similar document or any contract, agreement
or commitment contemplating or otherwise relating to any Acquisition Transaction
(as defined below); provided, however, this Section 5.4(a) shall not prohibit
Company from (A) furnishing information regarding Company and its subsidiaries
to, entering into a confidentiality agreement with or entering into discussions
with, any person or group in response to a Superior Offer submitted by such
person or group (and not withdrawn) if (1) neither Company nor any
representative of Company and its subsidiaries shall have violated any of the
restrictions set forth in this Section 5.4, (2) the Board of Directors of
Company concludes in good faith, after consultation with its outside legal
counsel, that such action is required in order for the Board of Directors of
Company to comply with its fiduciary obligations to Company's shareholders under
applicable law, (3) (x) at least two business days prior to furnishing any such
nonpublic information to, or entering into discussions or negotiations with,
such person or group, Company gives Parent written notice of the identity of
such person or group and of Company's intention to furnish nonpublic information
to, or enter into discussions or negotiations with, such person or group and (y)
the Company receives from such person or group an executed confidentiality
agreement containing customary limitations on the use and disclosure of all
written and oral information furnished to such person or group by or on behalf
of the Company, and (4) contemporaneously with furnishing any such information
to such person or group, Company furnishes such information to Parent (to the
extent such information has not been previously furnished by the Company to
Parent) or (B) complying with Rule 14e-2 promulgated under the Exchange Act with
regard to an Acquisition Proposal with respect to which no violation of this
Section 5.4 shall have occurred. Company and its subsidiaries will immediately
cease any and all existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposal. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding two sentences by any officer or director of Company
or any of its subsidiaries or any investment banker, attorney or other advisor
or representative of Company or any of its subsidiaries shall be deemed to be a
breach of this Section 5.4 by Company. In addition to the foregoing, the Company
shall (i) provide Parent with at least forty-eight (48) hours prior notice (or
such lesser prior notice as provided to the members of Company's Board of
Directors) of any meeting of Company's Board of Directors at which Company's
Board of Directors is reasonably expected to consider a Superior Offer and
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(ii) provide Parent with at least five (5) business days prior written notice
(or such lesser prior notice as provided to the members of Company's Board of
Directors) of a meeting of Company's Board of Directors at which Company's Board
of Directors is reasonably expected to recommend a Superior Offer to its
shareholders and together with such notice a copy of the definitive
documentation relating to such Superior Offer.
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any offer
or proposal (other than an offer or proposal by Parent) relating to any
Acquisition Transaction. For the purposes of this Agreement, "ACQUISITION
TRANSACTION" shall mean any transaction or series of related transactions other
than the transactions contemplated by this Agreement involving: (A) any
acquisition or purchase from the Company by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a 5% interest in the total outstanding voting
securities of the Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 5% or more of the total outstanding voting
securities of Company or any of its subsidiaries or any merger, consolidation,
business combination or similar transaction involving Company pursuant to which
the shareholders of Company immediately preceding such transaction hold less
than 95% of the equity interests in the surviving or resulting entity of such
transaction; (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 5% of the assets of Company;
or (C) any liquidation or dissolution of Company.
(b) In addition to the obligations of Company set forth in paragraph (a) of
this Section 5.4, Company as promptly as practicable shall advise Parent orally
and in writing of any request received by Company for information which Company
reasonably believes would lead to an Acquisition Proposal or of any Acquisition
Proposal, or any inquiry received by Company with respect to, or which Company
reasonably believes would lead to any Acquisition Proposal, the material terms
and conditions of such request, Acquisition Proposal or inquiry, and the
identity of the person or group making any such request, Acquisition Proposal or
inquiry. Company will keep Parent informed in all material respects of the
status and details (including material amendments or proposed amendments) of any
such request, Acquisition Proposal or inquiry.
5.5 Public Disclosure. Parent and Company will consult with each other,
and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or an Acquisition Proposal and will not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law or any listing agreement with a national securities exchange. The parties
have agreed to the text of the joint press release announcing the signing of
this Agreement.
5.6 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and authorizations
from Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (iii) the obtaining of all consents, approvals or waivers
from third parties required as a result of the transactions contemplated in this
Agreement, (iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (v) the execution or delivery of any
additional instruments reasonably necessary to consummate the transactions
contemplated by, and to fully
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carry out the purposes of, this Agreement. In connection with and without
limiting the foregoing, Company and its Board of Directors shall, if any state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger, this Agreement or any of the transactions contemplated by this
Agreement, use all reasonable efforts to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger, this Agreement
and the transactions contemplated hereby. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require Parent or Company
or any subsidiary or affiliate thereof to agree to any divestiture by itself or
any of its affiliates of shares of capital stock or of any business, assets or
property, or the imposition of any material limitation on the ability of any of
them to conduct their business or to own or exercise control of such assets,
properties and stock.
(b) Company shall give prompt notice to Parent upon becoming aware that any
representation or warranty made by it contained in this Agreement has become
untrue or inaccurate, or of any failure of Company to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions set
forth in Section 6.3(a) or 6.3(b) would not be satisfied; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
(c) Parent shall give prompt notice to Company upon becoming aware that any
representation or warranty made by it or Merger Sub contained in this Agreement
has become untrue or inaccurate, or of any failure of Parent or Merger Sub to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Section 6.2(a) or 6.2(b) would not
be satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 Third Party Consents. As soon as practicable following the date
hereof, Parent and Company will each use its commercially reasonable efforts to
obtain any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.8 Stock Options and Employee Benefits.
(a) Stock Options. At the Effective Time, each outstanding option to
purchase shares of Company Common Stock (each, a "COMPANY STOCK OPTION") under
the Company Option Plans, whether or not vested, shall by virtue of the Merger
be assumed by Parent. Each Company Stock Option so assumed by Parent under this
Agreement will continue to have, and be subject to, the same terms and
conditions of such options immediately prior to the Effective Time (including,
without limitation, any repurchase rights or vesting provisions and provisions
regarding the acceleration of vesting on certain transactions, other than the
transactions contemplated by this Agreement), except that (i) each Company Stock
Option will be exercisable (or will become exercisable in accordance with its
terms) for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock that were issuable upon
exercise of such Company Stock Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded down to the nearest whole number of
shares of Parent Common Stock and (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed Company
Stock Option will be equal to the quotient determined by dividing the exercise
price per share of Company Common Stock at which such Company Stock Option was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent. Parent shall comply with the terms of all
such Company Stock Options and use its best efforts to ensure, to the extent
required by, and subject to the provisions of, the Company Option Plans and
permitted under the Code that any Company Stock Options that qualified for tax
treatment under Section 424(b) of the Code prior to the Effective Time continue
to so qualify after the Effective Time. Parent shall take all corporate actions
necessary to reserve for
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issuance a sufficient number of shares of Parent Common Stock for delivery to
the terms set forth in Section 5.8 (a).
(b) ESPP. Prior to the Effective Time, outstanding purchase rights under
Company's ESPP shall be exercised in accordance with the terms of the ESPP as
described in Paragraph 22 of Company's Prospectus Supplement with respect to and
each share of Company Common Stock purchased pursuant to such exercise shall by
virtue of the Merger, and without any action on the part of the holder thereof,
be converted into the right to receive a number of shares of Parent Common Stock
equal to the Exchange Ratio without issuance of certificates representing issued
and outstanding shares of Company Common Stock to ESPP participants. Company
agrees that it shall terminate the ESPP immediately following the aforesaid
purchase of shares of Company Common Stock thereunder.
(c) To the extent permitted by Parent's employee benefit plans and
applicable Law, Parent will, or will cause Company to, give individuals who are
employed by Company and its subsidiaries as of the Effective Time ("AFFECTED
EMPLOYEES") full credit for purposes of eligibility, vesting, benefit accrual
(excluding, however, benefit accrual under any defined benefit pension plans)
and determination of the level of benefits under any employee benefit plans or
arrangements maintained by Parent or any subsidiary of Parent for such Affected
Employees' service with Company or any subsidiary of the Company to the same
extent recognized by Company immediately prior to the Effective Time.
(d) To the extent permitted by Parent's employee benefit plans and
applicable Law, Parent will, or will cause Company to, (i) waive all limitations
as to preexisting conditions exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Affected Employees
under any welfare benefit plans that such employees may be eligible to
participate in after the Effective Time, other than limitations or waiting
periods that are already in effect with respect to such employees and that have
not been satisfied as of the Effective Time under any welfare plan maintained
for the Affected Employees immediately prior to the Effective Time, and (ii)
provide each Affected Employee with credit for any co-payments and deductibles
paid prior to the Effective Time in satisfying any applicable deductible or
out-of-pocket requirements under any welfare plans that such employees are
eligible to participate in after the Effective Time.
(e) As of the Effective Time, Parent shall assume and honor and shall cause
Company to honor in accordance with their terms all employment, severance and
other compensation agreements and arrangements existing (and disclosed by
Company to Parent) prior to the execution of this Agreement which are between
Company or any subsidiary and any director, officer or employee thereof except
as otherwise expressly agreed between Parent and such person.
5.9 Form S-8. Parent agrees to file, if available for use by Parent, a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Stock Options as soon as is reasonably
practicable after the Effective Time.
5.10 Indemnification.
(a) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of Company
pursuant to any indemnification agreements between Company and its directors and
officers in effect immediately prior to the Effective Time (the "INDEMNIFIED
PARTIES") and any indemnification provisions under the Company Charter Documents
as in effect on the date hereof. The Articles of Incorporation and Bylaws of the
Surviving Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the Indemnified Parties as
those contained in the Company Charter Documents as in effect on the date
hereof, which provisions will not be amended, repealed or otherwise modified for
a period of six (6) years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, immediately prior to
the Effective Time, were directors, officers, employees or agents of Company,
unless such modification is required by law.
(b) In the event Company or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers a material amount of its
properties and assets to any
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person in a single transaction or a series of transactions, then, and in each
such case, Parent will either guaranty the indemnification obligations referred
to in this Section 5.10 or will make or cause to be made proper provision so
that the successors and assigns of Company or the Surviving Corporation, as the
case may be, assume the indemnification obligations described herein for the
benefit of the Indemnified Parties.
(c) The provisions of this Section 5.10 are (i) intended to be for the
benefit of, and will be enforceable by, each of the Indemnified Parties and (ii)
in addition to, and not in substitution for, any other rights to indemnification
or contribution that any such person may have by contract or otherwise.
(d) For a period of six years after the Effective Time, Parent shall use
its best efforts to maintain in effect the directors' and officers' liability
insurance policies maintained by Company; provided, however, that in no event
shall Parent be required to expend in any one year in excess of 150% of the
annual premium currently paid by Company for such coverage, which Company hereby
represents is $288,000.
5.11 NYSE Listing. Parent agrees to cause, prior to the Effective Time,
the listing on the NYSE of the shares of Parent Common Stock issuable, and those
required to be reserved for issuance, in connection with the Merger, subject to
official notice of issuance.
5.12 Company Affiliate Agreement. Set forth in Section 5.12 the Company
Schedule is a list of those persons who may be deemed to be, in Company's
reasonable judgment, affiliates of Company within the meaning of Rule 145
promulgated under the Securities Act (each, a "COMPANY AFFILIATE"). Company will
provide Parent with such information and documents as Parent reasonably requests
for purposes of reviewing such list. Each Company Affiliate Agreement will be in
full force and effect as of the Effective Time. Parent will be entitled to place
appropriate legends on the certificates evidencing any Parent Common Stock to be
received by a Company Affiliate pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for the
Parent Common Stock, consistent with the terms of the Company Affiliate
Agreement.
5.13 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable, Company and Parent each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
parties. Company and Parent each shall promptly (a) supply the other with any
information which may be required in order to effectuate such filings and (b)
supply any additional information which reasonably may be required by the FTC,
the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate; provided,
however, that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company, its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company Shareholder Approval. This Agreement shall have been approved
and adopted, and the Merger shall have been duly approved, by the requisite vote
under applicable law, by the shareholders of Company.
(b) Registration Statement Effective; Proxy Statement. The SEC shall have
declared the S-4 effective. No stop order suspending the effectiveness of the
S-4 or any part thereof shall have been issued and no
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proceeding for that purpose, and no similar proceeding in respect of the Proxy
Statement/Prospectus, shall have been initiated or threatened in writing by the
SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger. All waiting periods, if any,
under the HSR Act relating to the transactions contemplated hereby will have
expired or terminated early and all material foreign antitrust approvals
required to be obtained prior to the Merger in connection with the transactions
contemplated hereby shall have been obtained.
(d) Tax Opinions. Parent and Company shall each have received written
opinions from their respective tax counsel (Wilson Sonsini Goodrich & Rosati,
Professional Corporation, and Morrison & Foerster LLP, respectively), in form
and substance reasonably satisfactory to them, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code and such opinions shall not have been withdrawn; provided, however, that if
the counsel to either Parent or Company does not render such opinion, this
condition shall nonetheless be deemed to be satisfied with respect to such party
if counsel to the other party renders such opinion to such party. The parties to
this Agreement agree to make such reasonable representations as requested by
such counsel for the purpose of rendering such opinions.
(e) NYSE Listing. The shares of Parent Common Stock issuable to the
shareholders of Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on NYSE upon official notice of issuance.
(f) Opinion of Parent Accountants. Parent shall have received from KPMG
LLP, independent accountants for Parent, a letter dated as of the Closing Date
in substance reasonably satisfactory to Parent (which may contain customary
qualifications and assumptions) to the effect that KPMG concurs with Parent
management's conclusion the Merger can properly be accounted for as a
"pooling-of-interests."
6.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:
(a) Representations and Warranties. Each representation and warranty
of Parent and Merger Sub contained in this Agreement (i) shall have been
true and correct as of the date of this Agreement and (ii) shall be true
and correct on and as of the Closing Date with the same force and effect as
if made on the Closing Date except, with respect to (i) and (ii), (A) in
each case, or in the aggregate, as does not constitute a Material Adverse
Effect on Parent and Merger Sub, (B) for changes contemplated by this
Agreement and (C) for those representations and warranties which address
matters only as of a particular date (which representations shall have been
true and correct (subject to the qualifications as set forth in the
preceding clause A) as of such particular date) (it being understood that,
for purposes of determining the accuracy of such representations and
warranties, (i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases contained in
such representations and warranties shall be disregarded and (ii) any
update of or modification to the Parent Schedule made or purported to have
been made after the date of this Agreement shall be disregarded). Company
shall have received a certificate with respect to the foregoing signed on
behalf of Parent by an authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and Company shall have received a
certificate to such effect signed on behalf of Parent by an authorized
officer of Parent.
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6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. Each representation and warranty
of Company contained in this Agreement (i) shall have been true and correct
as of the date of this Agreement and (ii) shall be true and correct on and
as of the Closing Date with the same force and effect as if made on and as
of the Closing Date except, with respect to (i) and (ii), (A) in each case,
or in the aggregate, as does not constitute a Material Adverse Effect on
Company provided, however, such Material Adverse Effect qualifier shall be
inapplicable with respect to representations and warranties contained in
clause (vi) of the second sentence of Section 2.3, (B) for changes
contemplated by this Agreement and (C) for those representations and
warranties which address matters only as of a particular date (which
representations shall have been true and correct (subject to the
qualifications as set forth in the preceding clause A) as of such
particular date) (it being understood that, for purposes of determining the
accuracy of such representations and warranties, (i) all "Material Adverse
Effect" qualifications and other qualifications based on the word
"material" or similar phrases contained in such representations and
warranties shall be disregarded and (ii) any update of or modification to
the Company Schedule made or purported to have been made after the date of
this Agreement shall be disregarded). Parent shall have received a
certificate with respect to the foregoing signed on behalf of Company by an
authorized officer of Company.
(b) Agreements and Covenants. Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial
Officer of Company.
(c) Affiliate Agreements. Each of the Company Affiliates shall have
entered into the Company Affiliate Agreement and each of such agreements
will be in full force and effect as of the Effective Time.
(d) Opinion of Company Accountants. Parent shall have received from
Arthur Andersen LLP, independent auditors for the Company, a copy of a
letter addressed to the Company dated as of the Closing Date in substance
reasonably satisfactory to Parent (which may contain customary
qualifications and assumptions) to the effect that Arthur Andersen LLP
concurs with Company management's conclusion that no conditions exist
related to the Company that would preclude Parent from accounting for the
Merger as a "pooling-of-interests."
(e) Limitation on Dissenters. Holders of no more than 5.0% of the
outstanding shares of Company Capital Stock shall have exercised, nor shall
they have any continued right to exercise, appraisal, dissenters' or
similar rights under applicable law with respect to their shares by virtue
of the Merger.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the
shareholders of Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated by March 31, 2000 for any reason; provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement;
(c) by either Company or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is
final and nonappealable;
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(d) by either Company or Parent if the required approval of the
shareholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting
of Company stockholders duly convened therefor or at any adjournment
thereof; provided, however, that the right to terminate this Agreement
under this Section 7.1(d) shall not be available to Company or Parent where
the failure to obtain Company shareholder approval shall have been caused
by the action or failure to act of Company or Parent, respectively, and
such action or failure to act constitutes a breach by Company or Parent,
respectively, of this Agreement;
(e) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or
if any representation or warranty of Parent shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided,
that if such inaccuracy in Parent's representations and warranties or
breach by Parent is curable by Parent through the exercise of its
commercially reasonable efforts, then Company may not terminate this
Agreement under this Section 7.1(e) for thirty (30) days after delivery of
written notice from Company to Parent of such breach, provided Parent
continues to exercise commercially reasonable efforts to cure such breach
(it being understood that Company may not terminate this Agreement pursuant
to this paragraph (e) if it shall have materially breached this Agreement
or if such breach by Parent is cured during such thirty (30)-day period);
(f) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in Company's representations and warranties or breach by Company
is curable by Company through the exercise of its commercially reasonable
efforts, then Parent may not terminate this Agreement under this Section
7.1(f) for thirty (30) days after delivery of written notice from Parent to
Company of such breach, provided Company continues to exercise commercially
reasonable efforts to cure such breach (it being understood that Parent may
not terminate this Agreement pursuant to this paragraph (f) if it shall
have materially breached this Agreement or if such breach by Company is
cured during such thirty (30)-day period);
(g) by Parent, upon a breach of the provisions of Section 5.4 of this
Agreement;
(h) by Parent if a Triggering Event (as defined below) shall have
occurred.
For the purposes of this Agreement, a "Triggering Event" shall be deemed to
have occurred if: (i) the Board of Directors of Company or any committee thereof
shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to Parent its unanimous (other than the Abstention)
recommendation in favor of, the adoption and approval of the Agreement or the
approval of the Merger; (ii) Company shall have failed to include in the Proxy
Statement/Prospectus the unanimous (other than the Abstention) recommendation of
the Board of Directors of Company in favor of the adoption and approval of the
Agreement and the approval of the Merger; (iii) Board of Directors of Company
fails to reaffirm its unanimous recommendation in favor of the adoption and
approval of the Agreement and the approval of the Merger within ten (10)
business days after Parent requests in writing that such recommendation be
reaffirmed at any time following the announcement of an Acquisition Proposal;
(iv) the Board of Directors of Company or any committee thereof shall have
approved or recommended any Acquisition Proposal; (v) Company shall have entered
into any letter of intent or similar document or any agreement, contract or
commitment accepting any Acquisition Proposal; or (vi) a tender or exchange
offer relating to securities of Company shall have been commenced by a person
unaffiliated with Parent and Company shall not have sent to its securityholders
pursuant to Rule 14e-2 promulgated under the Securities Act, within ten (10)
business days after such tender or exchange offer is first published sent or
given, a statement disclosing that Company recommends rejection of such tender
or exchange offer.
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon (or, if the
termination is pursuant to Section 7.1(f) or
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Section 7.1(g) and the proviso therein is applicable, thirty (30) days after)
the delivery of written notice of the terminating party to the other parties
hereto. In the event of the termination of this Agreement as provided in Section
7.1, this Agreement shall be of no further force or effect, except (i) as set
forth in this Section 7.2, Section 7.3 and Article 8 (General Provisions), each
of which shall survive the termination of this Agreement, and (ii) nothing
herein shall relieve any party from liability for any intentional or willful
breach of this Agreement. No termination of this Agreement shall affect the
obligations of the parties contained in the Confidentiality Agreement, all of
which obligations shall survive termination of this Agreement in accordance with
their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether or not the
Merger is consummated; provided, however, that Parent and Company shall share
equally all fees and expenses, other than attorneys' and accountants fees and
expenses, incurred in relation to the printing and filing (with the SEC) of the
Proxy Statement/Prospectus (including any preliminary materials related thereto)
and the S-4 (including financial statements and exhibits) and any amendments or
supplements thereto and any fees required to be paid under the HSR Act.
(b) Company Payments.
(i) The Company shall pay to Parent in immediately available funds, within
one (1) business day after demand by Parent, an amount equal to $60,000,000 (the
"Termination Fee") if this Agreement is terminated by Parent pursuant to Section
7.1(g) or (h).
(ii) If (A) this Agreement is terminated by Parent or Company, as
applicable, pursuant to Sections 7.1(b) or (d), (B) prior to such termination a
third party shall have announced an Acquisition Proposal and (C) within twelve
(12) months following the termination of this Agreement a Company Acquisition
(as defined below) is consummated or Company enters into an agreement or letter
of intent providing for a Company Acquisition, then Company shall pay Parent in
immediately available funds at or prior to consummating such Company Acquisition
an amount equal to the Termination Fee.
(iii) Company acknowledges that the agreements contained in this Section
7.3(b) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Parent would not enter into this Agreement;
accordingly, if Company fails to pay in a timely manner the amounts due pursuant
to this Section 7.3(b) and, in order to obtain such payment, Parent makes a
claim that results in a judgment against Company for the amounts set forth in
this Section 7.3(b), Company shall pay to Parent its reasonable costs and
expenses (including reasonable attorneys' fees and expenses) in connection with
such suit, together with interest on the amounts set forth in this Section
7.3(b) at the prime rate of Bank of America N.T. & S.A. in effect on the date
such payment was required to be made. Payment of the fees described in this
Section 7.3(b) shall not be in lieu of damages incurred in the event of breach
of this Agreement. For the purposes of this Agreement, "COMPANY ACQUISITION"
shall mean any of the following transactions (other than the transactions
contemplated by this Agreement): (i) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Company pursuant to which the stockholders of Company immediately
preceding such transaction hold less than 50% of the aggregate equity interests
in the surviving or resulting entity of such transaction, (ii) a sale or other
disposition by Company of assets representing in excess of 50% of the aggregate
fair market value of Company's business immediately prior to such sale or (iii)
the acquisition by any person or group (including by way of a tender offer or an
exchange offer or issuance by Company), directly or indirectly, of beneficial
ownership or a right to acquire beneficial ownership of shares representing in
excess of 50% of the voting power of the then outstanding shares of capital
stock of Company.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other
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parties hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. Delay in
exercising any right under this Agreement shall not constitute a waiver of such
right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations
and warranties of Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Solectron Corporation
777 Gibraltar Drive
Milpitas, California 95035
Attention: Susan Wang
Telecopy No.: (408) 956-6059
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry Sonsini, Esq.
Michael J. Kennedy, Esq.
Telecopy No.:(650) 493-6811
(b) if to Company, to:
SMART Modular Technologies, Inc.
4305 Cushing Parkway
Fremont, California 94538
Attention: General Counsel
Telecopy No.: (510) 252-7977
with a copy to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105-2482
Attention: Bruce Alan Mann, Esq.
Telecopy No.: (415) 268-7522
8.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only
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and shall not affect in any way the meaning or interpretation of this Agreement.
When reference is made herein to "the business of" an entity, such reference
shall be deemed to include the business of all direct and indirect subsidiaries
of such entity. Reference to the subsidiaries of an entity shall be deemed to
include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "KNOWLEDGE" means with respect
to a party hereto, with respect to any matter in question, that any of the
officers of such party has actual knowledge of such matter.
(c) For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT"when
used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect, individually or when aggregated with other
changes, events, violations, inaccuracies, circumstances or effects, that is
materially adverse to the business, assets (including intangible assets),
capitalization, financial condition or results of operations of such entity and
its subsidiaries taken as a whole; provided, however that (i) no change, event,
violation, inaccuracy, circumstance or effect directly attributable to (A)
changes in general economic conditions or changes affecting the semiconductor
industry generally or (B) the loss of current or prospective customers that such
entity successfully bears the burden of proving arose from such entity entering
into this Agreement shall constitute a Material Adverse Effect and (ii) in no
event shall a decrease in the trading price of such entity's common stock in and
of itself constitute a Material Adverse Effect.
(d) For purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder
(including, without limitation, Section 5.8 (c), (d) and (e), except as
specifically provided in Section 5.10.
8.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
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8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
*****
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
SOLECTRON CORPORATION
By: /s/ KOICHI NISHIMURA
--------------------------------------
Name: Koichi Nishimura
Title: President and Chief Executive
Officer
SM ACQUISITION CORP.
By: /s/ KOICHI NISHIMURA
--------------------------------------
Name: Koichi Nishimura
Title: President and Chief Executive
Officer
SMART MODULAR TECHNOLOGIES, INC.
By: /s/ AJAY SHAH
--------------------------------------
Name: Ajay Shah
Title: CEO
****REORGANIZATION AGREEMENT****
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ANNEX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into as
of September 13, 1999, among Solectron Corporation, a Delaware corporation
("Parent"), and SMART Modular Technologies, Inc., a California corporation (the
"Company"). Capitalized terms used but not otherwise defined herein will have
the meanings ascribed to them in the Reorganization Agreement (as defined
below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "Reorganization Agreement") which
provides for the merger (the "Merger") of a wholly-owned subsidiary of Parent
("Merger Sub") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company will be converted into the right to
receive Common Stock of Parent.
B. As a condition to Parent's willingness to enter into the Reorganization
Agreement, Parent has requested that Company agree, and Company has so agreed,
to grant to Parent an option to acquire shares of Company's Common Stock, no par
value per share (the "Company Shares"), upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Reorganization Agreement
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:
1 Grant of Option. The Company hereby grants to Parent an irrevocable
option (the "Option") to acquire up to a number of Company Shares equal to 19.9%
of the issued and outstanding shares as of the first date, if any, upon which an
Exercise Event (as defined in Section 2(a) below) occurs (the "Option Shares"),
in the manner set forth below by paying cash at a price of $39.3656 per share
(the "Exercise Price").
2 Exercise of Option.
(a) The Option may be exercised by Parent, in whole or in part, at any time
or from time to time if the Reorganization Agreement is terminated pursuant to
Section 7.1(b), 7.1(d), 7.1(g), or 7.1(h) thereof and an event causing the
Termination Fee to become payable pursuant to Section 7.3(b) of the
Reorganization Agreement occurs (any of the events being referred to herein as
an "Exercise Event"). In the event Parent wishes to exercise the Option, Parent
will deliver to the Company a written notice (each an "Exercise Notice")
specifying the total number of Option Shares it wishes to acquire. Each closing
of a purchase of Option Shares (a "Closing") will occur on a date and at a time
prior to the termination of the Option designated by Parent in an Exercise
Notice delivered at least two business days prior to the date of such Closing,
which Closing will be held at the principal offices of the Company.
(b) The Option will terminate upon the earliest of (i) the Effective Time,
(ii) twelve (12) months following the date on which the Reorganization Agreement
is terminated pursuant to Section 7.1(b) or 7.1(d) thereof, if no event causing
the Termination Fee to become payable pursuant to Section 7.3(b)(ii) of the
Reorganization Agreement has occurred, (iii) eighteen (18) months following the
date on which the Reorganization Agreement is terminated pursuant to Section
7.5(g) or 7.1(h) thereof, (iv) in the event the Reorganization Agreement has
been terminated pursuant to Section 7.1(b) or 7.1(d) thereof and the Termination
Fee became payable pursuant to Section 7.3(b)(ii) thereof, 18 months after
payment of the Termination Fee; and (v) the date on which the Reorganization
Agreement is terminated if neither a Triggering Event nor the announcement of an
Acquisition Proposal by a third party occurred on or prior to the date of such
termination; provided, however, that if the Option cannot be exercised by reason
of any applicable government order or because the waiting period related to the
issuance of the Option Shares under the HSR Act will not have expired or been
terminated, then the Option will not terminate until the tenth business day
after such impediment to exercise will have been removed or will have become
final and not subject to appeal.
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3 Conditions to Closing. The obligation of Company to issue Option Shares
to Parent hereunder is subject to the conditions that (A) any waiting period
under the HSR Act applicable to the issuance of the Option Shares hereunder will
have expired or been terminated; (B) all material consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, any Federal,
state or local administrative agency or commission or other Federal state or
local governmental authority or instrumentality, if any, required in connection
with the issuance of the Option Shares hereunder will have been obtained or
made, as the case may be; and (C) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance will be in effect. It is understood and agreed that at
any time during which the Option is exercisable, the parties will use their
respective best efforts to satisfy all conditions to Closing, so that a Closing
may take place as promptly as practicable.
4 Closing. At any Closing, (A) the Company will deliver to Parent a single
certificate in definitive form representing the number of Company Shares
designated by Parent in its Exercise Notice, such certificate to be registered
in the name of Parent and to bear the legend set forth in Section 9 hereof,
against delivery of (B) payment by Parent to the Company of the aggregate
purchase price for the Company Shares so designated and being purchased by
delivery of a certified check or bank check.
5 Representations and Warranties of the Company. Company represents and
warrants to Parent that (A) Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder; (B) the execution and delivery of this Agreement by
the Company and consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions contemplated
hereby; (C) this Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company and,
assuming this Agreement constitutes a legal, valid and binding obligation of
Parent, is enforceable against the Company in accordance with its terms; (D)
except for any filings required under the HSR Act, the Company has taken all
necessary corporate and other action to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for issuance,
a sufficient number of unissued Company Shares for Parent to exercise the Option
in full and will take all necessary corporate or other action to authorize and
reserve for issuance all additional Company Shares or other securities which may
be issuable pursuant to Section 8(a) upon exercise of the Option, all of which,
upon their issuance and delivery in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable; (E) upon delivery of the
Company Shares and any other securities to Parent upon exercise of the Option,
Parent will acquire such Company Shares or other securities free and clear of
all material claims, liens, charges, encumbrances and security interests of any
kind or nature whatsoever, excluding those imposed by Parent; (F) the execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws or equivalent organizational documents of
the Company or any of its subsidiaries, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair the Company's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties are bound or affected; and (G) the execution and
delivery of this Agreement by the Company does not, and the performance of this
Agreement by the Company will not, require any consent, approval, authorization
or permit of, or filing with, or notification to, any Governmental Entity except
pursuant to the HSR Act.
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6 Certain Rights.
(a) Parent Put. At the request of and upon notice by Parent (the "Put
Notice"), at any time during the period during which the Option is exercisable
pursuant to Section 2 (the "Purchase Period"), the Company (or any successor
entity thereof) will purchase from Parent the Option, to the extent not
previously exercised, at the price set forth in subparagraph (i) below (as
limited by subparagraph (iii) below), and the Option Shares, if any, acquired by
Parent pursuant thereto, at the price set forth in subparagraph (ii) below (as
limited by subparagraph (iii) below):
(i) The difference between the "Market/Tender Offer Price" for the
Company Shares as of the date Parent gives notice of its intent to exercise
its rights under this Section 6(a) (defined as the higher of (A) the
highest price per share offered as of such date pursuant to any Acquisition
Proposal which was made prior to such date and (B) the highest closing sale
price of Company Shares then on the Nasdaq National Market during the 20
trading days ending on the trading day immediately preceding such date) and
the Exercise Price, multiplied by the number of Company Shares purchasable
pursuant to the Option, but only if the Market/Tender Offer Price is
greater than the Exercise Price. For purposes of determining the highest
price offered pursuant to any Acquisition Proposal which involves
consideration other than cash, the value of such consideration will be
equal to the higher of (x) if securities of the same class of the proponent
as such consideration are traded on any national securities exchange or by
any registered securities association, a value based on the closing sale
price or asked price for such securities on their principal trading market
on such date and (y) the value ascribed to such consideration by the
proponent of such Acquisition Proposal, or if no such value is ascribed, a
value determined in good faith by the Board of Directors of the Company.
(ii) The Exercise Price paid by Parent for Company Shares acquired
pursuant to the Option plus the difference between the Market/Tender Offer
Price and such Exercise Price (but only if the Market/ Tender Offer Price
is greater than the Exercise Price) multiplied by the number of Company
Shares so purchased.
(iii) Notwithstanding subparagraphs (i) and (ii) above, pursuant to
this Section 6 Company will not be required to pay Parent in excess of an
aggregate of (x) $120,000,000 plus (y) the Exercise Price paid by Parent
for Company Shares acquired pursuant to the Option minus (z) any amounts
paid to Parent by the Company pursuant to Section 7.3(b) of the
Reorganization Agreement.
(b) Payment and Redelivery of Option or Shares. In the event Parent
exercises its rights under Section 6(a) , the Company will, within five business
days after Parent delivers notice pursuant to Section 6(a), pay the required
amount to Parent in immediately available funds and Parent will surrender to the
Company the Option and the certificates evidencing the Company Shares purchased
by Parent pursuant thereto.
7 Registration Rights.
(a) Following the termination of the Reorganization Agreement, Parent
(sometimes referred to herein as the "Holder") may by written notice (a
"Registration Notice") to the Company (the "Registrant") request the Registrant
to register under the Securities Act all or any part of the shares acquired by
the Holder pursuant to this Agreement (such shares requested to be registered,
the "Registrable Securities") in order to permit the sale or other disposition
of any or all shares of the Registrable Securities that have been acquired by or
are issuable to Holder upon exercise of the Option in accordance with the
intended method of sale or other disposition stated by Holder, including a
"shelf" registration statement under Rule 415 under the Securities Act or any
successor provision. Holder agrees to cause, and to cause any underwriters of
any sale or other disposition to cause, any sale or other disposition pursuant
to such registration statement to be effected on a widely distributed basis so
that upon consummation thereof no purchaser or transferee will own beneficially
more than 5.0% of the then-outstanding voting power of Registrant. Upon a
request for registration, the Registrant will have the option exercisable by
written notice delivered to the Holder within ten business days after the
receipt of the Registration Notice, irrevocably to agree to purchase all or any
part of the Registrable Securities for cash at a price (the "Option Price" equal
to the product of (i) the number of Registrable
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Securities so purchased and (ii) the per share average of the closing sale
prices of the Registrant's Common Stock on the Nasdaq National Market for the
ten trading days immediately preceding the date of the Registration Notice. Any
such purchase of Registrable Securities by the Registrant hereunder will take
place at a closing to be held at the principle executive offices of the
Registrant or its counsel at any reasonable date and time designated by the
Registrant in such notice within ten business days after delivery of such
notice. The payment for the shares to be purchased will be made by delivery at
the time of such closing of the Option Price in immediately available funds.
(b) If the Registrant does not elect to exercise its option to purchase
pursuant to Section 7(a) with respect to all Registrable Securities, the
Registrant will use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased
Registrable Securities requested to be registered in the Registration Notice and
to keep such registration statement effective for such period not in excess of
120 calendar days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sale or other
disposition; provided, however, that the Holder will not be entitled to more
than an aggregate of three effective registration statements hereunder. The
obligations of Registrant hereunder to file a registration statement and to
maintain its effectiveness may be suspended for up to 120 calendar days in the
aggregate if the Board of Directors of Registrant shall have determined that the
filing of such registration statement or the maintenance of its effectiveness
would require premature disclosure of material nonpublic information that would
materially and adversely affect Registrant or otherwise interfere with or
adversely affect any pending or proposed offering of securities of Registrant or
any other material transaction involving Registrant. If consummation of the sale
of any Registrable Securities pursuant to a registration hereunder does not
occur within 120 days after the filing with the SEC of the initial registration
statement therefor, the provisions of this Section 7 will again be applicable to
any proposed registration. The Registrant will use all reasonable efforts to
cause any Registrable Securities registered pursuant to this Section 7 to be
qualified for sale under the securities or blue sky laws of such jurisdictions
as the Holder may reasonably request and will continue such registration or
qualification in effect in such jurisdictions; provided, however, that the
Registrant will not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision. If
Registrant effects a registration under the Securities Act of Company Common
Stock for its own account or for any other stockholders of Registrant (other
than on Form S-4 or Form S-8, or any successor form), it will allow Holder the
right to participate in such registration by selling its Registrable Securities,
and such participation will not affect the obligation of Registrant to effect
demand registration statements for Holder under this Section 7; provided that,
if the managing underwriters of such offering advise Registrant in writing that
in their opinion the number of shares of Company Common Stock requested to be
included in such registration exceeds the number which can be sold in such
offering, Registrant will include the shares requested to be included therein by
Holder pro rata with the shares intended to be included therein by Registrant.
(c) The registration rights set forth in this Section 7 are subject to the
condition that the Holder will provide the Registrant with such information with
respect to the Holder's Registrable Securities, the plan for distribution
thereof, and such other information with respect to the Holder as, in the
reasonable judgment of counsel for the Registrant, is necessary to enable the
Registrant to include in a registration statement all facts required to be
disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 7 will be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and expenses of counsel to the Holder, and the Registrant will provide to
the underwriters such documentation (including certificates, opinions of counsel
and "comfort" letters from auditors) as are customary in connection with
underwritten public offerings and as such underwriters may reasonably require.
In connection with any registration, the Holder and the Registrant agree to
enter into an underwriting agreement reasonably acceptable to each such party,
in form and substance customary for transactions of this type with the
underwriters participating in such offering.
(e) Indemnification.
(i) The Registrant will indemnify the Holder, each of its directors and
officers and each person who controls the Holder within the meaning of Section
15 of the Securities Act, and each underwriter of the
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Registrant's securities, with respect to any registration, qualification or
compliance which has been effected pursuant to this Agreement, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Registrant of any rule or regulation
promulgated under the Securities Act applicable to the Registrant in connection
with any such registration, qualification or compliance, and the Registrant will
reimburse the Holder and, each of its directors and officers and each person who
controls the Holder within the meaning of Section 15 of the Securities Act, and
each underwriter for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, that the Registrant will not be liable in
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to the Registrant by such Holder or director or
officer or controlling person or underwriter seeking indemnification.
(ii) The Holder will indemnify the Registrant, each of its directors and
officers and each underwriter of the Registrant's securities covered by such
registration statement and each person who controls the Registrant within the
meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Holder of any rule or regulation promulgated under the Securities Act applicable
to the Holder in connection with any such registration, qualification or
compliance, and will reimburse the Registrant, such directors, officers or
control persons or underwriters for any legal or any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Registrant by the Holder
for use therein; provided, that in no event will any indemnity under this
Section 7(e) exceed the net proceeds of the offering received by the Holder.
(iii) Each party entitled to indemnification under this Section 7(e) (the
"Indemnified Party") will give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and will
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided, that counsel for the Indemnifying
Party, who will conduct the defense of such claim or litigation, will be
approved by the Indemnified Party (whose approval will not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that the Indemnifying Party will pay such
expense if representation of the Indemnified Party by counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding, and provided further, however, that the failure of
any Indemnified Party to give notice as provided herein will not relieve the
Indemnifying Party of its obligations under this Section 7(e) unless the failure
to give such notice is materially prejudicial to an Indemnifying Party's ability
to defend such action. No Indemnifying Party, in the defense of any such claim
or litigation will, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnifying Party will be required to indemnify any Indemnified
Party with respect to any
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settlement entered into without such Indemnifying Party's prior consent (which
will not be unreasonably withheld).
8 Adjustment Upon Changes in Capitalization; Rights Plans.
(a) In the event of any change in the Company Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers (other than the Merger),
recapitalizations, combinations, exchanges of shares and the like, the type and
number of shares or securities subject to the Option, the Exercise Price will be
adjusted appropriately, and proper provision will be made in the agreements
governing such transaction so that Parent will receive, upon exercise of the
Option, the number and class of shares or other securities or property that
Parent would have received in respect of the Company Shares if the Option had
been exercised immediately prior to such event or the record date therefor, as
applicable.
(b) At any time during which the Option is exercisable, and at any time
after the Option is exercised (in whole or in part, if at all), the Company will
not amend (nor permit the amendment of) the Company Rights Plan nor adopt (nor
permit the adoption of) a new stockholders rights plan, that contains provisions
for the distribution or exercise of rights thereunder as a result of Parent or
any affiliate or transferee being the beneficial owner of shares of the Company
by virtue of the Option being exercisable or having been exercised (or as a
result of beneficially owning shares issuable in respect of any Option Shares).
9 Restrictive Legends. Each certificate representing Option Shares issued
to Parent hereunder will include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF AUGUST 23,
1999, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have been
registered pursuant to the Securities Act, such Option Shares have been sold in
reliance on and in accordance with Rule 144 under the Securities Act or Holder
has delivered to Registrant a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to Registrant
and its counsel, to the effect that such legend is not required for purposes of
the Securities Act and (ii) the reference to restrictions pursuant to this
Agreement in the above legend will be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do not
require the retention of such reference.
10 Listing and HSR Filing. The Company, upon the request of Parent, will
promptly file an application to list the Company Shares to be acquired upon
exercise of the Option for quotation on the Nasdaq National Market and will use
its best efforts to obtain approval of such listing as soon as practicable.
Promptly after the date hereof, each of the parties hereto will promptly file
with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice all required premerger notification and report
forms and other documents and exhibits required to be filed under the HSR Act to
permit the acquisition of the Company Shares subject to the Option at the
earliest possible date.
11 Binding Effect. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature whatsoever
by reason of this Agreement. Any shares sold by a party in compliance with the
provisions of Section 7 will, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement and any
transferee of such shares will
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not be entitled to the rights of such party. Certificates representing shares
sold in a registered public offering pursuant to Section 7 will not be required
to bear the legend set forth in Section 9.
12 Specific Performance. The parties hereto recognize and agree that if
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party hereto agrees that in addition to
other remedies the other party hereto will be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement or the right to enforce any of the covenants or agreements set forth
herein by specific performance. In the event that any action will be brought in
equity to enforce the provisions of the Agreement, neither party hereto will
allege, and each party hereto hereby waives the defense, that there is an
adequate remedy at law.
13 Entire Agreement. This Agreement and the Reorganization Agreement
(including the appendices thereto) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof.
14 Further Assurances. Each party hereto will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
15 Validity. The invalidity or unenforceability of any provision of this
Agreement will not affect the validity or enforceability of the other provisions
of this Agreement, which will remain in full force and effect. In the event any
Governmental Entity of competent jurisdiction holds any provision of this
Agreement to be null, void or unenforceable, the parties hereto will negotiate
in good faith and will execute and deliver an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law, the
intent of the parties hereto with respect to such provision.
16 Notices. All notices and other communications hereunder will be in
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as will be specified by like notice):
(a) if to Parent, to:
Solectron Corporation
777 Gibraltar Drive
Milpitas, California 95035
Attention: Susan Wang
Telecopy No.: (408) 956-6059
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry Sonsini, Esq.
Michael J. Kennedy, Esq.
Telecopy No.: (650) 493-6811
(b) if to the Company, to:
SMART Modular Technologies, Inc.
4305 Cushing Parkway
Fremont, California 94538
Attention: General Counsel
Telecopy No.: (510) 252-7977
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with a copy to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105-2482
Attention: Bruce Alan Mann, Esq.
Telecopy No.: (415) 268-7522
17 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such State.
18 Expenses. Except as otherwise expressly provided herein or in the
Reorganization Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement will be paid by the party incurring
such expenses.
19 Amendments; Waiver. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
20 Assignment. Neither of the parties hereto may sell, transfer, assign or
otherwise dispose of any of its rights or obligations under this Agreement or
the Option created hereunder to any other person, without the express written
consent of the other party, except that the rights and obligations hereunder
will inure to the benefit of and be binding upon any successor of a party
hereto.
21 Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed to be an original, but both of which, taken together, will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
SOLECTRON CORPORATION
By: /s/ KOICHI NISHIMURA
------------------------------------
Name: Koichi Nishimura
Title: President and Chief Executive
Officer
SMART MODULAR TECHNOLOGIES, INC.
By: /s/ AJAY SHAH
------------------------------------
Name: Ajay Shah
Title: Chief Executive Officer
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ANNEX C
FORM OF VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
September 13, 1999, among Solectron Corporation., a Delaware corporation
("Parent"), and the undersigned stockholder and/or option holder (the
"Stockholder") of SMART Modular Technologies, Inc., a California corporation
(the "Company").
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "Reorganization Agreement"), which
provides for the merger (the "Merger") of a wholly-owned subsidiary of Parent
("Merger Sub") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company shall be converted into the right to
receive common stock of Parent, as set forth in the Reorganization Agreement;
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such number
of shares of the outstanding capital stock of the Company and shares subject to
outstanding options and warrants as is indicated on the signature page of this
Agreement; and
C. In consideration of the execution of the Reorganization Agreement by
Parent, Stockholder (in his or her capacity as such) agrees to vote the Shares
(as defined below) and other such shares of capital stock of the Company over
which Stockholder has voting power so as to facilitate consummation of the
Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall have the
meanings ascribed to them in the Reorganization Agreement. For purposes of this
Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such date
and time as the Reorganization Agreement shall have been terminated
pursuant to Article VII thereof, or (ii) such date and time as the Merger
shall become effective in accordance with the terms and provisions of the
Reorganization Agreement.
(b) "Person" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(c) "Shares" shall mean: (i) all securities of the Company (including
all shares of Company Common Stock and all options, warrants and other
rights to acquire shares of Company Common Stock) owned by Stockholder as
of the date of this Agreement; and (ii) all additional securities of the
Company (including all additional shares of Company Common Stock and all
additional options, warrants and other rights to acquire shares of Company
Common Stock) of which Stockholder acquires ownership during the period
from the date of this Agreement through the Expiration Date.
(d) Transfer. A Person shall be deemed to have effected a "Transfer"
of a security if such person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant
of an option with respect to, transfer of or disposition of such security
or any interest therein.
2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement. Stockholder agrees
that, during the period from the date of this Agreement through the Expiration
Date, Stockholder shall not cause or permit any Transfer of any of the Shares to
be effected unless such Transfer is in accordance with any affiliate agreement
between Stockholder and Parent contemplated by the Reorganization Agreement and
each Person to which
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any of such Shares, or any interest in any of such Shares, is or may be
transferred shall have: (a) executed a counterpart of this Agreement and a proxy
in the form attached hereto as Exhibit A (with such modifications as Parent may
reasonably request); and (b) agreed in writing to hold such Shares (or interest
in such Shares) subject to all of the terms and provisions of this Agreement.
(b) Transfer of Voting Rights. Stockholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Stockholder shall
not deposit (or permit the deposit of) any Shares in a voting trust or grant any
proxy or enter into any voting agreement or similar agreement in contravention
of the obligations of Stockholder under this Agreement with respect to any of
the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of the
Company called, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of the Company, Stockholder (in
his or her capacity as such) shall cause the Shares to be voted in favor of
approval of the Reorganization Agreement and the Merger and in favor of any
matter that could reasonably be expected to facilitate the Merger.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
5. Representations and Warranties of the Stockholder. Stockholder (i) is
the beneficial owner of the shares of Company Common Stock, Preferred Stock of
the Company and the options and warrants to purchase shares of Common Stock of
the Company indicated on the final page of this Agreement, free and clear of any
liens, claims, options, rights of first refusal, co-sale rights, charges or
other encumbrances; (ii) does not beneficially own any securities of the Company
other than the shares of Company Common Stock, Preferred Stock of the Company
and options and warrants to purchase shares of Common Stock of the Company
indicated on the final page of this Agreement; and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement and the
Proxy.
6. Additional Documents. Stockholder (in his or her capacity as such)
hereby covenants and agrees to execute and deliver any additional documents
necessary or desirable, in the reasonable opinion of Parent, to carry out the
intent of this Agreement.
7. Consent and Waiver. Stockholder (not in his capacity as a director or
officer of the Company) hereby gives any consents or waivers that are reasonably
required for the consummation of the Merger under the terms of any agreements to
which Stockholder is a party or pursuant to any rights Stockholder may have.
8. Legending of Shares. If so requested by Parent, Stockholder agrees that
the Shares shall bear a legend stating that they are subject to this Agreement
and to an irrevocable proxy. Subject to the terms of Section 2 hereof,
Stockholder agrees that Stockholder shall not Transfer the Shares without first
having the aforementioned legend affixed to the certificates representing the
Shares.
9. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
10. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without prior written consent of the other.
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(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto acknowledge
that Parent shall be irreparably harmed and that there shall be no adequate
remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity.
(e) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
If to Parent:
Solectron Corporation
777 Gibraltar Drive
Milpitas, California 95035
Attention: Susan Wang
Telecopy No.: (408) 956-6059
With a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Larry Sonsini, Esq.
Michael J. Kennedy, Esq.
Telecopy No.: (650) 493-6811
If to Stockholder:
To the address for notice set forth on the signature page hereof.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of California, without reference to rules of conflicts of law.
(g) Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) Effect of Headings. The section headings are for convenience only and
shall not affect the construction or interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
<TABLE>
<S> <C>
SOLECTRON CORPORATION STOCKHOLDER
By: By:
Signature of Authorized Signatory Signature
Name: Name:
Title: Title:
Print Address
Telephone
Facsimile No.
Share beneficially owned:
------------ shares of Company Common Stock
------------ shares of Company Common Stock
issuable upon exercise of outstanding
options or warrants
</TABLE>
[SIGNATURE PAGE TO VOTING AGREEMENT]
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FORM OF IRREVOCABLE PROXY
The undersigned stockholder of SMART Modular Technologies, Inc., a
California corporation (the "Company"), hereby irrevocably (to the fullest
extent permitted by law) appoints the directors on the Board of Directors of
Solectron Corporation, a Delaware corporation ("Parent"), and each of them, as
the sole and exclusive attorneys and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the terms
of this Proxy. The Shares beneficially owned by the undersigned stockholder of
the Company as of the date of this Proxy are listed on the final page of this
Proxy. Upon the undersigned's execution of this Proxy, any and all prior proxies
given by the undersigned with respect to any Shares are hereby revoked and the
undersigned agrees not to grant any subsequent proxies with respect to the
Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Parent and the undersigned
stockholder (the "Voting Agreement"), and is granted in consideration of Parent
entering into that certain Agreement and Plan of Reorganization (the
"Reorganization Agreement"), among Parent, SM Acquisition Corp., a California
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and the
Company. The Reorganization Agreement provides for the merger of Merger Sub with
and into the Company in accordance with its terms (the "Merger"). As used
herein, the term "Expiration Date" shall mean the earlier to occur of (i) such
date and time as the Reorganization Agreement shall have been validly terminated
pursuant to Article VIII thereof or (ii) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Reorganization Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of stockholders
of the Company and in every written consent in lieu of such meeting in favor of
approval of the Merger, the execution and delivery by the Company of the
Reorganization Agreement and the adoption and approval of the terms thereof and
in favor of each of the other actions contemplated by the Reorganization
Agreement and any action required in furtherance hereof and thereof.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned stockholder may vote the
Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
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This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated:______________________________, 1999
Signature of Stockholder:
Print Name of Stockholder:
Shares beneficially owned:
______________________________________
shares of the Company Common Stock
______________________________________
shares of the Company Common Stock
issuable upon exercise of outstanding
options or warrants
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
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ANNEX D
September 13, 1999
Board of Directors
SMART Modular Technologies, Inc.
4305 Cushing Parkway
Fremont, CA 94538
Members of the Board:
We understand that SMART Modular Technologies, Inc. ("Target" or the
"Company"), Solectron Corporation ("Buyer") and SM Acquisition Corp., a wholly
owned subsidiary of Buyer ("Merger Sub"), propose to enter into an Agreement and
Plan of Reorganization, substantially in the form of the draft dated September
13, 1999 (the "Merger Agreement"), which provides, among other things, for the
merger (the "Merger") of Merger Sub with and into Target. Pursuant to the
Merger, Target will become a wholly owned subsidiary of Buyer and each
outstanding share of common stock, no par value, of Target (the "Common Stock"),
other than shares held in treasury or held by Buyer or any affiliate of Buyer or
Target, or as to which dissenters' rights have been perfected, will be converted
into the right to receive 0.51 shares (the "Exchange Ratio") of common stock,
par value $.001 per share, of Buyer ("Buyer Common Stock"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to holders of shares
of Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the
management of the Company;
(iii) reviewed certain financial projections prepared by the
management of the Company;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of the Company;
(v) reviewed certain publicly available financial statements and other
information of the Buyer;
(vi) reviewed certain internal financial statements and other
financial and operating data concerning the Buyer prepared by the
management of Buyer;
(vii) discussed the past and current operations and financial
condition and the prospects of the Buyer, including a review of publicly
available projections from equity research analyst estimates, with senior
executives of the Buyer;
(viii) reviewed the reported prices and trading activity for the
Common Stock and the Buyer Common Stock;
(ix) compared the financial performance of the Company and Buyer and
the prices and trading activity of the Common Stock and the Buyer Common
Stock with that of certain other comparable publicly-traded companies and
their securities;
(x) analyzed the pro forma financial impact of the Merger on the
earnings per share of Buyer;
(xi) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(xii) participated in discussions and negotiations among
representatives of the Company and Buyer and their financial and legal
advisors;
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(xiii) reviewed the draft Merger Agreement and certain related
documents; and
(xiv) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including information
relating to strategic, financial, and operational benefits anticipated from the
Merger, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of the Company. We have relied upon the assessment by the
managements of the Company and Buyer of their ability to retain key employees of
the Company. We have also relied upon, without independent verification, the
assessment by the managements of the Company and Buyer of the strategic and
other benefits expected to result from the Merger. We have also relied upon,
without independent verification, the assessment by the managements of the
Company and Buyer of the Company's technologies and products, the timing and
risks associated with the integration of the Company and Buyer and the validity
of, and risks associated with, the Company's and Buyer's existing and future
products and technologies.
We have not made any independent valuation or appraisal of the assets or
liabilities or technology of the Company or Buyer, nor have we been furnished
with any such appraisals. We have assumed that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement and the related
transaction documents. In addition, we have assumed that the Merger will be
accounted for as a "pooling-of-interests" business combination in accordance
with U.S. Generally Accepted Accounting Principles and will be treated as a
tax-free reorganization and/or exchange, each pursuant to the Internal Revenue
Code of 1986. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and Buyer and have
received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company in respect of this transaction with the
Securities and Exchange Commission. In addition, this opinion does not in any
manner address the prices at which the Buyer Common Stock will trade following
consummation of the Merger, and Morgan Stanley expresses no opinion or
recommendation as to how the shareholders of the Company should vote at the
shareholders' meeting held in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to the holders of shares of Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHARLES R. CORY
------------------------------------
Charles R. Cory
Managing Director
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ANNEX E
DISSENTERS RIGHTS UNDER
THE CALIFORNIA CORPORATIONS CODE
Set forth below is an excerpt from the California Corporations Code
regarding dissenter's rights.
CALIFORNIA GENERAL CORPORATION LAW
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
1300. Shareholder in short-form merger; Purchase at fair market value;
"Dissenting shares"; "Dissenting shareholder".
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
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1301. Notice to holders of dissenting shares of reorganization approval;
Demand for purchase of shares; Contents of demand.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302. Stamping or endrosing dissenting shares.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
1303. Dissenting shareholder entitled to agreed price with interest
thereon; when price to be paid.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
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1304. Action by dissenters to determine whether shares are dissenting
shares or fair market value of dissenting shares or both; Joinder of
shareholders; Consolidation of actions; Determination of issues; Appointment of
appraisers.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305. Duty and report of appraisers; Court's confirmation of report;
Determination of fair market value by court; Judgment and Payment; Appeal; Costs
of action.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306. Prevention of payment to holders of fair market value; Effect.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
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1307. Disposition of dividends upon dissenting shares
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
1308. Rights and privileges of dissenting shares; Withdrawal of demand for
payment.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
1309. When dissenting shares lose their status.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. Suspension of proceedings for compensation or valuation pending;
litigation.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
1311. Shares to which chapter inapplicable.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
1312. Attack on validity of reorganization or short-form merger; Rights of
shareholders; Burden of proof
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded,
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the shareholder shall not thereafter have any right to demand payment of cash
for the shareholder's shares pursuant to this chapter. The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon 10 days' prior notice to
the corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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1451-SMPS-99
<PAGE> 138
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), because the person is or was a director
or officer of the corporation. Such indemnity may be against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action, suit or
proceeding, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and if, with respect to any criminal action or proceeding, the
person did not have reasonable cause to believe the person's conduct was
unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the corporation,
against any expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation.
Section 145(g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the corporation against any
liability asserted against the person in any such capacity, or arising out of
the person's status as such, whether or not the corporation would have the power
to indemnify the person against such liability under the provisions of the law.
Article Eleventh of the Registrant's corrected Certificate of Incorporation
(incorporated by reference herein) provides for indemnification of directors,
officers and other persons as follows:
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as it may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article,
shall eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
Section Six of the Registrant's Amended and Restated By-Laws (incorporated
by reference herein) provides that:
6.1 Indemnification of Directors and Officers
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, including, without limitation, any direct or
indirect subsidiary of the corporation, or (iii) who was a director or officer
of a corporation which was
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a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 Indemnification of Others
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including, without limitation, any direct or
indirect subsidiary of the corporation, or (iii) who was an employee or agent of
a corporation which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation.
6.3 Insurance
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware and this Section 6.
6.4 Payment of Expenses in Advance
Expenses incurred in defending any civil or criminal action or proceeding
for which indemnification is required pursuant to Section 6.1, or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors, may be paid by the corporation in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Section 6.
6.5 Indemnity Not Exclusive
The indemnification provided by this Section 6 shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation.
6.6 Conflicts
No indemnification or advance shall be made under this Section 6, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(a) That it would be inconsistent with a provision of the certificate
of incorporation, these bylaws, a resolution of the stockholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or
other amounts were paid, which prohibits or otherwise limits
indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
II-2
<PAGE> 140
The directors and officers of the Registrant are covered by a policy of
liability insurance indemnifying them against certain liabilities, including
liabilities arising under the Securities Act, which might be incurred by them in
their capacities as directors and officers.
See also the undertakings set out in item 22 herein.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See Exhibit Index.
(b) Not Applicable.
(c) Opinion of Morgan Stanley & Co. Incorporated, attached as Annex D to the
proxy statement-prospectus which is part of this registration statement.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
(2) that before any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form S-4 under the Securities Act of 1933, within one business day of
receipt of any such request, and to send the incorporated documents by
first class mail or other equally prompt means, including information
contained in documents filed after the effective date of the registration
statement through the date of responding to such request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. If a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in a successful defense of any
II-3
<PAGE> 141
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milpitas, California on
October 14, 1999.
Solectron Corporation
By: /s/ SUSAN WANG
------------------------------------
Susan Wang
Senior Vice President,
Chief Financial Officer and
Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each such person whose signature
appears below constitutes and appoints, jointly and severally, Koichi Nishimura
and Susan Wang, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Registration Statement on Form S-4 (including post-effective
amendments), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ KOICHI NISHIMURA, PH.D. President, Chief Executive October 14, 1999
- ----------------------------------------------------- Officer
Koichi Nishimura, Ph.D. and Chairman of the Board
/s/ SUSAN WANG Senior Vice President, Chief October 14, 1999
- ----------------------------------------------------- Financial Officer and
Susan Wang Secretary
/s/ WINSTON H. CHEN, PH.D. Director October 14, 1999
- -----------------------------------------------------
Winston H. Chen, Ph.D.
/s/ RICHARD A. D'AMORE Director October 14, 1999
- -----------------------------------------------------
Richard A. D'Amore
/s/ CHARLES A. DICKINSON Director October 14, 1999
- -----------------------------------------------------
Charles A. Dickinson
/s/ HEINZ FRIDRICH Director October 14, 1999
- -----------------------------------------------------
Heinz Fridrich
</TABLE>
II-5
<PAGE> 143
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PHILIP GERDINE, PH.D. Director October 14, 1999
- -----------------------------------------------------
Philip Gerdine, Ph.D.
/s/ WILLIAM HASLER Director October 14, 1999
- -----------------------------------------------------
William Hasler
/s/ KENNETH E. HAUGHTON, PH.D. Director October 14, 1999
- -----------------------------------------------------
Kenneth E. Haughton, Ph.D.
/s/ PAUL R. LOW, PH.D. Director October 14, 1999
- -----------------------------------------------------
Paul R. Low, Ph.D.
/s/ OSAMU YAMADA Director October 14, 1999
- -----------------------------------------------------
Osamu Yamada
</TABLE>
II-6
<PAGE> 144
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <S>
2.1 Agreement and Plan of Reorganization, dated as of September
13, 1999, by and among Solectron Corporation, the
Registrant, SM Acquisition Corporation and SMART Modular
Technologies, Inc. (included as Annex A to the proxy
statement -- prospectus filed as part of this Registration
Statement).
2.2 Stock Option Agreement, dated as of September 13, 1999, by
and between SMART Modular Technologies, as issuer, and the
registrant, as grantee (included as Annex B to the proxy
statement -- prospectus which is a part of this Registration
Statement).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, together with consent.
8.1 Tax Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, together with consent.
8.2 Tax Opinion of Morrison & Foerster LLP, together with
consent.
23.1 Consent of KPMG LLP, independent public accountants.
23.2 Consent of Arthur Andersen LLP, independent public
accountants.
23.3 Consent of Morgan Stanley & Co., Incorporated (included as
part of its opinion filed as Exhibit 99.2 and incorporated
herein by reference.
23.4 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included as part of its opinions filed as
Exhibits 5.1 and 8.1).
23.5 Consent of Morrison & Foerster LLP (included as part of its
opinion filed as Exhibit 8.2).
24.1 Power of Attorney (See Page II-5 of this Registration
Statement).
99.1 Form of Proxy of SMART Modular Technologies, Inc.
99.2 Opinion of Morgan Stanley & Co., Incorporated (included as
Annex D to the proxy statement -- prospectus filed as a part
of this Registration Statement and incorporated herein by
reference).
</TABLE>
<PAGE> 1
Exhibit 5.1
October 14, 1999
Solectron Corporation
777 Gibraltar Drive
Milpitas, CA 95035
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 to be filed by you
with the Securities and Exchange Commission on or about October 14, 1999 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of shares of your Common Stock (the
"Shares"). As your counsel in connection with this transaction, we have examined
the proceedings taken and are familiar with the proceedings proposed to be taken
by you in connection with the issuance of the Shares pursuant to the acquisition
transaction set forth and described in the Registration Statement.
It is our opinion that, when issued in the manner described in the
Registration Statement, the Shares will be legally and validly issued,
fully-paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name whenever appearing in the
Registration Statement and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
-------------------------------------
<PAGE> 1
Exhibit 8.1
[Wilson Sonsini Goodrich & Rosati Letterhead]
October 14, 1999
Solectron Corporation
777 Gibraltar Drive
Milpitas, CA 95035
Re: Merger among Solectron Corporation, a Delaware corporation ("Solectron"),
SM Acquisition Corp., a California corporation ("SMAC"), and SMARTModular
Technologies, Inc., a California Corporation ("SMARTModular")
Ladies and Gentlemen:
We have acted as counsel to Solectron, a Delaware corporation, in
connection with the proposed merger (the "Merger") of Solectron's wholly-owned
transitory merger subsidiary, SMAC, with and into SMARTModular pursuant to an
Agreement and Plan of Merger dated as of September 13, 1999, (the "Merger
Agreement"). The Merger and certain proposed transactions incident thereto are
described in the Registration Statement on Form S-4 (the "Registration
Statement") of Solectron which includes the Proxy Statement/Prospectus of
Solectron and SMARTModular (the "Proxy Statement-Prospectus"). This opinion is
being rendered pursuant to the requirements of Item 21(a) of Form S-4 under the
Securities Act of 1933, as amended. Unless otherwise indicated, any capitalized
terms used herein and not otherwise defined have the meaning ascribed to them in
the Proxy Statement/Prospectus.
In connection with this opinion, we have examined and are familiar with the
Merger Agreement, the Registration Statement, and such other presently existing
documents, records and matters of law as we have deemed necessary or appropriate
for purposes of our opinion. In addition, we have assumed (i) that the Merger
will be consummated in the manner contemplated by the Proxy Statement-Prospectus
and in accordance with the provisions of the Merger Agreement (ii) the truth and
accuracy of the representations and warranties made by Solectron, SMARTModular
and SMAC in the Merger Agreement, and (iii) the truth and accuracy of the
certificates of representations to be provided to us by Solectron, SMARTModular,
and Merger Sub.
Because this opinion is being delivered prior to the Effective Time of the
Merger, it must be considered prospective and dependent on future events. There
can be no assurance that changes in the law will not take place which could
affect the United States Federal income tax consequences
<PAGE> 2
Solectron Corporation
October 14, 1999
Page 2
considerations of the Merger or that contrary positions may not be taken by the
Internal Revenue Service.
Based upon and subject to the foregoing, in our opinion, the discussions
contained in the Registration Statements under the caption "Material U.S.
Federal Income Tax Considerations of the Merger," subject to the limitations and
qualifications described therein, set forth the material United States Federal
income tax considerations generally applicable to the Merger.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as an
Exhibit to the Registration Statement. We also consent to the reference to our
firm name wherever appearing in the Registration Statement with respect to the
discussion of the material federal income tax considerations of the Merger,
including the Proxy Statement/Prospectus constituting a part thereof, and any
amendment thereto. In giving this consent, we do not thereby admit that we in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Wilson Sonsini Goodrich & Rosati
-------------------------------------
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 8.2
[MORRISON & FOERSTER LLP LETTERHEAD]
October 14, 1999
SMART Modular Technologies, Inc.
4305 Cushing Parkway
Fremont, CA 94304-1050
Ladies and Gentlemen:
We have acted as counsel to SMART Modular Technologies, Inc. ("SMART Modular"),
a California corporation, in connection with the proposed merger (the "Merger")
of SM Acquisition Corp. ("SMAC"), a California corporation and a direct
wholly-owned transitory merger subsidiary of Solectron Corporation
("Solectron"), a Delaware corporation, with and into SMART Modular pursuant to
an Agreement and Plan of Merger dated as of September 13, 1999 (the "Merger
Agreement"). The Merger is described in the Registration Statement of Solectron
on Form S-4 (the "Registration Statement") filed on the date hereof with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), which includes the joint proxy
statement and prospectus of SMART Modular and Solectron (the "Proxy
Statement/Prospectus").
In that connection, we have reviewed the Merger Agreement, the Proxy
Statement/Prospectus and such other materials as we have deemed necessary or
appropriate for purposes of our opinion. In addition, we have assumed (i) that
the Merger will be consummated in accordance with the provisions of the Merger
Agreement and as contemplated by the Proxy Statement/Prospectus and (ii) the
truth and accuracy, on the date of the Merger Agreement and on the date hereof,
of the representations and warranties made by Solectron, SMAC and SMART Modular
in the Merger Agreement.
Based upon and subject to the foregoing, in our opinion, the discussions
contained in the Registration Statements under the caption "Material United
States Federal Income Tax Considerations of the Merger," subject to the
limitations and qualifications described therein, set
<PAGE> 2
SMART Modular Technologies, Inc.
October 14, 1999
Page 2
forth the material United States Federal income tax considerations generally
applicable to the Merger. Because this opinion is being delivered prior to the
effective time of the Merger, it must be considered prospective and dependent
upon future events. There can be no assurance that changes in the law will not
take place which could affect the Federal income tax consequences of the Merger
or that contrary positions may not be asserted by the Internal Revenue Service.
This opinion is being furnished in connection with the Registration Statement.
You may rely upon and refer to the foregoing opinion in the Proxy
Statement/Prospectus. Any variation or difference in any fact from those set
forth or assumed either herein or in the Proxy Statement/Prospectus may affect
the conclusions stated herein.
We hereby consent to the use of our name under the caption "Material United
States Federal Income Tax Considerations of the Merger" in the Proxy
Statement/Prospectus and to the filing of this opinion as an Exhibit to the
Registration Statement. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Morrison & Foerster LLP
---------------------------
Morrison & Foerster LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Solectron Corporation
We consent to incorporation herein by reference of our report dated September
14, 1998, relating to the consolidated balance sheets of Solectron Corporation
and subsidiaries as of August 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended August 31, 1998, and the related schedule, which
report appears in the August 31, 1998, annual report on Form 10-K of Solectron
Corporation, and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG LLP
------------------------------------------------------------------------
Mountain View, California
October 14, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-4 registration statement of our reports dated November
18, 1998 included in SMART Modular Technologies, Inc.'s Form 10-K for the year
ended October 31, 1998 and to all references to our Firm included in this Form
S-4 registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
San Jose, California
October 13, 1999
<PAGE> 1
EXHIBIT 99.1
DETACH HERE
PROXY
SMART MODULAR TECHNOLOGIES, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of SMART MODULAR TECHNOLOGIES, INC., a
California corporation, hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and Proxy Statement, each dated October 18, 1999, and
hereby appoints Ajay Shah and David Mullin, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution and resubstitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the Special Meeting of Shareholders of SMART MODULAR TECHNOLOGIES, INC. to be
held on Monday, November 29, 1999, at 10:00 a.m., local time, at The Hyatt
Sainte Claire, 302 South Market Street, San Jose, California 95113, and at any
and all continuation(s) or adjournment(s) thereof, and to vote all shares of
Common Stock which the undersigned would be entitled to vote, if then and there
personally present, on the matters set forth on the reverse side.
Both of such attorneys or substitutes as shall be present and shall act at
said meeting or any and all continuation(s) or adjournment(s) thereof (or if
only one shall be present and acting, then that one) and shall have and may
exercise all the powers of said attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR ADOPTION OF THE AGREEMENT AND PLAN OF REORGANIZATION, DATED AS
OF SEPTEMBER 13, 1999, BY AND AMONG SOLECTRON CORPORATION, SM ACQUISITION CORP.,
A WHOLLY-OWNED SUBSIDIARY OF SOLECTRON, AND SMART MODULAR TECHNOLOGIES, INC.,
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTER(S) AS MAY PROPERLY COME
BEFORE THE MEETING.
- ------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------- -------------
<PAGE> 2
SMART MODULAR TECHNOLOGIES, INC.
C/O EQUISERVE
P.O. BOX 9040
BOSTON, MA 02266-9040
DETACH HERE
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE. FOR AGAINST ABSTAIN
1. Proposal to adopt the Agreement and Plan of [ ] [ ] [ ]
Reorganization, dated as of September 13, 1999,
by and among Solectron Corporation, SM
Acquisition Corp., a wholly-owned subsidiary of
Solectron, and SMART Modular Technologies, Inc.
In their discretion, the proxies are authorized to vote upon such other
matter(s) which may properly come before the meeting or any and all
continuation(s) or adjournment(s) thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
This Proxy should be marked, dated and signed by the
shareholder(s) exactly as his or her name appears
hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity
should so indicate. If a corporation, please sign in
full corporate name by an authorized officer. If a
partnership, please sign in partnership name by an
authorized person. If shares are held by joint
tenants or as community property, both should sign.
Signature:_________________ Date:_____ Signature:___________________ Date:_____
