<PAGE> 1
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO SELL THESE SECURITIES
AND ARE NOT SOLICITING AN OFFERING TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-34494
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED NOVEMBER 1, 2000
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 14, 2000)
$1,800,000,000
SOLECTRON CORPORATION LOGO
LIQUID YIELD OPTION(TM) NOTES DUE 2020
(ZERO COUPON-SENIOR)
-------------------------
THE OFFERING:
Solectron Corporation is offering the LYONs at an issue price of $
per LYON ( % of the principal amount at maturity). Solectron will not pay
interest on the LYONs prior to maturity. Instead, on November , 2020, the
maturity date of the LYONs, a holder will receive $1,000 per LYON. The issue
price of each LYON represents a yield to maturity of % per year calculated
from November , 2000. The LYONs will rank on a parity in right of payment with
all existing and future unsecured and unsubordinated indebtedness of Solectron.
CONVERTIBILITY OF THE LYONS:
Holders may convert their LYONs at any time on or before the maturity
date, unless the LYONs have previously been redeemed or purchased, into
shares of common stock of Solectron per LYON. The conversion rate
may be adjusted for certain reasons, but will not be adjusted for accrued
original issue discount. The common stock currently trades on the New York Stock
Exchange under the symbol "SLR." The last reported sale price on the New York
Stock Exchange of the common stock was $43 7/16 per share on November 1, 2000.
PURCHASE OF THE LYONS BY SOLECTRON AT THE OPTION OF THE HOLDER:
Holders may require Solectron to purchase all or a portion of their LYONs
on May , 2004, at a price of $ per LYON, and on November , 2010, at a
price of $ per LYON. Solectron may choose to pay the purchase price in
cash or common stock or a combination of cash and common stock. In addition,
upon a Change in Control of Solectron occurring on or before May , 2004, each
holder may require Solectron to repurchase all or a portion of such holder's
LYONs.
-------------------------
REDEMPTION OF THE LYONS AT THE OPTION OF SOLECTRON:
Solectron may redeem all or a portion of the LYONs at any time on or
after May , 2004.
-------------------------
Concurrent with this offering, we are offering 35,000,000 shares of our
common stock. The common stock will be offered by us pursuant to a separate
prospectus. Completion of the common stock offering is not a condition to the
completion of this offering.
-------------------------
Solectron intends to file an application to list the LYONs on the New
York Stock Exchange.
-------------------------
INVESTING IN THE LYONS INVOLVES RISKS, SOME OF WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE S-10 OF THIS PROSPECTUS SUPPLEMENT.
-------------------------
<TABLE>
<CAPTION>
PER LYON TOTAL
-------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Solectron..................... $ $
</TABLE>
The underwriter may also purchase up to an additional $270,000,000
aggregate principal amount at maturity of LYONs from Solectron within 30 days
from the date of this prospectus supplement to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The LYONs will be ready for delivery in book-entry form only through the
Depository Trust Company on or about November , 2000.
(TM) TRADEMARK OF MERRILL LYNCH & CO., INC.
-------------------------
MERRILL LYNCH & CO.
-------------------------
The date of this prospectus supplement is November , 2000.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Special Note on Forward-Looking Statements.................. S-4
Summary..................................................... S-5
Risk Factors................................................ S-10
Use of Proceeds............................................. S-18
Price Range of Common Stock................................. S-19
Dividend Policy............................................. S-19
Concurrent Common Stock Offering............................ S-19
Capitalization.............................................. S-20
Selected Supplemental Consolidated Financial Data........... S-21
Business.................................................... S-22
Description of LYONs........................................ S-30
Federal Income Tax Considerations........................... S-41
Underwriting................................................ S-44
Legal Matters............................................... S-45
PROSPECTUS
Summary..................................................... 1
Where You Can Find More Information......................... 4
Risk Factors................................................ 5
Use of Proceeds............................................. 5
Ratio of Earnings to Fixed Charges.......................... 5
Description of the Debt Securities.......................... 5
Description of Capital Stock................................ 16
Plan of Distribution........................................ 18
Legal Matters............................................... 19
Experts..................................................... 19
</TABLE>
----------------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus in
considering your investment in the LYONs. We have not, and the underwriter has
not, authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not, and the underwriter is not, making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information in this prospectus supplement is accurate
only as of the date on the front cover of this prospectus supplement and that
the information in the accompanying prospectus is accurate only as of the date
on the first page of the accompanying prospectus. Our business, financial
condition, results of operations and prospects may have changed since those
dates.
On April 11, 2000 we filed an 8-K to restate our financial statements to
reflect the acquisition of Smart Modular Technologies, Inc. (SMART), which was
accounted for as a pooling of interests. On September 6, 2000 we filed an 8-K to
restate our financial statements to reflect the acquisitions of Americom
Wireless Services, Inc. (AMERICOM) and Bluegum Group (Bluegum) which were each
accounted for as a pooling of interests. You should note that the financial
information contained in our Quarterly Reports for the fiscal quarters ended
February 29, 2000 and May 31, 2000 has not been restated to reflect the
acquisitions of AMERICOM and Bluegum and is therefore not comparable to the
other financial information which is contained herein and which will be reported
by us in the future. Also note that the financial information contained in our
Quarterly Report for the fiscal quarter ended November 30, 1999 has not been
restated to reflect the acquisitions of SMART, AMERICOM and Bluegum and is
therefore not comparable to the other financial information which is contained
herein and which will be reported by us in the future.
S-3
<PAGE> 3
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus contain or
incorporate by reference forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. We intend that these forward-
looking statements be subject to the safe harbors created by those provisions.
These forward-looking statements involve risks and uncertainties and include,
but are not limited to, statements regarding future events and our plans, goals
and objectives. These statements are generally accompanied by words like
"intend," "anticipate," "believe," "estimate," "expect" or similar statements.
Our actual results may differ materially from these statements. These risks and
uncertainties, which in some instances are beyond our control, include: risks
associated with the cyclical nature of the electronics industry, the requirement
to continue to reduce the cost of our products, the competitiveness of our
industry and an increase in the cost of our raw materials. Although we believe
that the assumptions underlying the forward-looking statements are reasonable,
any of the assumptions could prove inaccurate, including, but not limited to,
statements as to our future operating results and business plans as well as the
acquisition of NatSteel Electronics Ltd. (NEL). Therefore, we can give no
assurance that the results contemplated in these forward-looking statements will
be realized. The inclusion of this forward-looking information should not be
regarded as a representation by our company, the underwriter or any other person
that the future events, plans or expectations contemplated by our company will
be achieved. Furthermore, past performance in operations and share price is not
necessarily predictive of future performance.
S-4
<PAGE> 4
SUMMARY
Because this is a summary, it may not contain all the information that
may be important to you. You should read this entire prospectus supplement and
the accompanying prospectus before making an investment decision. When used in
this prospectus supplement, the terms "we," "our" and "us" refer to Solectron
Corporation and its subsidiaries. Unless otherwise indicated, the information in
the prospectus reflects each of the stock splits effected by us, including the
two-for-one stock split effected in the form of a 100% stock dividend paid by us
on March 8, 2000.
SOLECTRON CORPORATION
Solectron provides electronics manufacturing services to original
equipment manufacturers who design and sell networking equipment, workstations,
personal and notebook computers, computer peripherals, telecommunications
equipment or other electronic equipment, including Cisco Systems, Inc., Compaq
Computer Corporation, Ericsson Telecom AB, Hewlett-Packard Company,
International Business Machines Corporation and Nortel Networks Limited. These
companies contract with us to build their products for them or to obtain other
related services from us.
We furnish integrated supply chain solutions that span the entire product
life-cycle from technology solutions to manufacturing and operations, to global
services. Our range of services includes:
- Advanced building block design solutions;
- Product design and manufacturing;
- New product introduction management;
- Materials purchasing and management;
- Prototyping;
- Printed circuit board assembly (the process of placing components on an
electrical printed circuit board that controls the processing functions
of a personal computer or other electronic equipment);
- Systems assembly (for example, building complete systems such as mobile
telephones and testing them to ensure functionality);
- Distribution;
- Product repair; and
- Warranty services.
Providing these services to our customers allows them to remain
competitive by focusing on their core competencies of sales, marketing, and
research and development. We have manufacturing facilities in the Americas,
Europe and Asia/Pacific. This geographic presence gives our customers access to
manufacturing services in the locations close to their expanding markets for
faster product delivery.
Our telephone number is (408)957-8500 and our Internet address is
www.solectron.com. Information on our website is not a part of this prospectus.
S-5
<PAGE> 5
RECENT DEVELOPMENTS
FISCAL FOURTH QUARTER RESULTS AND FISCAL 2001 OUTLOOK
On September 11, 2000, we reported fiscal fourth-quarter net income of
$171.0 million, or 27 cents per diluted share, compared with year-earlier
results of $103.5 million, or 17 cents per diluted share. Sales for the quarter
ended August 31, 2000 were $4.7 billion, a 75 percent increase from $2.7 billion
in the year-earlier period.
NATSTEEL ELECTRONICS LTD. ACQUISITION
On October 31, 2000, we signed a definitive agreement to commence an
offer to purchase all outstanding shares of NatSteel Electronics Ltd. (NEL) for
$4.53 per share in cash, representing a total transaction value, including debt
of NEL, of approximately $2.4 billion. NEL provides global contract
manufacturing services for original equipment manufacturers (OEMs) in the
electronics industry. NEL manufactures printed circuit board (PCB) assemblies,
and provides box-building capabilities and pre- and post-manufacturing services
such as design, prototyping, testing and logistics. NEL has about 12,000
employees and more than 2.3 million square feet of manufacturing capacity in 11
sites worldwide.
We have received irrevocable undertakings, representing approximately 43
percent of NEL's outstanding common shares, from major shareholders to tender
their shares under the offer. Those shares are held by the largest shareholder
of NEL, separately traded NatSteel Ltd. (NSL); key members of NEL's management
team; and Temasek Capital. Temasek Holdings and other key shareholders of NSL,
who collectively hold approximately 23 percent of NSL's outstanding shares, have
irrevocably undertaken to vote their shares in favor of NSL tendering its NEL
shares in the offer. The offer is subject to several conditions, including: the
tender of more than 50 percent of NEL's shares (on a fully diluted basis) to us
pursuant to the offer; the approval of NSL shareholders to sell its shares in
NEL to us pursuant to the offer and the satisfactory completion of all relevant
regulatory reviews and approvals. Thus, there can be no assurance that the
acquisition will close as contemplated, if at all. We expect to complete the
offer by the end of December.
We currently estimate that the acquisition of NEL will reduce our diluted
earnings per share for fiscal 2001 but will increase our diluted earnings per
share on a cash basis for fiscal 2001. The actual impact of the acquisition on
our earnings will depend on a number of factors, including the terms of the
financing of the acquisition, the timing of the acquisition and our actual
results and the actual results of the NEL operations during the period following
the acquisition. These forward-looking statements involve risk and uncertainties
and our actual results may differ materially from these statements.
ACQUISITION OF SONY ASSETS
On October 18, 2000 we signed a definitive agreement to acquire certain
assets associated with two Sony Corporation (Sony) manufacturing facilities,
Sony Nakaniida Corporation in Miyagi, Japan and Sony Industries Taiwan, in
Kaohsiung, Taiwan. These facilities currently produce high-end consumer products
such as automobile satellite navigation systems, car audio systems, and
lithium-ion battery packs. Combined the facilities have about 2,050 employees
and 490,000 square feet of manufacturing space. We will provide electronics
manufacturing services to Sony and other customers at these sites. While
Solectron and Sony have signed definitive agreements, the closing is subject to
several conditions including obtaining necessary government approvals and other
customary conditions. Thus, there can be no assurance that the acquisition will
close as contemplated, if at all.
S-6
<PAGE> 6
THE OFFERING
LYONs...................... $1,800,000,000 aggregate principal amount at
maturity ($2,070,000,000 aggregate principal amount
at maturity if Merrill Lynch exercises its
over-allotment option in full) of LYONs due
November , 2020. We will not pay interest on the
LYONs prior to maturity. Each LYON will be issued
at a price of $ per LYON and a principal amount
at maturity of $1,000.
Maturity................... November , 2020.
Yield to Maturity of
LYONs...................... % per year (computed on a semi-annual bond
equivalent basis) calculated from , 2000.
Conversion Rights.......... Holders may convert the LYONs at any time on or
before the maturity date, unless the LYONs have
previously been redeemed or purchased. For each
LYON converted, we will deliver shares of
our common stock. The conversion rate may be
adjusted for certain reasons, but will not be
adjusted for accrued original issue discount. Upon
conversion, you will not receive any cash payment
representing accrued original issue discount.
Instead, accrued original issue discount will be
deemed paid by the common stock received by you on
conversion. See "Description of LYONs -- Conversion
Rights."
Ranking.................... The LYONs will be unsecured and unsubordinated
obligations and will rank on a parity in right of
payment with all existing and future unsecured and
unsubordinated indebtedness of Solectron.
Original Issue Discount.... We are offering each LYON with an original issue
discount for United States federal income tax
purposes equal to the principal amount at maturity
of each LYON less the issue price to investors. You
should be aware that, although we will not pay cash
interest on the LYONs, U.S. investors must include
accrued original issue discount in their gross
income for United States federal income tax
purposes prior to the conversion, redemption, sale
or maturity of the LYONs (even if such LYONs are
ultimately not converted, redeemed, sold or paid at
maturity). See "Federal Income Tax
Considerations -- Original Issue Discount."
Sinking Fund............... None.
Optional Redemption........ We may redeem all or a portion of the LYONs for
cash at any time on or after May , 2004, at the
redemption prices set forth in this prospectus
supplement. See "Description of LYONs -- Redemption
of LYONs at the Option of Solectron."
Purchase of the LYONs at
the Option of the Holder... Holders may require us to purchase their LYONs on
May , 2004, at a price of $ per LYON, and on
November , 2010 at a price of $ per LYON.
We may choose to pay the purchase price in cash or
common stock or a combination of cash and common
stock. See "Description of LYONs -- Purchase of
LYONs at the Option of the Holder."
Change in Control.......... Upon a Change in Control of Solectron occurring on
or before May , 2004, each holder may require us
to repurchase all or a portion of such holder's
LYONs at a price equal to the issue price of
S-7
<PAGE> 7
such LYONs plus accrued original issue discount to
the date of repurchase.
The term "Change in Control" is defined in the
"Description of LYONs -- Change in Control Permits
Purchase of LYONs at the Option of the Holder."
Optional Conversion to
Semiannual Coupon Note
Upon Tax Event........... From and after the occurrence of a Tax Event, at
the option of Solectron, interest in lieu of future
original issue discount shall accrue on each LYON
from the option exercise date at % per year on
the restated principal amount and shall be payable
semiannually on each interest payment date to
holders of record at the close of business on each
regular record date immediately preceding such
interest payment date. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-
day months and will accrue from the most recent
date to which interest has been paid or, if no
interest has been paid, from the option exercise
date. In such event, the redemption price, purchase
price and change in control purchase price shall be
adjusted as described herein. However, there will
be no changes in the holder's conversion rights.
See "Description of LYONs -- Optional Conversion to
Semiannual Coupon Note Upon Tax Event."
Use of Proceeds............ The net proceeds of this offering and the
concurrent common stock offering described below
will be used to fund the further expansion of our
business and for strategic acquisitions, including
up to approximately $2.4 billion to fund the
pending acquisition of NatSteel Electronics Ltd.,
additional working capital, capital expenditures
and general corporate purposes. See "Use of
Proceeds."
DTC Eligibility............ The LYONs will be issued in book-entry form and
will be represented by permanent global LYONs
without coupons deposited with a custodian for and
registered in the name of a nominee of DTC in New
York, New York. Beneficial interests in any such
global LYON will be shown on, and transfers thereof
will be effected only through, records maintained
by DTC and its direct and indirect participants and
any such interest may not be exchanged for
certificated LYONs, except in limited circumstances
described herein. See "Description of
LYONs -- Book-Entry System."
Listing.................... Solectron intends to list the LYONs on the New York
Stock Exchange.
New York Stock Exchange
Symbol for the
Common Stock............. Our common stock is traded on the New York Stock
Exchange under the symbol "SLR."
CONCURRENT COMMON STOCK OFFERING
Concurrent with this offering, we are offering 35,000,000 shares of our
common stock. The common stock will be offered by us pursuant to a separate
prospectus. Completion of the common stock offering is not a condition to the
completion of this offering.
S-8
<PAGE> 8
SUMMARY SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The following selected unaudited supplemental consolidated financial
information of Solectron, combined with SMART, AMERICOM and Bluegum on a pooling
of interests basis, should be read in conjunction with the supplemental
consolidated financial statements and the related notes included in our 8-K
filed on September 6, 2000 and incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED AUGUST 31, ENDED
---------------------------------------------------- MAY 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Net Sales............................................... $2,347.2 $3,231.8 $4,408.5 $6,102.2 $9,669.2 $9,401.3
Operating income........................................ 144.0 213.6 303.2 368.6 516.1 461.2
Income before income taxes.............................. 140.6 213.2 307.5 375.5 514.5 488.0
Net income.............................................. 92.2 139.6 203.7 251.3 350.3 326.2
Basic net income per share(1)......................... $ 0.25 $ 0.31 $ 0.42 $ 0.49 $ 0.65 $ 0.54
Diluted net income per share(1)....................... $ 0.22 $ 0.30 $ 0.40 $ 0.47 $ 0.61 $ 0.52
OTHER DATA:
Ratio of earnings to fixed charges(2)................. 9.37x 10.27x 9.66x 10.82x 8.68 7.84x
</TABLE>
<TABLE>
<CAPTION>
AS OF
MAY 31,
2000
--------------
(IN MILLIONS)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Net working capital......................................... $5,738.2
Total assets................................................ 9,221.4
Long-term debt.............................................. 3,295.8
Total stockholders' equity.................................. 3,584.6
</TABLE>
------------
(1)All net income per share amounts have been adjusted to reflect the
two-for-one stock split through March 8, 2000.
(2)We have computed the ratio of earnings to fixed charges by dividing earnings
available for fixed charges by fixed charges. These computations include us
and our consolidated subsidiaries. For these ratios, "earnings" represents
income before taxes plus fixed charges (excluding capitalized interest) and
amortization of previously capitalized interest. Fixed charges consists of
(1) interest on all indebtedness and amortization of debt discount and
expense, (2) capitalized interest and (3) an interest factor attributable to
rentals.
On April 11, 2000 we filed an 8-K to restate our financial statements to
reflect the acquisition of Smart Modular Technologies, Inc. (SMART) which was
accounted for as a pooling of interests. On September 6, 2000 we filed an 8-K to
restate our financial statements to reflect the acquisitions of AMERICOM and
Bluegum which were each accounted for as a pooling of interests. You should note
that the financial information contained in our Quarterly Reports for the fiscal
quarters ended February 29, 2000 and May 31, 2000 has not been restated to
reflect the acquisitions of AMERICOM and Bluegum and is therefore not comparable
to the other financial information which is contained herein and which will be
reported by us in the future. Also note that the financial information contained
in our Quarterly Report for the fiscal quarter ended November 30, 1999 has not
been restated to reflect the acquisitions of SMART, AMERICOM and Bluegum and is
therefore not comparable to the other financial information which is contained
herein and which will be reported by us in the future.
S-9
<PAGE> 9
RISK FACTORS
Our actual results could differ materially from those discussed herein
for the reasons discussed in the risk factors below. You should carefully
consider the risks and uncertainties described below and the other information
in this prospectus supplement and the accompanying prospectus and in any
documents incorporated herein and therein by reference, before making an
investment decision.
A MAJORITY OF OUR NET SALES COMES FROM A SMALL NUMBER OF CUSTOMERS; IF WE LOSE
ANY OF THESE CUSTOMERS, OUR NET SALES COULD DECLINE SIGNIFICANTLY.
A majority of our annual net sales comes from a small number of our
customers. Our ten largest customers accounted for approximately 71% of net
sales in the first three quarters of fiscal 2000 and approximately 74%, 68%, and
63% of net sales in fiscal 1999, 1998 and 1997, respectively. Assuming the NEL
acquisition is completed, we expect that the percentage of our net sales
accounted for by our ten largest customers will increase. Since we are dependent
upon continued net sales from our ten largest customers, any material delay,
cancellation or reduction of orders from these or other major customers could
cause our net sales to decline significantly. Some of these customers
individually account for more than ten percent of our annual net sales. We
cannot guarantee that we will be able to retain any of our ten largest customers
or any other accounts. In addition, our customers may materially reduce the
level of services ordered from us at any time. This could cause a significant
decline in our net sales and we may not be able to reduce the accompanying
expenses at the same time. Moreover, our business, financial condition and
results of operations will continue to depend in significant part on our ability
to obtain orders from new customers, as well as on the financial condition and
success of our customers. Therefore, any adverse factors affecting any of our
customers or their customers could have a material adverse effect on our
business, financial condition and results of operations.
OUR LONG-TERM CONTRACTS DO NOT INCLUDE MINIMUM PURCHASE REQUIREMENTS.
Although we have long-term contracts with a few of our top ten customers,
including Ericsson IBM and Nortel, under which these customers are obligated to
obtain services from us, they are not obligated to purchase any minimum amount
of services. As a result, we cannot guarantee that we will receive any net sales
from these contracts. In addition, these customers with whom we have long-term
contracts may materially reduce the level of services ordered at any time. This
could cause a significant decline in our net sales and we may not be able to
reduce our accompanying expenses at the same time.
POSSIBLE FLUCTUATION OF OPERATING RESULTS FROM QUARTER TO QUARTER COULD AFFECT
THE MARKET PRICE OF OUR COMMON STOCK.
Our 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
we provide. For example, high velocity and low complexity PCB and
systems assembly services have lower gross margins than low
volume/complex PCB and systems assembly services;
- Our ability to maximize the hours of use of our equipment and
facilities is dependent on the duration of the production run time for
each job and customer;
- The amount of automation that we can use in the manufacturing process
for cost reduction varies, depending upon the complexity of the product
being made;
- Our ability to optimize the ordering of inventory as to timing and
amount to avoid holding inventory in excess of immediate production
needs;
- Fluctuations in demand for our services or the products being
manufactured;
- Fluctuations in the availability and pricing of components;
S-10
<PAGE> 10
- Timing of expenditures in anticipation of increased sales;
- Cyclicality in our target markets, and
- Expenses associated with acquisitions.
Therefore, our operating results in the future could be below the
expectations of securities analysts and investors. If this occurs, the market
price of our common stock could be harmed.
WE DEPEND UPON THE ELECTRONICS INDUSTRY, WHICH CONTINUALLY PRODUCES
TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO
CONTINUALLY MANUFACTURE SUCH PRODUCTS ON A COST EFFECTIVE BASIS WOULD HARM OUR
BUSINESS.
A majority of our net sales is to companies in the electronics industry,
which is subject to rapid technological change and product obsolescence. If our
customers are unable to create products that keep pace with the changing
technological environment, our customers' products could become obsolete and the
demand for our services could decline significantly. If we are unable to offer
technologically advanced, cost effective, quick response manufacturing services
to customers, demand for our services will also decline. In addition, a
substantial portion of our net sales is derived from our ability to offer
complete service solutions for our customers. For example, if we fail to
maintain high-quality design and engineering services, our net sales would
significantly decline.
For our technology solutions business, we have experienced, and may in
the future experience, delays from time to time in the development and
introduction of new products. Moreover, we cannot assure that we will be
successful in selecting, developing, manufacturing and marketing new products or
enhancements. We cannot assure that defects or errors will not be found in our
products after commencement of commercial shipments, which could result in the
delay in market acceptance of such products. The inability to introduce new
products or enhancements could harm our business, financial condition and
results of operations.
WE DEPEND ON LIMITED OR SOLE SOURCE OF SUPPLIERS FOR CRITICAL COMPONENTS. THE
INABILITY TO OBTAIN SUFFICIENT COMPONENTS AS REQUIRED WOULD CAUSE SALES
REDUCTIONS.
We are dependent on certain suppliers, including limited and sole source
suppliers, to provide key components used in our products. We have experienced
and may continue to experience delays in component deliveries, which could cause
delays in product shipments and require the redesign of certain products. Also
for our technology solutions business, we are dependent upon certain limited or
sole source suppliers for critical components used for our memory module,
communications card and embedded computer products. The electronics industry has
experienced in the past, and may experience in the future, shortages in
semiconductor devices, including DRAM, SRAM, Flash memory, tantalum capacitors
and other commodities that may be caused by such conditions as overall market
demand surges or supplier production capacity constraints. Except for certain
commodity parts, we generally have no written agreements with our suppliers. We
cannot assure that we will receive adequate component supplies on a timely basis
in the future. The inability to continue to obtain sufficient components as
required, or to develop alternative sources if required, could cause delays,
disruptions or reductions in product shipments or require product redesigns
which could damage relationships with current or prospective customers, thereby
causing sales reduction.
WE POTENTIALLY BEAR 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 we perform for many customers is
purchasing electronics components used in the manufacturing of the customers'
products. As a result of this service, we potentially bear the risk of price
increases for these components because we are unable to purchase components at
the pricing level anticipated to support the margins assumed in our agreement
with our customers.
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OUR NET SALES COULD DECLINE IF OUR COMPETITORS PROVIDE COMPARABLE MANUFACTURING
SERVICES AND IMPROVED PRODUCTS AT A LOWER COST.
We compete with different contract manufacturers, depending on the type
of service we provide or the geographic locale of our operations. The memory
module, communications card and embedded computer subsystem industries are also
intensely competitive. These competitors may have greater manufacturing,
financial, R&D and/or marketing resources than we have. In addition, we may not
be able to offer prices as low as some of our competitors because those
competitors may have lower cost structures as a result of their geographic
location or the services they provide. Our inability to provide comparable or
better manufacturing services at a lower cost than our competitors could cause
our net sales to decline. We also expect our competitors to continue to improve
the performance of their current products or services, to reduce their current
product or service sales prices and to introduce new products or services that
may offer greater performance and improved pricing. Any of these could cause a
decline in sales, loss of market acceptance of our products or services, or
profit margin compression.
WE DEPEND ON THE MEMORY MODULE PRODUCT MARKET.
Most of our technology solutions net sales is derived from memory modular
products. The market for these products is characterized by frequent transitions
in which products rapidly incorporate new features and performance standards. A
failure to develop products with required feature sets or performance standards
or a delay as short as a few months in bringing a new product to market could
reduce our net sales which may have a material adverse effect on our business,
financial condition and results of operations. In addition, the market for
semiconductor memory devices has been cyclical. The industry has experienced
significant economic downturns at various times, characterized by diminished
product demand, accelerated erosion of average selling prices and excess
production. In the past, there were significant declines in the prices for DRAM,
SRAM and Flash. Such occurrences will reduce our profit.
WE DEPEND ON THE CONTINUING TREND OF OUTSOURCING BY OEMS.
A substantial factor in our revenue growth is attributable to the
transfer of manufacturing and supply base management activities from our OEM
customers. Future growth is partially dependent on new outsourcing
opportunities. To the extent that these opportunities are not available, our
future growth would be unfavorably impacted. These outsourcing opportunities may
include the transfer of assets such as facilities, equipment and inventory.
IF WE ARE UNABLE TO MANAGE OUR RAPID GROWTH AND ASSIMILATE NEW OPERATIONS IN A
COST EFFECTIVE MANNER, OUR PROFITABILITY COULD DECLINE.
We have experienced rapid growth over many years. Our historical growth
may not continue. In recent years we have established operations in different
locations throughout the world. For example, in fiscal 1998, we opened offices
in Taipei, Taiwan; Tel Aviv, Israel; Norrkoping and Stockholm, Sweden; and
commenced manufacturing operations in Guadalajara, Mexico; Suzhou, China; and
Timisoara, Romania. Also in fiscal 1998, we acquired foreign facilities in Sao
Paulo, Brazil and Dublin, Ireland. Furthermore, through acquisitions in fiscal
1998 and 1999, we acquired facilities in Duluth, Georgia; Columbia, South
Carolina; Memphis, Tennessee; and enhanced our capabilities in Charlotte, North
Carolina; Austin, Texas; and Milpitas, California.
In fiscal 2000, we completed acquisitions of AMERICOM, SMART, and Bluegum
that were each accounted for as a pooling of interests. Through additional
acquisitions, we also acquired foreign facilities in Aguadilla, Puerto Rico;
Monterrey, Mexico; Calgary, Canada; Longuenesse, France; Ostersund, Sweden;
Cwmcarn, Wales; Pont de Buis and Douarnenez, France; Monkstown, Northern
Ireland; Liverpool, New South Wales; Wangaratta and Melbourne, Victoria; and
Sydney and North Melbourne, Australia.
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On October 18, 2000 we signed a definitive agreement to acquire certain
assets associated with two Sony Corporation manufacturing facilities, Sony
Nakaniida Corporation in Miyagi, Japan and Sony Industries Taiwan in Kaohsiung,
Taiwan. On October 31, 2000 we signed a definitive agreement to commence an
offer to purchase all outstanding shares of NEL.
Since we have been significantly expanding our operations, the growth has
resulted in a significant increase in responsibility for existing management
which has placed, and may continue to place, a heavy strain on our personnel and
management, manufacturing and other resources. Our ability to manage the
expansion to date, as well as any future expansion, will require progressive
increases in manufacturing capacity, as well as enhancements or upgrades of
accounting and other internal management systems and the implementation of a
variety of procedures and controls. We cannot assure that significant problems
in these areas will not occur. Any failure to enhance or expand these systems
and implement such procedures and controls in an efficient manner and at a pace
consistent with our business activities could harm our financial condition and
results of operations. Also, in order to achieve anticipated revenue and other
financial performance targets, we will continue to be required to manage our
assets and operations efficiently. In addition, should we continue to expand
geographically, we may experience certain inefficiencies from the management of
geographically dispersed facilities.
As we manage and continue to expand new operations, we may incur
substantial infrastructure and working capital costs. If we do not achieve
sufficient growth to offset increased expenses associated with rapid expansion,
our profitability will decline.
WE NEED TO SUCCESSFULLY INTEGRATE OUR ACQUISITIONS TO MAINTAIN PROFITABILITY.
As we expand our operations through acquisitions and continue to evaluate
acquisition opportunities we 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;
- Retention of the customer base of acquired businesses;
- Management of an increasingly larger and more geographically disparate
business; and
- Diversion of management's attention from other ongoing business
concerns.
Our profitability will suffer if we are unable to successfully integrate
and manage recent acquisitions and pending acquisitions including, in
particular, the NEL transaction, as well as any future acquisitions that we
might pursue, or if we do not achieve sufficient revenue to offset the increased
expenses associated with these acquisitions. In the event we are unable to
acquire at least 90 percent of NEL in the tender offer, we may find it more
difficult to integrate and operate the NEL business.
THE ACQUISITION OF NEL MAY NOT OCCUR AND WE MAY NOT BE ABLE TO PURCHASE AT LEAST
90 PERCENT OF THE SHARES OF NEL IN THE TENDER OFFER.
On October 31, 2000, we signed a definitive agreement to commence an
offer to purchase all outstanding shares of NEL. NEL provides global contract
manufacturing services for original equipment manufacturers (OEMs) in the
electronics industry. The company manufactures printed circuit board (PCB)
assemblies, and provides box-building capabilities and pre- and
post-manufacturing services such as design, prototyping, testing and logistics.
Solectron has received irrevocable undertakings, representing approximately 43
percent of NEL's outstanding common shares, from major shareholders to tender
their shares under the offer. Those shares are held by the largest shareholder
of NEL, separately traded NSL; key members of NEL's management team; and Temasek
Capital. Temasek Holdings and other key shareholders of NSL, who collectively
hold approximately 23 percent of NSL's outstanding shares, have irrevocably
undertaken to vote their shares in favor of NSL tendering its NEL shares in the
offer. Notwithstanding the fact that we have signed a definitive agreement and
have received undertakings from NEL's major shareholders, the offer is subject
to several conditions, including: the tender of more
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than 50 percent of NEL's shares (on a fully diluted basis) to Solectron pursuant
to the offer; the approval of NatSteel Ltd. shareholders to sell its shares in
NEL to Solectron pursuant to the offer as well as the satisfactory completion of
all relevant regulatory reviews and approvals and all other customary
conditions. Thus, there can be no assurance that the acquisition will close as
contemplated, if at all. In addition, we may not receive the tender of at least
90 percent of the shares of NEL. If we are unable to purchase at least 90
percent of the shares of NEL in the tender offer, we may find it more difficult
to fully integrate and operate the NEL business. In the event the acquisition of
NEL is not consummated or to the extent we are unable to purchase at least 90
percent of the shares of NEL, the proceeds from this offering will be used, in
whole or in part, as the case may be, for other strategic opportunities and
other corporate purposes. There can be no assurance that such alternative uses
of capital will result in returns to Solectron equal to those anticipated to
result from the NEL transaction.
OUR NON-U.S. LOCATIONS ARE A SIGNIFICANT AND GROWING PORTION OF OUR NET SALES;
WE ARE INCREASINGLY EXPOSED TO RISKS ASSOCIATED WITH OPERATING INTERNATIONALLY.
In the first nine months of fiscal 2000, approximately 43% of net sales
came from sites outside the United States, while approximately 33% of net sales
came from sites outside the United States in fiscal 1999. Assuming the NEL
acquisition is completed, we expect that the percentage of our net sales
originating outside the United States will increase. As a result of our foreign
sales and facilities, our operations are subject to a variety of risks that are
unique to international operations, including the following:
- Adverse movement of foreign currencies against the U.S. dollar in which
our results are reported;
- Import and export duties, and value added taxes;
- Import and export regulation changes that could erode our 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, we have operations in several locations in emerging or
developing economies that have a potential for higher risk. The risks associated
with these economies include but are not limited to currency volatility, and
other economic or political risks. In the future, these factors may harm our
results of operations. Solectron locations in emerging or developing economies
include Mexico, Brazil, China, Malaysia and Romania. If the NEL acquisition is
completed, we will have locations in Indonesia, Hungary and Thailand and
additional locations in Malaysia, Mexico and China. As of May 31, 2000, we
recorded $120.5 million in cumulative foreign exchange translation losses on our
balance sheet which was primarily due to the devaluation of the Brazilian real.
While, to date, these factors have not had a significant adverse impact on our
results of operations, we cannot assure that there will not be such an impact.
Furthermore, while we may adopt measures to reduce the impact of losses
resulting from volatile currencies and other risks of doing business abroad, we
cannot assure 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 provides a stable rate environment when applied to local expenses
denominated in ringgit. 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.
NEL currently benefits from tax holidays in Singapore and Indonesia. In
the event the acquisition of NEL is completed, it is possible that the tax
holidays will be terminated or modified or that future tax holidays will not be
granted, in each case as a result of the acquisition transaction or otherwise,
and that the effective income tax rate for NEL's business would likely increase
as a result thereof.
We have been granted a tax holiday which is effective through January 31,
2002, subject to some conditions, for our Malaysian sites. We have also been
granted various tax holidays in China. These tax
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holidays are effective for various terms and are subject to some 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.
WE ARE EXPOSED TO FLUCTUATIONS IN THE EXCHANGE RATES OF FOREIGN CURRENCY.
We do not use derivative financial instruments for speculative purposes.
Our policy is to hedge our foreign currency denominated transactions in a manner
that substantially offsets the effects of changes in foreign currency exchange
rates. Presently, we use foreign currency borrowings and foreign currency
forward contracts to hedge only those currency exposures associated with certain
assets and liabilities denominated in non-functional currencies. Corresponding
gains and losses on the underlying transaction generally offset the gains and
losses on these foreign currency hedges.
As of May 31, 2000, all of the foreign currency hedging contracts were
scheduled to mature in less than three months and there were no material
deferred gains or losses. In addition, our international operations in some
instances act as a natural hedge because both operating expenses and a portion
of sales are denominated in local currency. In these instances, including our
current experience involving the devaluation of the Brazilian real, although an
unfavorable change in the exchange rate of a foreign currency against the U.S.
dollar will result in lower sales when translated to U.S. dollars, operating
expenses will also be lower in these circumstances. Also, since less than 12% of
Solectron's net sales are denominated in currencies other than the U.S. dollar,
we do not believe our total exposure to be significant.
We have currency exposures arising from both sales and purchases
denominated in currencies other than the functional currency of Solectron sites.
Fluctuations in the rate of exchange between the currency of the exposure and
the functional currency of the Solectron site could seriously harm our business,
operating results and financial condition. For example, if there is an increase
in the rate at which a foreign currency is exchanged for 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 we price our products and
services in the foreign currency, we will receive less in U.S. dollars than we
did before the rate increase went into effect. If we price our 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 our
prices being uncompetitive in markets where business is transacted in the local
currency.
WE ARE EXPOSED TO INTEREST RATE FLUCTUATIONS.
The primary objective of our investment activities is to preserve
principal, while at the same time, maximize yields without significantly
increasing risk. To achieve this objective, we maintain our portfolio of cash
equivalents and short-term investments in a variety of securities, including
both government and corporate obligations, certificates of deposit and money
market funds. As of May 31, 2000, approximately 85% of our total portfolio was
scheduled to mature in less than six months. In addition, our investments are
diversified and of relatively short maturity. A hypothetical 10% increase in
interest rates would not have a material effect on our investment portfolios.
We have entered into an interest rate swap transaction under which we pay
a fixed rate of interest hedging against the variable interest rates charged by
the lessor for the facility lease at Milpitas, California. The interest rate
swap expires in the year 2002, which coincides with the maturity date of the
lease term. As we intend to hold the interest rate swap until the maturity date,
we are not subject to market risk. In fact, such interest rate swap has fixed
the interest rate for the facility lease, thus reducing interest rate risk.
Our long-term debt instruments are subject to fixed interest rates. In
addition, the amount of principal to be repaid at maturity is also fixed. In the
case of the convertible notes, such notes are based on fixed conversion ratios
into common stock. Therefore, we are not exposed to variable interest rates
related to our long-term debt instruments.
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WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS; AND WE COULD BECOME INVOLVED IN INTELLECTUAL PROPERTY DISPUTES.
Our ability to effectively compete may be affected by our ability to
protect our proprietary information. We hold a number of patents and other
license rights. These patent and license rights may not provide meaningful
protection for our manufacturing processes and equipment innovations. On June
23, 1999, we were served, along with 87 other companies including SMART Modular
Technologies, Inc., 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. We believe we have meritorious defenses to these allegations
and do not expect that this litigation will result in a material impact on its
financial condition or results of operations. In the semiconductor, computer,
telecommunications and networking industries, companies receive notices from
time to time alleging infringement of patents, copyrights, or other intellectual
property rights, and litigation sometimes arises out of such notices. For
example, in January of this year, SMART filed a lawsuit seeking to have declared
invalid, and/or not infringed, three patents purportedly applicable to industry
standard memory products, including those manufactured by SMART and the other
manufacturers of these industry standard memory products. The owner of these
patents brought a cross-complaint alleging patent infringement against SMART,
and has also brought suit against several other memory product manufacturers
alleging infringement of the three patents. We believe that SMART's memory
products do not infringe any valid claims of any of the three patents at issue.
Moreover, we have been and may from time to time continue to be notified of
claims that we may be infringing patents, copyrights or other intellectual
property rights owned by other third parties. The current litigation or any
other litigation could result in substantial costs and diversion of resources
and could have a material adverse effect on our business, financial condition
and results of operations. In the future, third parties may assert infringement
claims against us or our customers. In the event of an infringement claim, we
may be required to spend a significant amount of money to develop a
non-infringing alternative or to obtain licenses. We 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
our financial condition.
FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD HARM OUR BUSINESS.
As a company in the electronics manufacturing services industry, we are
subject to a variety of environmental regulations relating to the use, storage,
discharge and disposal of hazardous chemicals used during our manufacturing
process. Although we have never sustained any significant loss as a result of
non-compliance with such regulations, any failure by us to comply with
environmental laws and regulations could result in liabilities or the suspension
of production. In addition, these laws and regulations could restrict our
ability to expand our facilities or require us to acquire costly equipment or
incur other significant costs to comply with regulations.
OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS OUTSIDE OF OUR CONTROL.
Our 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 innovation 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.
FAILURE TO RETAIN KEY PERSONNEL AND SKILLED ASSOCIATES COULD HURT OUR
OPERATIONS.
Our 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 us. Our business also depends
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<PAGE> 16
upon our ability to continue to attract and retain senior managers and skilled
associates. Failure to do so could harm our operations.
OUR ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRORS AND MAY
DEPRESS OUR STOCK PRICE.
Our 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 us to issue preferred stock with rights senior to those
of our common stock and impose various procedural and other requirements that
could make it more difficult for our stockholders to effect certain corporate
actions.
OUR HOLDING COMPANY STRUCTURE RESULTS IN SUBSTANTIAL STRUCTURAL SUBORDINATION
AND MAY AFFECT OUR ABILITY TO MAKE PAYMENTS ON LYONS.
The LYONs are obligations exclusively of Solectron. We are a holding
company and, accordingly, substantially all of our operations are conducted
through our subsidiaries. As a result, our cash flow and our ability to service
our debt, including the LYONs, is dependent upon the earnings of our
subsidiaries. In addition, we are dependent on the distribution of earnings,
loans or other payments by our subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. Our
subsidiaries have no obligation to pay any amounts due on the LYONs or to
provide us with funds for our payment obligations, whether by dividends,
distributions, loans or other payments. In addition, any payment of dividends,
distributions, loans or advances by our subsidiaries to us could be subject to
statutory or contractual restrictions. Payments to us by our subsidiaries will
also be contingent upon our subsidiaries' earnings and business considerations.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders of the
LYONs to participate in those assets, will be effectively subordinated to the
claims of that subsidiary's creditors, including trade creditors. In addition,
even if we were a creditor of any of our subsidiaries, our rights as a creditor
would be subordinate to any security interest in the assets of our subsidiaries
and any indebtedness of our subsidiaries senior to that held by us.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
IN CONTROL OFFER OR THE REPURCHASE REQUIRED BY THE INDENTURE.
Upon the occurrence of certain specific kinds of change in control events
occurring on or before May , 2004, or on the May , 2004 or November , 2010
purchase dates, we will be required to offer to repurchase all outstanding
LYONs. However, it is possible that we will not have sufficient funds at such
time to make the required repurchase of LYONs or that restrictions in our credit
facility or other indebtedness will not allow such repurchases. In addition,
certain important corporate events, such as leveraged recapitalizations that
would increase the level of our indebtedness, would not constitute a "Change in
Control" under the indenture. See "Description of LYONs -- Purchase of LYONs at
the Option of the Holder" and "-- Change in Control Permits Purchase of LYONs at
the Option of the Holder."
TRADING MARKET FOR LYONS
The LYONs comprise a new issue of securities for which there is currently
no public market. If the LYONs are traded after their initial issuance, they may
trade at a discount from their initial public offering price, depending on
prevailing interest rates, the market for similar securities, our performance
and other factors. Although we intend to file an application to list the LYONs
on the NYSE, we do not know whether the LYONs will be approved for the listing
or whether an active trading market will develop or be maintained for the LYONs.
To the extent that an active trading market for the LYONs does not develop, the
liquidity and trading prices for the LYONs may be harmed.
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USE OF PROCEEDS
The net proceeds from the LYONs offering are expected to be approximately
$ million ($ million if the underwriter's over-allotment
option is exercised in full) after deduction of estimated underwriting discounts
and commissions and the estimated expenses of the offering. We expect to receive
approximately $ million in net proceeds from the concurrent sale of
35,000,000 shares of common stock ($ million if the underwriters'
over-allotment option is exercised in full) after deduction of estimated
underwriting discounts and commissions and the estimated expenses of the
offering. The net proceeds will be used to fund the further expansion of our
business and for:
- strategic acquisitions, including approximately $2.4 billion to fund
the pending acquisition of NEL and the tender offer for its outstanding
debt,
- additional working capital,
- capital expenditures, and
- general corporate purposes.
Pending the application of the net proceeds, we expect to invest the net
proceeds from the sale of the LYONs and the common stock in short-term
interest-bearing securities. While we currently expect to use the proceeds as
set forth above, in the event the pending acquisition of NEL is not consummated
or we are only successful in acquiring less than 90 percent of NEL's shares in
the tender offer, the remaining proceeds may be used for other strategic
acquisitions, additional working capital and capital expenditures and for
general corporate purposes.
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PRICE RANGE OF COMMON STOCK
Our common stock is listed on the New York Stock Exchange under the
symbol "SLR." The following table shows the high and low per share sale prices
of our common stock as reported by the New York Stock Exchange for the periods
indicated. The stock prices set forth below are adjusted to reflect each of the
two-for-one stock splits effected on February 24, 1999 and March 8, 2000.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal Year Ended August 31, 1999
First Quarter............................................. $17 11/32 $ 9 45/64
Second Quarter............................................ 23 9/16 16 1/4
Third Quarter............................................. 28 15/16 20 1/4
Fourth Quarter............................................ 39 15/32 26 1/8
Fiscal Year Ended August 31, 2000
First Quarter............................................. $45 $33 1/16
Second Quarter............................................ 49 30 9/32
Third Quarter............................................. 49 1/2 28 1/4
Fourth Quarter............................................ 48 5/16 33 15/16
Fiscal Year Ending August 31, 2001
First Quarter (through November 1, 2000).................. $52 5/8 $39 1/4
</TABLE>
The last reported sale price of our common stock on the New York Stock
Exchange as of a recent date is set forth on the cover page of this prospectus
supplement.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock and we do not
anticipate paying any cash dividends in the foreseeable future.
CONCURRENT COMMON STOCK OFFERING
Concurrently with our offering of LYONs, we are offering by means of a
separate prospectus 35,000,000 shares of our common stock. The completion of the
common stock offering is not a condition to the completion of this offering.
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CAPITALIZATION
The following table sets forth our unaudited capitalization as of May 31,
2000, (1) on a historical basis, (2) as adjusted to give effect to the issuance
and sale of the LYONs offered hereby, and (3) as adjusted to give effect to the
concurrent offering of common stock, net of our estimated offering expenses and
underwriting discounts. You should read this table together with our financial
statements and notes thereto and other financial and operating data included
elsewhere in this prospectus supplement or in the prospectus or incorporated by
reference into this prospectus supplement or the prospectus.
<TABLE>
<CAPTION>
MAY 31, 2000
------------------------------------------
AS ADJUSTED
FOR THIS
AS OFFERING AND
ADJUSTED CONCURRENT
FOR THIS COMMON STOCK
ACTUAL OFFERING(1) OFFERING(2)
----------- ----------- ------------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt............................................. $ 57.8 $ 57.8 $ 57.8
Long-term liabilities:
LYONs offered hereby...................................... --
7 3/8% Senior Notes due 2006.............................. 149.8 149.8 149.8
Zero-Coupon Liquid Yield Option(TM) Notes due 2019........ 790.7 790.7 790.7
Zero-Coupon Liquid Yield Option(TM) Notes due 2020........ 2,334.3 2,334.3 2,334.3
Other long-term liabilities(3)............................ 38.0 38.0 38.0
-------- -------- --------
Total long-term liabilities............................. 3,312.8
Stockholders' equity:
Preferred Stock, 1,200,000 shares authorized; none issued
and outstanding......................................... -- -- --
Common Stock, 800,000,000 shares authorized; 600,980,987
shares issued and outstanding; 600,980,987 issued and
outstanding as adjusted for this offering;
shares issued and outstanding as adjusted for this
offering and the concurrent common stock offering(4).... .6 .6
Additional paid-in capital.................................. 2,221.5 2,221.5
Retained earnings........................................... 1,485.7 1,485.7 1,485.7
Accumulated other comprehensive income...................... (123.2) (123.2) (123.2)
-------- -------- --------
Total stockholders' equity................................ 3,584.6 3,584.6
-------- -------- --------
Total capitalization.................................... $6,955.2 $ $
======== ======== ========
</TABLE>
------------
(1) Assuming the exercise in the LYONs offering of the underwriter's
over-allotment option in full, LYONs offered hereby, total long-term
liabilities and total capitalization at May 31, 2000, as adjusted, would
have been $ million, $ million and $ million, respectively.
(2)Assuming the exercise in the LYONs offering of the underwriter's
over-allotment option in full (and assuming no exercise of the underwriters'
over-allotment option in the common stock offering), LYONs offered hereby,
total long-term liabilities and total capitalization at May 31, 2000, as
adjusted, would have been $ million, $ million and $ million,
respectively.
(3) Does not reflect contingent liabilities under a first loss clause for a
decline in market value of leased facilities totaling up to $170 million in
the event we do not purchase the properties at the end of the lease terms.
See Note D to our supplemental consolidated financial statements in our
report on Form 8-K dated September 6, 2000.
(4) Outstanding common stock as of May 31, 2000 does not include (A) 59,763,200
shares of common stock available for issuance pursuant to Solectron's
employee stock plans (B) 24,747,946 shares of common stock reserved for
issuance upon conversion of the Zero-Coupon Liquid Yield Option Notes due
2019, (C) 49,631,873 shares of common stock reserved for issuance upon
conversion of the Zero-Coupon Liquid Yield Option Notes due May 8, 2020, (D)
shares of common stock reserved for issuance upon conversion of the
LYONs offered hereby and (E) 35,000,000 shares of common stock to be issued
in the concurrent common stock offering.
(TM) Trademark of Merrill Lynch & Co., Inc.
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SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The following selected unaudited supplemental consolidated financial
information of Solectron, combined with SMART, AMERICOM and Bluegum on a pooling
of interests basis should be read in conjunction with the supplemental
consolidated financial statements and the related notes included in our 8-K
filed on September 6, 2000 and incorporated by reference herein.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
YEARS ENDED AUGUST 31, MAY 31,
---------------------------------------------------- --------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net sales.................................. $2,347.2 $3,231.8 $4,408.5 $6,102.2 $9,669.2 $9,401.3
Operating income........................... 144.0 213.6 303.2 368.6 516.1 461.2
Income before income taxes................. 140.6 213.2 307.5 375.5 514.5 488.0
Net income................................. 92.2 139.6 203.7 251.3 350.3 326.2
Basic net income per share(1).............. 0.25 0.31 0.42 0.49 0.65 0.54
Diluted net income per share(1)............ 0.22 0.30 0.40 0.47 0.61 0.52
OTHER DATA:
Ratio of earnings to fixed charges(2)...... 9.37x 10.27x 9.66x 10.82x 8.68x 7.84x
</TABLE>
<TABLE>
<CAPTION>
AS OF AUGUST 31, AS OF
---------------------------------------------------- MAY 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Net working capital........................ $ 377.5 $ 860.9 $1,137.5 $1,278.1 $3,162.7 $5,738.2
Total assets............................... 1,034.4 1,627.9 2,209.9 2,843.7 5,420.5 9,221.4
Long-term debt............................. 31.8 388.3 386.2 386.8 922.7 3,295.8
Stockholders' equity....................... 564.8 787.8 1,150.2 1,475.4 3,166.9 3,584.6
</TABLE>
-------------------------
(1)All net income per share amounts have been adjusted to reflect the
two-for-one stock splits through March 8, 2000.
(2)We have computed the ratio of earnings to fixed charges by dividing earnings
available for fixed charges by fixed charges. These computations include us
and our consolidated subsidiaries. For these ratios, earnings represents
income before taxes plus fixed charges (excluding capitalized interest) and
amortization of previously capitalized interest. Fixed charges consists of
(1) interest on all indebtedness and amortization of debt discount and
expense, (2) capitalized interest and (3) an interest factor attributable to
rentals.
On April 11, 2000 we filed an 8-K to restate our financial statements to
reflect the acquisition of SMART Modular Technologies, Inc. (SMART) which was
accounted for as a pooling of interests. On September 6, 2000 we filed an 8-K to
restate our financial statements to reflect the acquisitions of AMERICOM and
Bluegum which were each accounted for as a pooling of interests. You should note
that the financial information contained in our Quarterly Reports for the fiscal
quarters ended February 29, 2000 and May 31, 2000 has not been restated to
reflect the acquisitions of AMERICOM and Bluegum and is therefore not comparable
to the other financial information which is contained herein and which will be
reported by us in the future. Also note that the financial information contained
in our Quarterly Report for the fiscal quarter ended November 30, 1999 has not
been restated to reflect the acquisitions of SMART, AMERICOM and Bluegum and is
therefore not comparable to the other financial information which is contained
herein and which will be reported by us in the future.
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<PAGE> 21
BUSINESS
OVERVIEW
We provide electronics manufacturing services to original equipment
manufacturers (OEMs) who design and sell networking equipment, mobile and land
based telecommunications equipment, computing equipment, including workstations,
notebooks, desktops and peripherals, and other electric equipment. These OEMs
include Cisco Systems, Inc. (Cisco), Compaq Computer Corporation (Compaq),
Ericsson Telecom AB (Ericsson), Hewlett-Packard Company (HP), International
Business Machines Corporation (IBM) and Nortel Networks Limited (Nortel). These
companies contract with us to build their products for them or to obtain other
related services from us.
We furnish integrated supply chain solutions that span the entire product
life cycle -- from technology solutions, to manufacturing and operations, to
global services. Our range of services includes:
- Advanced building block design solutions;
- Product design and manufacturing;
- New product introduction management;
- Materials purchasing and management;
- Prototyping;
- Printed circuit board assembly (the process of placing components on an
electrical printed circuit board that controls the processing functions
of a personal computer or other electronic equipment);
- Systems assembly (for example, building complete systems such as mobile
telephones and testing them to ensure functionality);
- Distribution;
- Product repair; and
- Warranty services.
Providing these services to our customers allows them to remain
competitive by focusing on their core competencies of sales, marketing, and
research and development. We have manufacturing facilities in the Americas,
Europe and Asia/Pacific. This geographic presence gives our customers access to
manufacturing services in the locations close to their expanding markets for
faster product delivery.
INDUSTRY OVERVIEW
We are well recognized for our printed circuit board (PCB) assembly
business. We continue to lead in this industry and have grown into a global
supply chain facilitator expanding our capabilities across the entire product
cycle to include: product design, pre-production planning, New Product
Introduction (NPI) management, manufacturing, distribution, and end-of-life
product service and support. We are benefiting from increased worldwide market
acceptance of, and reliance upon, the use of outsourcing manufacturing services
by many electronics OEMs. We expect the trend towards outsourcing manufacturing
to continue for many reasons including the following:
Faster Time to Market. Due to intense competitive pressures in the
electronics industry, OEMs are facing increasingly shorter product life-cycles
and therefore have a growing need to reduce the time required to bring a product
to market. OEMs can reduce the time to market by using our manufacturing
expertise and infrastructure. OEMs can further reduce the time to market by
partnering with us at the stages of product design and product improvement to
expedite the transition into large volume of production in our manufacturing
centers.
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Reduce Investment. As electronic products have become more
technologically advanced and are shipped in greater unit volumes, the necessary
investment required for internal product design, manufacturing, and end-of-life
support services by OEMs has increased significantly for working capital,
capital equipment, labor, systems and infrastructure. Solectron, a global supply
chain facilitator, enables OEMs to gain access to our worldwide advanced
technology facilities including NPI centers, manufacturing and depot repair
facilities. As a result, OEMs can substantially reduce their overall resource
requirements.
Focus Resources. The electronics industry is experiencing greater levels
of competition and more rapid technological change. Many OEMs increasingly are
seeking to focus their resources on activities and technologies that add the
greatest value. By offering comprehensive electronics assembly and related
manufacturing services, we allow OEMs to focus on their own core competencies
such as next-generation product development, sales and marketing.
Access Leading Manufacturing Technology. Electronic products and
electronics manufacturing technology have become increasingly sophisticated and
complex, making it difficult for OEMs to maintain the necessary technological
expertise to manufacture products internally. OEMs are motivated to work with us
to gain access to our expertise in interconnect, test and process technologies.
Improve Inventory Management and Purchasing Power. Electronics industry
OEMs are faced with increasing difficulties in planning, procuring and managing
their inventories efficiently due to frequent design changes, short product life
cycles, large investments in electronic components, component price fluctuations
and the need to achieve economies of scale in materials procurement. OEMs can
reduce production costs by using our volume procurement capabilities. In
addition, our expertise in inventory management can provide better control over
inventory levels and increase the OEM's return on assets.
Access Worldwide Manufacturing Capabilities. OEMs are increasing their
international activities in an effort to lower costs and access foreign markets.
With our worldwide capabilities, we offer OEMs a variety of manufacturing
location options to better address their objectives, including cost containment,
compliance with local content regulations, and the elimination of expensive
freight costs, tariffs and time-consuming customs clearances.
STRATEGY
Our goal is to offer our customers significant competitive advantages of
electronics outsourcing, such as access to design and product improvement,
advanced manufacturing technologies, reduced overall cost, faster product time
to market, effective asset utilization, and refined end-of-life product support
services. To achieve this goal, we emphasize the following key elements:
Quality. We believe product quality is a critical success factor in the
electronics manufacturing market. We strive to continuously improve our
processes and have adopted a number of quality improvement and measurement
techniques to monitor our performance. We have received numerous superior
service and quality awards, including:
- Malcolm Baldrige National Quality Award in 1991 and again in 1997;
- Ranked No. 3 World's Best Performing Information Technology 100 Listing
by Business Week in 1999;
- One of the World's 100 Best Managed Companies named by Industry Week in
1999;
- Massachusetts Quality Award in 1999;
- North Carolina National Team Excellence Award in 1999;
- North Carolina Charlotte-Mecklenburg Quality Award in 1999;
- Arc of Washington State's Employer of the Year Award in 1999;
- Mexico Jalisco State Quality Award in 1999;
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- Best Manufacturing Plant in North America Award from Industry Week in
1998 and 1999;
- Washington State Quality Award of Merit in 1998; and
- Other numerous awards from our customers.
All of our manufacturing facilities are certified under ISO-9000
standards, which are international quality standards for design, manufacturing
and distribution management systems.
Partnerships. An important element of our strategy is to establish
partnerships with major and emerging OEM leaders in diverse segments across the
electronics industry. Our customer base consists of leaders in industry segments
such as networking, telecommunications, workstations, personal computers,
computer peripherals, instrumentation, semiconductor equipment and avionics. Due
to the costs inherent in supporting customer relationships, we focus our efforts
on customers with high potential for long-term business partnerships. Our goal
is to deliver a total product life cycle solution to our customers. We offer
OEMs NPI management, which includes design and layout, concurrent engineering,
test development and prototype engineering. We continue the cycle to provide
solutions in manufacturing and distribution including just-in-time delivery on
low-to-medium volume turn-key, price-sensitive and high volume production, and
projects that require more value-added services. Additionally, we serve OEMs
that need end-of-life services such as product repair and warranty services.
Turn-key Capabilities. Another element of our strategy is to provide a
complete range of manufacturing management and value-added services, including
materials management, board design, concurrent engineering, assembly of complex
printed circuit boards and other electronic assemblies, test engineering,
software manufacturing, accessory packaging and post-manufacturing services. We
believe that as manufacturing technologies become more complex and as product
life-cycles shorten, OEMs will increasingly contract for manufacturing on a
turn-key basis as they seek to reduce their products' time-to-market, capital
asset and inventory costs. A substantial portion of our revenue is from our
turn-key business. We believe that our ability to manage and support large
turn-key projects is a critical success factor. In addition, we believe that due
to the difficulty and long lead-time required to change manufacturers, turn-key
projects generally increase an OEM's dependence, resulting in greater stability
of our customer base and in closer working relationships. We also have been
successful in establishing sole-source positions for certain products with many
of our customers.
Advanced Manufacturing Process Technology. We intend to continue to offer
our customers the most advanced manufacturing process technologies, including
surface mount technology (SMT) and ball-grid array (BGA) assembly as well as
testing and emerging interconnect technologies. We have developed substantial
SMT expertise including advanced, vision-based component placement equipment. We
believe that the cost of SMT assembly facilities and the required technical
capability to operate a high-yield SMT operation are significant competitive
factors in the market for electronic assembly. We also have the capability to
manufacture using tape-automated-bonding, chip-on-substrate and other more
advanced manufacturing processes.
Diverse Geographic Operations. An additional element of our strategy is
to establish production facilities in areas of high customer density or where
manufacturing efficiencies can be achieved. We currently have operations
throughout the Americas, Europe and Asia/Pacific. We believe that our facilities
in these diverse geographic locations enable us to better address our customers'
requirements such as cost containment, compliance with local content
regulations, and the elimination of expensive freight costs, tariffs and
time-consuming customs clearances. We intend to expand our operations
continually as necessary to serve our existing customers and to develop new
business.
INTERNATIONAL MANUFACTURING CAPABILITY
To achieve excellence in manufacturing, we combine advanced manufacturing
technology, such as computer-aided manufacturing and testing, with manufacturing
techniques including just-in-time manufacturing, total quality management,
statistical process control and continuous flow manufacturing. Just-in-time
manufacturing is a production technique to minimize work-in-process inventory
and manufacturing
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<PAGE> 24
cycle time while enabling Solectron to deliver products to customers in the
quantities and time frame required. Total quality management is a management
philosophy that seeks to impart high levels of quality in every operation of
Solectron and is accomplished by setting quality objectives for every operation,
tracking performance against those objectives, identifying work flow and policy
changes required to achieve higher quality levels and a commitment by executive
management to support changes required to deliver higher quality. Statistical
process control is a set of analytical and problem-solving techniques based on
statistics and process capability measurements through which we track process
inputs and resulting quality and determine whether a process is operating within
specified limits. The goal is to reduce variability in the process, as well as
to eliminate deviations that contribute to quality below the acceptable range of
each process performance standard.
In order to successfully implement these management techniques, we have
developed the ability to collect and utilize large amounts of data in a timely
manner. We believe this ability is critical to a successful assembly operation
and represents a significant competitive factor, especially in large turn-key
projects. To manage this data, we use sophisticated computer systems for
material resource planning, shop floor control, work-in-process tracking and
statistical process control.
To offer our customers the significant competitive advantage of
electronics outsourcing, we have production facilities in areas of high customer
density or where manufacturing efficiencies can be achieved. In the first nine
months of fiscal 2000, approximately 43% of our sales were from operations
outside of the United States. As a result of continuous customer demand
overseas, we expect foreign sales to increase. During fiscal 2000, we have
further expanded our global presence through acquisitions. Our foreign sales and
operations are subject to risks of doing business abroad, including fluctuations
in the value of currency, export duties, import controls and trade barriers
(including quotas), restrictions on the transfer of funds, associate turnover,
work stoppages, longer payment cycles, greater difficulty in accounts receivable
collection, burdens of complying with a wide variety of foreign laws and, in
certain parts of the world, political instability. While, to date, these factors
have not materially affected our results of operations, we cannot assure that
there will not be such an impact in the future.
AMERICAS
Western United States. Our headquarters and largest manufacturing
operations are located in Silicon Valley, principally in Milpitas, California,
in the midst of one of the largest concentrations of OEM electronics
manufacturers. With our recent acquisition of SMART Modular Technologies, Inc.
(SMART) in Fremont, California, we extended our manufacturing capacity. SMART
designs and manufactures memory modules and memory cards, embedded computers and
I/O products. Our manufacturing facility in Everett, Washington helps to serve
our customers in the Pacific Northwest.
Southwestern United States. We believe our facility in Austin, Texas, is
situated in a geographic region with strong growth of electronics OEMs that will
allow us to better service our existing customers and to attract new ones.
Eastern United States. Our manufacturing facility in Westborough,
Massachusetts, near Boston, in the center of a geographic region with a large
concentration of electronics OEMs, provides a full range of integrated solutions
across the entire product life cycle from pre-production planning to
manufacturing.
Southeastern United States. We also have operations in Charlotte, North
Carolina; Columbia, South Carolina; and Suwanee, Georgia. We believe these
facilities allow us to better pursue new business opportunities with new and
existing customers, in particular, because of Charlotte's status as a
transportation hub and its relative proximity to major Southeastern United
States electronics markets. Our facility in Suwanee, Georgia, serves as our East
Coast center for medium- to low-complexity, medium to high-volume systems
assembly for PC, server, workstation, telecommunication and networking equipment
customers. This facility is part of our build-to-order systems division. We
further expanded our manufacturing facilities by the acquisition of
manufacturing assets of Nortel in North Carolina.
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<PAGE> 25
Mexico. Our site in Guadalajara, Mexico, began providing a full range of
PCB assembly and systems- build manufacturing services in the first quarter of
fiscal 1998. This site offers our customers a low-cost, high-volume
manufacturing center for PCB assembly, build-to-order and configure-to-order
systems assembly for the Americas. Our manufacturing capacity in Mexico was
expanded by the acquisition of manufacturing assets of Nortel in Monterrey,
Mexico, in fiscal 2000.
Brazil. Our site in Sao Paulo, Brazil, provides a full range of
capabilities across the product life cycle, including systems-build
capabilities, PCB and flex assembly, custom packaging and distribution services,
primarily to multinational customers seeking access to the Latin American
market. This manufacturing facility in Brazil was recently expanded as a result
of the acquisition of IBM Corporation's manufacturing operations in Sao Paulo,
Brazil.
Puerto Rico. We recently established a manufacturing facility in
Aguadilla, Puerto Rico, through the acquisition of Alcatel's manufacturing
business. This site will provide our customers with a full range of
manufacturing services and high-volume PCB assembly.
EUROPE
We have manufacturing operations in Bordeaux, France; Herrenberg,
Germany; Dublin, Ireland; Timisoara, Romania; and Dunfermline, Scotland. Each of
these sites provides a full range of manufacturing capabilities to a
multinational customer base. In addition, each site is developing an area of
specific expertise to offer to all customers. The France and German sites offer
low-volume, high-mix manufacturing services. The Romania site serves as our
full-service, high-volume, low-cost manufacturing hub for our rapidly growing
European customer base. The Scotland site specializes in building PCB
assemblies, subassemblies and systems for multinational customers in the
European market.
During fiscal 2000, our manufacturing capacity in Europe was expanded to
Cwmcarn, Wales; Pont de Buis and Douarnenez, France; Longuenesse, France;
Ostersund, Sweden; and Monkstown, Northern Ireland, through the acquisition of
Nortel's manufacturing assets and of Ericsson's manufacturing assets of
telecommunications infrastructure equipment operations. We expanded our presence
in Scotland through an asset acquisition of IBM's Netfinity server operations in
Greenock, Scotland.
ASIA/PACIFIC AND OTHER
Our Southeast Asia manufacturing operations are located in Penang and
Johor, Malaysia. The operations in Southeast Asia were established to better
serve the needs of OEMs requiring price-sensitive, high-volume production
capabilities and to provide more efficient manufacturing services to customers
in Southeast Asia. These facilities currently provide electronics assembly,
materials management and other services to customers in Malaysia, Singapore,
Japan, the United States and other locations. Our facility in Suzhou, China,
opened in fiscal 1997. This facility currently provides a full range of low-cost
high volume manufacturing services.
During fiscal 2000, we expanded our manufacturing presence in Penang,
Malaysia, and established a site in Bangalore, India through the acquisition of
SMART. Our Australian site was established through the acquisition of the
Bluegum Group (Bluegum). We will offer our customers manufacturing and systems
assembly capabilities in Liverpool, New South Wales; Wangaratta and Melbourne,
Victoria; and program offices in Sydney and North Melbourne, Australia.
NEW PRODUCT INTRODUCTION CENTERS
We have NPI centers in the United States, Brazil, Puerto Rico, France,
Sweden, Germany, Northern Ireland, Scotland, Malaysia, Japan, Singapore and
Australia. These NPI centers offer a full range of electronics product
development services, including design and layout, concurrent engineering, test
development and prototype engineering. We believe our NPI services will shorten
our customers' product development cycles by offering full design and
development services to complement our customers' in-
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<PAGE> 26
house capabilities. We partner with our customers as early as possible in the
new product development process to optimize their products' design for volume
manufacturing.
Our NPI centers in Milpitas, California; Westborough, Massachusetts; and
Suwanee, Georgia specialize in design consultation, prototyping, and NPI
management services. Our subsidiary, Fine Pitch in San Jose, California provides
extensive prototype services for electronics OEMs, further enhancing our ability
to address the needs of design teams who require almost immediate availability
of highly complex prototype assemblies. Another subsidiary, Force Computers,
Inc.(Force) in San Jose, California specializes in system design, board design
and system integration for open, scalable system and board-level embedded
computer platforms for the communications, industrial and command and control
markets. Through the acquisition of SMART, we gained design centers and
infrastructure by integrating SMART into the technology solutions business unit
with Force in Fremont, California.
Our site in Sao Paulo, Brazil and our newly established site in
Aguadilla, Puerto Rico through the acquisition of Alcatel's manufacturing
business, also offer NPI management and engineering services.
As part of the Nortel and Ericsson manufacturing asset acquisitions, NPI
centers were established in Cwmcarn, Wales; Pont de Buis and Douarnenez, France;
Longuenesse, France; Ostersund, Sweden and Monkstown, Northern Ireland. We
provide prototyping and NPI management services in these locations. To support
the IBM design team as part of the acquisition of manufacturing assets of IBM's
Netfinity server operations, we established a new full-service NPI center in
Port Glasgow, Scotland.
Our Product Introduction center just outside of Tokyo, Japan, provides a
complete range of electronics pre-manufacturing services, including design and
layout, testing capabilities, prototype development, and concurrent and
component engineering.
We will establish new NPI centers in Singapore and in Liverpool,
Wangaratta and Melbourne, Australia, through our recent acquisition of Bluegum.
GLOBAL SERVICES
We offer a full range of integrated solutions from the time the product
is designed until it is removed from the market. These services include product
repair, upgrades, remanufacturing and maintenance through factory and fast-hub
service centers located around the world; help-desk support through customer
call centers for end-users; logistics and parts management; returns processing;
warehousing; engineering change management; and end-of-life manufacturing. These
services give our customers improved speed from the service pipeline by us
taking direct receipt responsibility for returns from the end user and making
sure that various buffer stock and inventory mechanisms are established. These
services also minimize shipping costs and time by handling repairs at our
various international locations. In addition, our data collection system can
provide invaluable information to analyze product design reliability. As a
result, the OEMs can focus their efforts on developing next-generation products.
We have global service sites in the United States, Canada, Mexico,
France, Northern Ireland, Brazil, Sweden, United Kingdom and Japan. Our service
capacity was strengthened through the acquisition of Sequel, in San Jose,
California; and Memphis, Tennessee. The Memphis hub offers integrated call
management, remote failure diagnostics, air express dispatch, systems repair,
component level repair, configuration and upgrades, returns processing and
administration, refurbishment and redistribution services. We further expanded
our service capacity in wireless handset repair and refurbishment and
outsourcing technical customer support services in Los Angeles, California;
Louisville, Kentucky; Baltimore, Maryland; and Dallas, Texas, through the
acquisition of AMERICOM Wireless Services, Inc. (AMERICOM) in fiscal 2000.
We recently established a repair service site in Vaughan, Canada, by
acquiring repair operations of IBM's NULOGIX Technical Services. NULOGIX
provides a complete range of technology repair, remanufacturing and
refurbishment services for a large variety of electronics products. As a result
of this transaction, we are now able to provide the Canadian market a full range
of value-added support service solutions. These services include: product
repair, upgrades, remanufacturing and maintenance through
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<PAGE> 27
factory and fast-hub service centers located around the world; help-desk support
through customer call-in centers for end-users; logistics and parts management;
returns processing; warehousing; engineering change management and end-of-life
manufacturing.
As part of our acquisition of Nortel and Ericsson manufacturing assets,
global service sites were established in Calgary, Canada; Research Triangle
Park, North Carolina; Monterrey, Mexico; Cwmcarn, Wales; Pont de Buis and
Douarnenez, France; Longuenesse, France; Ostersund, Sweden; and Monkstown,
Northern Ireland.
ELECTRONICS ASSEMBLY AND OTHER SERVICES
Our electronics assembly activities consist primarily of the placement
and attachment of electronic and mechanical components on printed circuit boards
and flexible cables. We also assemble higher-level sub-systems and systems
incorporating printed circuit boards and complex electromechanical components,
in some cases manufacturing and packaging products for shipment directly to our
customers' distributors. In addition, we provide other manufacturing services,
including refurbishment and remanufacturing. We manufacture on a turn-key basis,
directly procuring some or all of the components necessary for production and on
a consignment basis, where the OEM customer supplies all or some components for
assembly.
In conjunction with our assembly activities, we also provide
computer-aided testing of printed circuit boards, sub-systems and systems, which
contributes significantly to our ability to consistently deliver high-quality
products. We have developed specific strategies and routines to test board and
system-level assemblies. In-circuit tests verify that all components have been
properly inserted and that the electrical circuits are complete. Functional
tests determine if the board or system assembly is performing to customer
specifications. We either design and procure test fixtures and develop our own
test software, or we utilize our customers' test fixtures and test software. In
addition, we provide environmental stress tests of the board or system assembly.
We provide turn-key manufacturing management to meet our customers'
requirements, including procurement and materials management and consultation on
board design and manufacturability. Individual customers may select various
services from among our full range of turn-key capabilities.
Procurement and materials management consists of the planning,
purchasing, expediting, warehousing, preparing and financing of the components
and materials required to assemble a printed circuit board or electronic system.
OEMs have increasingly used electronic manufacturing specialists like Solectron
to purchase all or some components directly from component manufacturers or
distributors and to finance and warehouse the components.
Another service we provide to our customers is assisting in evaluating
board designs for manufacturability. We evaluate the board design for ease and
quality of manufacture and, when appropriate, recommend design changes to reduce
manufacturing costs or lead times or to increase the quality of finished
assemblies. Board design services consist of the engineering and design
associated with the arrangement and interconnection of specified components on
printed circuit boards to achieve an OEM's desired level of functionality.
We also offer Application Specific Integrated Circuit (ASIC) design
services. Our ASIC product design services include the embedded computer, memory
modules and memory cards, and I/O products.
SALES AND MARKETING
Our sales and marketing are integrated processes involving direct
salespersons and project managers, as well as our senior executives. Our sales
resources are directed at multiple management and staff levels within targeted
accounts. We also use independent sales representatives in certain geographic
areas. We receive unsolicited inquiries resulting from advertising and public
relations activities, as well as referrals from current customers. These
opportunities are evaluated against our customer selection criteria and are
assigned to direct salespersons or independent sales representatives, as
appropriate. Historically, we have had substantial recurring sales from existing
customers.
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Approximately 98.5% of our net sales during the nine months ended May 31,
2000 were derived from customers that were also customers during fiscal 1999.
Although we seek to diversify our customer base, a small number of customers
currently are responsible for a significant portion of our net sales.
Our top ten customers accounted for 71% of net sales in the first three
quarters of fiscal 2000, 74% of net sales in fiscal 1999, and 68% of net sales
in fiscal 1998. Several customers each accounted for more than 10% of net sales
during these years. Cisco and Ericsson accounted for 12% and 11% of net sales,
respectively, in the nine-month period of fiscal 2000. Compaq and Cisco
represented 12% and 11% of net sales, respectively, in fiscal 1999. HP and Cisco
accounted for 11% and 10% of net sales, respectively, in fiscal 1998. No other
individual customer accounted for more than 10% of our net sales in any of these
years.
COMPETITION
The electronic manufacturing services industry comprises a large number
of companies, several of which have achieved substantial market share. We also
face competition from current and prospective customers that evaluate our
capabilities against the merits of manufacturing products internally. We compete
with different companies depending on the type of service or geographic area.
Certain competitors may have greater manufacturing, financial, research and
development and marketing resources than Solectron. We believe that the primary
basis of competition in our targeted markets is manufacturing technology,
quality, responsiveness, the provision of value-added services and price. To
remain competitive, we must continue to provide technologically advanced
manufacturing services, maintain quality levels, offer flexible delivery
schedules, deliver finished products on a reliable basis and compete favorably
on the basis of price. We may be at a competitive disadvantage as to price,
compared with manufacturers with lower cost structures, particularly
manufacturers with facilities where labor costs are lower.
ASSOCIATES
As of May 31, 2000, we employed 52,025 associates worldwide, including
13,903 temporary associates. Our international operations employed 28,915
associates.
PATENTS AND TRADEMARKS
We have a number of United States patents related to the process and
equipment used in our surface mount technology. Our subsidiary SMART Modular
Technologies Inc. holds one patent related to memory module technology. Another
subsidiary, Force, holds a number of patents related to Versa Module Eurocard
(VME) technology. In addition, as part of our recent acquisition of IBM-ECAT's
manufacturing assets, we have access to a number of IBM patents and license
rights. We also have registered trademarks in the United States and many
countries throughout the world. These patents and trademarks are considered
valuable to us.
Although we do not believe that our trademarks, manufacturing process,
SMART's and Force's technology or the IBM patents and license rights to which we
have access infringe on the intellectual property rights of third parties, we
cannot assure that third parties will not assert infringement claims against us
in the future. If such an assertion were to be made, it may become necessary or
useful for us to enter into licensing arrangements or to resolve such an issue
through litigation. However, we cannot assure that such license rights would be
available to us on commercially acceptable terms or that any such litigation
would be resolved favorably. Additionally, such litigation could be lengthy and
costly and could materially harm our financial condition regardless of the
outcome of such litigation.
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 infringed
certain of the plaintiff's patents relating to machine vision and barcode
technology. Solectron believes it has meritorious defenses to these allegations
and does not expect that this litigation will result in a material impact on its
financial position or results of operations.
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DESCRIPTION OF LYONS
We will issue the LYONs under a senior indenture dated as of May 8, 2000,
as supplemented by the supplemental indenture to be dated as of November ,
2000. When we refer to the indenture in this prospectus supplement, we are
referring to the senior indenture as supplemented by the supplemental indenture.
The following summarizes some, but not all, of the material provisions of the
LYONs and the supplemental indenture. The LYONs are a series of debt securities
described in the accompanying prospectus, and are original issue discount
securities within the meaning of the senior indenture. The following description
supplements, and to the extent it is inconsistent, supercedes, the statements
under "Description of Debt Securities" in the accompanying prospectus. We refer
you to the accompanying prospectus for a description of the debt securities and
the senior indenture. The following summary does not purport to be complete and
is subject to, and qualified by reference to, all of the provisions of the
supplemental indenture and the senior indenture. As used in this description,
the words "we," "us," "our" or "Solectron" do not include any current or future
subsidiary of Solectron Corporation.
GENERAL
The LYONs will be limited to $1,800,000,000 aggregate principal amount at
maturity ($2,070,000,000 aggregate principal amount at maturity if Merrill Lynch
exercises the over-allotment option in full). The LYONs will mature on November
, 2020. The principal amount at maturity of each LYON is $1,000. The LYONs
will be payable at the office of the paying agent, which initially will be an
office or agency of the trustee, or an office or agency maintained by us for
such purpose, in the Borough of Manhattan, The City of New York.
The LYONs are being offered at a substantial discount from their
principal amount at maturity. See "Federal Income Tax Considerations -- Original
Issue Discount." We will not make periodic payments of interest on the LYONs,
except in certain limited circumstances at our election. Each LYON will be
issued at an issue price of $ per LYON. However, the LYONs will accrue
original issue discount while they remain outstanding. Original issue discount
is the difference between the issue price and the principal amount at maturity
of a LYON. The calculation of the accrual of original issue discount will be on
a semi-annual bond equivalent basis using a 360-day year composed of twelve
30-day months. The issue date for the LYONs and the commencement date for the
accrual of original issue discount will be November , 2000.
Maturity, conversion, purchase by us at the option of a holder or
redemption of a LYON will cause original issue discount and interest, if any, to
cease to accrue on such LYON under the indenture. We may not reissue a LYON that
has matured or been converted, purchased by us at the option of a holder,
redeemed or otherwise cancelled, except for registration of transfer, exchange
or replacement of such LYON.
LYONs may be presented for conversion at the office of the conversion
agent, and for exchange or registration of transfer at the office of the
registrar, each such agent initially being the trustee.
BOOK-ENTRY SYSTEM
The LYONs will initially be issued in the form of a global security held
in book-entry form. DTC or its nominee will be the sole registered holder of the
LYONs for all purposes under the indenture. Owners of beneficial interests in
the LYONs represented by the global security will hold such interests pursuant
to the procedures and practices of DTC. As a result, owners of beneficial
interests must exercise any rights in respect of their interests, including any
right to convert or require repurchase of their interests, in accordance with
the procedures and practices of DTC. Beneficial owners will not be holders and
will not be entitled to any rights under the global security or the indenture
provided to the holders of the LYONs. Solectron and the trustee, and any of
their respective agents, may treat DTC as the sole holder and registered owner
of the global security.
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RANKING OF LYONS
The LYONs will be unsecured and unsubordinated obligations. The LYONs
will rank on a parity in right of payment with all of our existing and future
unsecured and unsubordinated indebtedness, including our outstanding Zero Coupon
Liquid Yield Option(TM) Notes due 2019 and our outstanding Zero Coupon Liquid
Yield Option(TM) Notes due 2020.
COVENANTS
The covenants set forth under "Senior Debt Securities -- Covenants in the
Senior Indenture" in the accompanying prospectus shall not apply to the LYONs.
CONVERSION RIGHTS
A holder may convert a LYON, in multiples of $1,000, into common stock at
any time before the close of business on November , 2020. However, a holder
may convert a LYON only until the close of business on the redemption date if we
call a LYON for redemption. A LYON for which a holder has delivered a purchase
notice or a change in control purchase notice requiring us to purchase the LYON
may be converted only if such notice is withdrawn in accordance with the
indenture.
The conversion rate is shares of common stock per LYON, subject to
adjustment upon the occurrence of certain events described below. We will pay
cash equal to the then current market value of a fractional share.
On conversion of a LYON, a holder will not receive any cash payment
representing accrued original issue discount. Our delivery to the holder of the
fixed number of shares of common stock into which the LYON is convertible,
together with any cash payment for fractional shares, will be deemed:
- to satisfy our obligation to pay the principal amount at maturity of
the LYON; and
- to satisfy our obligation to pay accrued original issue discount
attributable to the period from the issue date through the conversion
date.
As a result, accrued original issue discount is deemed to be paid in full rather
than cancelled, extinguished or forfeited.
The conversion rate will not be adjusted for such accrued original issue
discount. A certificate for the number of full shares of common stock into which
any LYON is converted, together with any cash payment for fractional shares,
will be delivered through the conversion agent as soon as practicable following
the conversion date. For a discussion of the tax treatment of a holder receiving
common stock upon conversion, see "Federal Income Tax
Considerations -- Disposition or Conversion."
The conversion rate will be adjusted for:
- dividends or distributions on common stock payable in common stock or
other capital stock;
- subdivisions, combinations or certain reclassifications of common
stock;
- distributions to all holders of common stock of certain rights to
purchase common stock for a period expiring within 60 days at less than
the quoted price at the time; and
- distributions to such holders of our assets or debt securities or
certain rights to purchase our securities (excluding cash dividends or
other cash distributions from current or retained earnings other than
any Extraordinary Cash Dividend (as defined in the indenture)).
However, no adjustment need be made if holders may participate in the
transaction or in certain other cases. In cases where the fair market value of
assets, debt securities or certain rights, warrants or options to purchase our
securities distributed to shareholders:
- equals or exceeds the average quoted price of the common stock, or
(TM) Trademark of Merrill Lynch & Co., Inc.
S-31
<PAGE> 31
- such average quoted price exceeds the fair market value of such assets,
debt securities or rights, warrants or options so distributed by less
than $1.00,
rather than being entitled to an adjustment in the conversion rate, the holder
of a LYON upon conversion will be entitled to receive, in addition to the shares
of common stock, the kind and amount of assets, debt securities or rights,
warrants or options comprising the distribution that such holder would have
received if such holder had converted such LYON immediately prior to the record
date for determining the shareholders entitled to receive the distribution.
If the shareholders rights plan under which any rights are issued
provides that each share of common stock issued upon conversion of LYONs at any
time prior to the distribution of separate certificates representing such rights
will be entitled to receive such rights, there shall not be any adjustment to
the conversion privilege or conversion rate as a result of:
- the issuance of the rights;
- the distribution of separate certificates representing the rights;
- the exercise or redemption of such rights in accordance with any Rights
Agreement; or
- the termination or invalidation of the rights.
The indenture permits us to increase the conversion rate from time to
time.
If we are party to a consolidation, merger or binding share exchange or a
transfer of all or substantially all of our assets, the right to convert a LYON
into common stock may be changed into a right to convert it into the kind and
amount of securities, cash or other assets of Solectron or another person which
the holder would have received if the holder had converted the holder's LYONs
immediately prior to the transaction.
Holders of the LYONs may, in certain circumstances, be deemed to have
received a distribution subject to Federal income tax as a dividend in the
amount of:
- a taxable distribution to holders of common stock which results in an
adjustment of the conversion rate; or
- an increase in conversion rate at our discretion.
See "Federal Income Tax Considerations -- Constructive Dividend."
If we exercise our option to have interest instead of original issue
discount accrue on a LYON following a Tax Event, the holder will be entitled on
conversion to receive the same number of shares of common stock the holder would
have received if we had not exercised such option.
If we exercise this option, LYONs surrendered for conversion by a holder
during the period from the close of business on any regular record date to the
opening of business of the next interest payment date, except for LYONs to be
redeemed on a date within this period, must be accompanied by payment of an
amount equal to the interest that the registered holder is to receive on the
LYON.
Except where LYONs surrendered for conversion must be accompanied by
payment as described above, we will not pay interest on converted LYONs on any
interest payment date subsequent to the date of conversion. See "-- Optional
Conversion to Semiannual Coupon Note upon Tax Event."
REDEMPTION OF LYONS AT THE OPTION OF SOLECTRON
No sinking fund is provided for the LYONs. Prior to May , 2004, the
LYONs will not be redeemable at our option. Beginning on May , 2004, we may
redeem the LYONs for cash as a whole at any time, or from time to time in part.
We will give not less than 15 days' nor more than 60 days' notice of redemption
by mail to holders of LYONs.
S-32
<PAGE> 32
The table below shows redemption prices of a LYON on May , 2004, at
each November thereafter prior to maturity and at maturity on November ,
2020. These prices reflect the accrued original issue discount calculated to
each such date. The redemption price of a LYON redeemed between such dates would
include an additional amount reflecting the additional original issue discount
accrued since the next preceding date in the table.
<TABLE>
<CAPTION>
(2)
(1) ACCRUED (3)
LYON ORIGINAL REDEMPTION
ISSUE ISSUE DISCOUNT PRICE
REDEMPTION DATE PRICE AT % (1)+(2)
--------------- ------- -------------- ----------
<S> <C> <C> <C>
May , 2004...............................................
November , 2004..........................................
November , 2005..........................................
November , 2006..........................................
November , 2007..........................................
November , 2008..........................................
November , 2009..........................................
November , 2010..........................................
November , 2011..........................................
November , 2012..........................................
November , 2013..........................................
November , 2014..........................................
November , 2015..........................................
November , 2016..........................................
November , 2017..........................................
November , 2018..........................................
November , 2019..........................................
At stated maturity......................................... $1,000.00
</TABLE>
If converted to semiannual coupon LYONs following the occurrence of a Tax
Event, the LYONs will be redeemable at the restated principal amount plus
accrued and unpaid interest from the date of the conversion through the
redemption date. However, in no event may the LYONs be redeemed prior to May ,
2004. See "-- Optional Conversion to Semiannual Coupon Note Upon Tax Event."
If less than all of the outstanding LYONs are to be redeemed, the trustee
shall select the LYONs to be redeemed in principal amounts at maturity of $1,000
or integral multiples of $1,000. In this case, the trustee may select the LYONs
by lot, pro rata or by any other method the trustee considers fair and
appropriate. If a portion of a holder's LYONs is selected for partial redemption
and the holder converts a portion of the LYONs, the converted portion shall be
deemed to be the portion selected for redemption.
PURCHASE OF LYONS AT THE OPTION OF THE HOLDER
On the purchase dates of May , 2004 and November , 2010, we will, at
the option of the holder, be required to purchase any outstanding LYON for which
a written purchase notice has been properly delivered by the holder and not
withdrawn, subject to certain additional conditions. Holders may submit their
LYONs for purchase to the paying agent at any time from the opening of business
on the date that is 20 business days prior to such purchase date until the close
of business on such purchase date.
The purchase price of a LYON will be:
- $ per LYON on May , 2004; and
- $ per LYON on November , 2010.
S-33
<PAGE> 33
These purchase prices equal the issue price plus accrued original issue
discount to the purchase dates.
We may, at our option, elect to pay the purchase price in cash or shares
of common stock, or any combination thereof. For a discussion of the tax
treatment of a holder receiving cash, common stock or any combination thereof,
see "Federal Income Tax Considerations -- Disposition or Conversion."
If prior to a purchase date the LYONs have been converted to semiannual
coupon LYONs following the occurrence of a Tax Event, the purchase price will be
equal to the restated principal amount plus accrued and unpaid interest from the
date of the conversion to the purchase date. See "-- Optional Conversion to
Semiannual Coupon Note Upon Tax Event."
We will be required to give notice on a date not less than 20 business
days prior to each purchase date to all holders at their addresses shown in the
register of the registrar, and to beneficial owners as required by applicable
law, stating among other things:
- whether we will pay the purchase price of LYONs in cash or common stock
or any combination thereof, specifying the percentages of each;
- if we elect to pay in common stock the method of calculating the Market
Price of the common stock; and
- the procedures that holders must follow to require us to purchase their
LYONs.
The purchase notice given by each holder electing to require us to
purchase LYONs shall state:
- the certificate numbers of the holder's LYONs to be delivered for
purchase;
- the portion of the principal amount at maturity of LYONs to be
purchased, which must be $1,000 or an integral multiple of $1,000;
- that the LYONs are to be purchased by us pursuant to the applicable
provisions of the LYONs; and
- in the event we elect, pursuant to the notice that we are required to
give, to pay the purchase price in common stock, in whole or in part,
but the purchase price is ultimately to be paid to the holder entirely
in cash because any of the conditions to payment of the purchase price
or portion of the purchase price in common stock is not satisfied prior
to the close of business on the purchase date, as described below,
whether the holder elects:
(1) to withdraw the purchase notice as to some or all of the LYONs to
which it relates, or
(2) to receive cash in respect of the entire purchase price for all
LYONs or portions of LYONs subject to such purchase notice.
If the holder fails to indicate the holder's choice with respect to the
election described in the final bullet point above, the holder shall be deemed
to have elected to receive cash in respect of the entire purchase price for all
LYONs subject to the purchase notice in these circumstances. For a discussion of
the tax treatment of a holder receiving cash instead of common stock, see
"Federal Income Tax Considerations -- Disposition or Conversion."
Any purchase notice may be withdrawn by the holder by a written notice of
withdrawal delivered to the paying agent prior to the close of business on the
purchase date.
The notice of withdrawal shall state:
- the principal amount at maturity being withdrawn;
- the certificate numbers of the LYONs being withdrawn; and
- the principal amount at maturity, if any, of the LYONs that remains
subject to the purchase notice.
S-34
<PAGE> 34
If we elect to pay the purchase price, in whole or in part, in shares of
common stock, the number of shares of common stock to be delivered by us shall
be equal to the portion of the purchase price to be paid in common stock divided
by the Market Price of a share of common stock.
We will pay cash based on the Market Price for all fractional shares of
common stock in the event we elect to deliver common stock in payment, in whole
or in part, of the purchase price. See "Federal Income Tax
Considerations -- Disposition or Conversion."
The "Market Price" means the average of the Sale Prices of the common
stock for the five trading day period ending on (if the third business day prior
to the applicable Purchase Date is a trading day, or if not, then on the last
trading day prior to) the third business day prior to the applicable purchase
date, appropriately adjusted to take into account the occurrence, during the
period commencing on the first of such trading days during such five trading day
period and ending on such purchase date, of certain events that would result in
an adjustment of the conversion rate with respect to the common stock.
The "Sale Price" of the common stock on any date means the closing per
share sale price (or if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on such date as reported in composite
transactions for the principal United States securities exchange on which the
common stock is traded or, if the common stock is not listed on a United States
national or regional securities exchange, as reported by the Nasdaq National
Market.
Because the Market Price of the common stock is determined prior to the
applicable purchase date, holders of LYONs bear the market risk with respect to
the value of the common stock to be received from the date such Market Price is
determined to such purchase date. We may pay the purchase price or any portion
of the purchase price in common stock only if the information necessary to
calculate the Market Price is published in a daily newspaper of national
circulation.
Upon determination of the actual number of shares of common stock in
accordance with the foregoing provisions, we will publish such information on
our Web site on the World Wide Web.
Our right to purchase LYONs, in whole or in part, with common stock is
subject to our satisfying various conditions, including:
- the registration of the common stock under the Securities Act and the
Exchange Act, if required; and
- any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a holder prior to
the close of business on the purchase date, we will pay the purchase price of
the LYONs of the holder entirely in cash. See "Federal Income Tax
Considerations -- Disposition or Conversion." We may not change the form or
components or percentages of components of consideration to be paid for the
LYONs once we have given required the notice that we are required to give to
holders of LYONs, except as described in the first sentence of this paragraph.
In connection with any purchase offer, we will:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be applicable;
and
- file Schedule TO or any other required schedule under the Exchange Act.
Payment of the purchase price for a LYON for which a purchase notice has
been delivered and not validly withdrawn is conditioned upon delivery of the
LYON, together with necessary endorsements, to the paying agent at any time
after delivery of the purchase notice. Payment of the purchase price for the
LYON will be made promptly following the later of the purchase date or the time
of delivery of the LYON.
S-35
<PAGE> 35
If the paying agent holds money or securities sufficient to pay the
purchase price of the LYON on the business day following the purchase date in
accordance with the terms of the indenture, then, immediately after the purchase
date, the LYON will cease to be outstanding and original issue discount on such
LYON will cease to accrue, whether or not the LYON is delivered to the paying
agent. Thereafter, all other rights of the holder shall terminate, other than
the right to receive the purchase price upon delivery of the LYON.
Our ability to purchase LYONs with cash may be limited by the terms of
our then existing borrowing agreements.
No LYONs may be purchased for cash at the option of holders if there has
occurred and is continuing an Event of Default with respect to the LYONs, other
than a default in the payment of the purchase price with respect to such LYONs.
CHANGE IN CONTROL PERMITS PURCHASE OF LYONS AT THE OPTION OF THE HOLDER
In the event of any Change in Control occurring on or prior to May ,
2004, each holder will have the right, at the holder's option, subject to the
terms and conditions of the indenture, to require us to purchase all or any
portion of the holder's LYONs. However, principal amount at maturity submitted
for purchase by a holder must be $1,000 or an integral multiple of $1,000.
We will be required to purchase the LYONs as of the date that is 35
business days after the occurrence of such Change in Control (a "change in
control purchase date") at a cash price equal to the issue price plus accrued
original issue discount to the change in control purchase date.
If prior to a change in control purchase date the LYONs have been
converted to semiannual coupon LYONs following the occurrence of a Tax Event, we
will be required to purchase the LYONs at a cash price equal to the restated
principal amount plus accrued and unpaid interest from the date of the
conversion to the change in control purchase date.
Within 15 business days after the occurrence of a Change in Control, we
are obligated to mail to the trustee and to all holders of LYONs at their
addresses shown in the register of the registrar and to beneficial owners as
required by applicable law a notice regarding the Change in Control, which
notice shall state, among other things:
- the events causing a Change in Control;
- the date of such Change in Control;
- the last date on which the purchase right may be exercised;
- the change in control purchase price;
- the change in control purchase date;
- the name and address of the paying agent and the conversion agent;
- the conversion rate and any adjustments to the conversion rate;
- that LYONs with respect to which a change in control purchase notice is
given by the holder may be converted only if the change in control
purchase notice has been withdrawn in accordance with the terms of the
indenture; and
- the procedures that holders must follow to exercise these rights.
S-36
<PAGE> 36
To exercise this right, the holder must deliver a written notice to the
paying agent prior to the close of business on the change in control purchase
date. The required purchase notice upon a Change in Control shall state:
- the certificate numbers of the LYONs to be delivered by the holder;
- the portion of the principal amount at maturity of LYONs to be
purchased, which portion must be $1,000 or an integral multiple of
$1,000; and
- that we are to purchase such LYONs pursuant to the applicable
provisions of the LYONs.
Any change in control purchase notice may be withdrawn by the holder by a
written notice of withdrawal delivered to the paying agent prior to the close of
business on the change in control purchase date.
The notice of withdrawal shall state:
- the principal amount at maturity being withdrawn;
- the certificate numbers of the LYONs being withdrawn; and
- the principal amount at maturity, if any, of the LYONs that remain
subject to a change in control purchase notice.
Payment of the change in control purchase price for a LYON for which a
change in control purchase notice has been delivered and not validly withdrawn
is conditioned upon delivery of the LYON, together with necessary endorsements,
to the paying agent at any time after the delivery of such change in control
purchase notice. Payment of the change in control purchase price for such LYON
will be made promptly following the later of the change in control purchase date
or the time of delivery of such LYON.
If the paying agent holds money sufficient to pay the change in control
purchase price of the LYON on the business day following the change in control
purchase date in accordance with the terms of the indenture, then, immediately
after the change in control purchase date, original issue discount the such LYON
will cease to accrue, whether or not the LYON is delivered to the paying agent.
Thereafter, and all other rights of the holder shall terminate, other than the
right to receive the change in control purchase price upon delivery of the LYON.
Under the indenture, a "Change in Control" of Solectron is deemed to have
occurred at such time as:
- any person, including its affiliates and associates, other than
Solectron, its subsidiaries or their employee benefit plans, files a
Schedule 13D or 14D-1 (or any successor schedule, form or report under
the Exchange Act) disclosing that such person has become the beneficial
owner of 50% or more of the voting power of our common stock or other
capital stock into which the common stock is reclassified or changed,
with certain exceptions; or
- there shall be consummated any consolidation or merger of Solectron
pursuant to which the common stock would be converted into cash,
securities or other property, in each case other than a consolidation
or merger of Solectron in which the holders of the common stock
immediately prior to the consolidation or merger have, directly or
indirectly, at least a majority of the total voting power in the
aggregate of all classes of capital stock of the continuing or
surviving corporation immediately after the consolidation or merger.
The indenture does not permit our board of directors to waive our
obligation to purchase LYONs at the option of holders in the event of a Change
in Control.
In connection with any purchase offer in the event of a Change in
Control, we will:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be applicable;
and
- file Schedule TO or any other required schedule under the Exchange Act.
S-37
<PAGE> 37
The Change in Control purchase feature of the LYONs may in certain
circumstances make more difficult or discourage a takeover of Solectron. The
Change in Control purchase feature, however, is not the result of our knowledge
of any specific effort:
- to accumulate shares of common stock;
- to obtain control of Solectron by means of a merger, tender offer,
solicitation or otherwise; or
- part of a plan by management to adopt a series of anti-takeover
provisions.
Instead, the Change in Control purchase feature is a standard term
contained in other LYONs offerings that have been marketed by Merrill Lynch. The
terms of the Change in Control purchase feature resulted from negotiations
between Merrill Lynch and us.
We could, in the future, enter into certain transactions, including
certain recapitalizations, that would not constitute a Change in Control with
respect to the Change in Control purchase feature of the LYONs but that would
increase the amount of our outstanding indebtedness.
No LYONs may be purchased at the option of holders upon a Change in
Control if there has occurred and is continuing an Event of Default with respect
to the LYONs, other than a default in the payment of the change in control
purchase price with respect to the LYONs.
EVENTS OF DEFAULT
The following will be events of default for the LYONs:
(1) default in payment of the principal amount at maturity (or if the
LYONs have been converted to semiannual coupon notes following a Tax Event, the
restated principal amount), issue price, accrued original issue discount (or if
the LYONs have been converted to semiannual coupon notes following a Tax Event,
accrued and unpaid interest), redemption price, purchase price or change in
control purchase price with respect to any LYON when such becomes due and
payable;
(2) failure by Solectron to comply with any of its other agreements in
the LYONs or the indenture upon receipt by Solectron of notice of such default
by the Trustee or by holders of not less than 25% in aggregate principal amount
at maturity of the LYONs then outstanding and Solectron's failure to cure (or
obtain a waiver of) such default within 60 days after receipt by Solectron of
such notice;
(3) (A) the failure of Solectron to make any payment by the end of any
applicable grace period after maturity of indebtedness, which term as used in
the indenture means obligations (other than nonrecourse obligations) of
Solectron for borrowed money or evidenced by bonds, debentures, notes or similar
instruments ("Indebtedness") in an amount in excess of $100,000,000 and
continuance of such failure, and (B) the acceleration of Indebtedness in an
amount in excess of $100,000,000 because of a default with respect to such
Indebtedness without such Indebtedness having been discharged or such
acceleration having been cured, waived, rescinded or annulled in case of (A) or
(B) above, for a period of 30 days after written notice to Solectron by the
trustee or to Solectron and the trustee by the holders of not less than 25% in
aggregate principal amount at maturity of the LYONs then outstanding. However,
if any such failure or acceleration referred to in (A) or (B) above shall cease
or be cured, waived, rescinded or annulled, then the event of default by reason
thereof shall be deemed not to have occurred; or
(4) certain events of bankruptcy or insolvency affecting Solectron.
If an event of default shall have happened and be continuing, either the
trustee or the holders of not less than 25% in aggregate principal amount at
maturity of the LYONs then outstanding may declare the issue price of the LYONs
plus the original issue discount on the LYONs accrued through the date of such
declaration to be immediately due and payable. In the case of certain events of
bankruptcy or insolvency, the issue price of the LYONs plus the original issue
discount accrued thereon through the occurrence of such event shall
automatically become and be immediately due and payable.
S-38
<PAGE> 38
The events of default set forth under "Description of Debt
Securities -- Events of Default" in the accompanying prospectus are not
applicable to the LYONs.
OPTIONAL CONVERSION TO SEMIANNUAL COUPON NOTE UPON TAX EVENT
From and after the date of the occurrence of a Tax Event, we shall have
the option to elect to have interest in lieu of future original issue discount
accrue at % per year on a principal amount per LYON (the "restated
principal amount") equal to the issue price plus original issue discount accrued
to the date of the Tax Event or the date on which we exercise the option
described herein, whichever is later (the "option exercise date").
Such interest shall accrue from the option exercise date and shall be
payable semiannually on the interest payment dates of May and
November of each year to holders of record at the close of business on
or immediately preceding the interest payment
date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Interest will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the option
exercise date.
A "Tax Event" means that Solectron shall have received an opinion from
independent tax counsel experienced in such matters to the effect that, on or
after the date of this prospectus, as a result of:
(1) any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or
therein, or
(2) any amendment to, or change in, an interpretation or application of
such laws or regulations by any legislative body, court, governmental
agency or regulatory authority,
in each case which amendment or change is enacted, promulgated, issued or
announced or which interpretation is issued or announced or which action is
taken, on or after the date of this prospectus there is more than an
insubstantial risk that interest (including original issue discount) payable on
the LYONs either:
- would not be deductible on a current accrual basis or
- would not be deductible under any other method, in either case in whole
or in part, by Solectron (by reason of deferral, disallowance, or
otherwise) for United States federal income tax purposes.
The Clinton Administration has previously proposed to change the tax law
to defer the deduction of original issue discount on convertible debt
instruments until the issuer pays the interest. Congress has not yet enacted
these proposed changes in the law.
If a similar proposal were ever enacted and made applicable to the LYONs
in a manner that would limit our ability to either
- deduct the interest, including original issue discount, payable on the
LYONs on a current accrual basis, or
- deduct the interest, including original issue discount, payable on the
LYONs under any other method for United States federal income tax
purposes,
such enactment would result in a Tax Event and the terms of the LYONs would be
subject to modification at our option as described above.
The modification of the terms of LYONs by us upon a Tax Event as
described above could possibly alter the timing of income recognition by holders
of the LYONs with respect to the semiannual payments of interest due on the
LYONs after the option exercise date. See "Federal Income Tax Considerations."
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<PAGE> 39
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information reporting will apply to payments of interest or dividends, if
any, made by us on, or the proceeds of the sale or other disposition of, the
LYONs or shares of common stock with respect to certain noncorporate holders,
and backup withholding at a rate of 31% may apply unless the recipient of such
payment supplies a taxpayer identification number, certified under penalties of
perjury, as well as certain other information or otherwise establishes an
exemption from backup withholding. Any amount withheld under the backup
withholding rules will be allowable as a credit against the holder's federal
income tax, provided that the required information is provided to the Internal
Revenue Service.
DEFEASANCE AND COVENANT DEFEASANCE
The provisions described under "Description of the Debt
Securities -- Satisfaction and Discharge; Defeasance" in the accompanying
prospectus shall apply to the LYONs.
MODIFICATION
In addition to those modifications that require the consent of each
holder set forth under "Description of the Debt Securities -- Modification and
Waiver" in the accompanying prospectus, the following modifications would
require the consent of the holders of each outstanding LYON:
- alter the manner or rate of accrual of original issue discount or
interest on any LYON;
- make any LYON payable in money or securities other than that stated in
the LYON;
- make any change that adversely affects the right to require us to
purchase a LYON, and
- impair the right to institute suit for the enforcement of any payment
with respect to, or conversion of, the LYONs.
GOVERNING LAW
The indenture, the supplemental indenture and the LYONs will be governed
by, and construed in accordance with, the law of the State of New York.
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<PAGE> 40
FEDERAL INCOME TAX CONSIDERATIONS
This is a summary of certain United States federal income tax
considerations relevant to holders of LYONs. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations,
Internal Revenue Service rulings and judicial decisions now in effect, all of
which are subject to change (possibly with retroactive effect) or different
interpretations. There can be no assurance that the Internal Revenue Service
will not challenge one or more of the conclusions described herein, and we have
not obtained, nor do we intend to obtain, a ruling from the Internal Revenue
Service with respect to the United States federal income tax consequences of
acquiring or holding LYONs.
This summary does not purport to deal with all aspects of United States
federal income taxation that may be relevant to a holder (for example, persons
subject to the alternative minimum tax provisions of the Code). Also, it is not
intended to be wholly applicable to all categories of investors, such as foreign
corporations and individuals who are not citizens or residents of the United
States, some of which may be subject to special rules.
This summary also does not discuss the tax consequences arising under the
laws of any state, local or foreign jurisdiction. In addition, this summary is
limited to original purchasers of LYONs who acquire LYONs at their original
issue price within the meaning of Section 1273 of the Code and who will hold the
LYONs and common stock into which the LYONs may be converted as "capital assets"
within the meaning of Section 1221 of the Code.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP, CONVERSION OR OTHER
DISPOSITION OF LYONS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL
INCOME TAX CONSEQUENCES AND THE CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
We have been advised by our counsel, Wilson Sonsini Goodrich & Rosati,
Professional Corporation, that in such counsel's opinion the LYONs will be
treated as indebtedness for United States federal income tax purposes.
Counsel has further advised us that it is counsel's opinion that, while
the following does not purport to discuss all tax matters relating to the LYONs,
based upon the LYONs being treated as indebtedness, the following are the
material federal income tax consequences of the LYONs, subject to the
qualifications set forth above.
ORIGINAL ISSUE DISCOUNT
The LYONs are being issued at a substantial discount from their principal
amount at maturity. For United States federal income tax purposes, the
difference between the issue price (the initial price at which a substantial
number of the LYONs are sold for money) and the stated principal amount at
maturity of each LYON constitutes original issue discount. Holders of the LYONs
will be required to include original issue discount in income periodically over
the term of the LYONs before receipt of the cash or other payment attributable
to such income.
A holder of a LYON must include in gross income for federal income tax
purposes, such holder's "accrued original issue discount," which is the sum of
the daily portions of original issue discount with respect to the LYON for each
day during the taxable year or portion of a taxable year on which such holder
holds the LYON. The daily portion is determined by allocating to each day of an
accrual period a pro rata portion of an amount equal to the adjusted issue price
of the LYON at the beginning of the accrual period multiplied by the yield to
maturity of the LYON. The accrual period of a LYON may be of any length and may
vary in length over the term of the LYON, provided that each accrual period is
no longer than one year and each scheduled payment of principal or interest
occurs at the end of an accrual period or on the first day of an accrual period.
The adjusted issue price of the LYON at the start of any accrual period is the
issue price of the LYON increased by the accrued original issue discount for
each prior accrual period. Under these rules, holders will have to include in
gross income increasingly greater amounts of original issue discount in each
successive accrual period. Any amount included in income as original issue
discount will increase a holder's tax basis in the LYON.
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<PAGE> 41
We will be required to furnish annually to the Internal Revenue Service
and to certain noncorporate holders information regarding the amount of the
original issue discount attributable to that year. For this purpose, we will use
a six-month accrual period which ends on the day in each calendar year
corresponding to the maturity day of the LYON or the date six months before such
maturity date.
DISPOSITION OR CONVERSION
Except as described below, gain or loss upon a sale or other disposition
of a LYON or common stock received upon a conversion or a tender of a LYON will
generally be capital gain or loss (which will be long term if the LYON or common
stock is held for more than one year). Net capital gains of individuals are,
under certain circumstances, taxed at lower rates than items of ordinary income.
In the case of individuals, long-term capital gains with respect to property
held for more than one year are taxed at a maximum 20% federal tax rate. Net
capital gain of corporations is taxed the same as ordinary income, with a
maximum federal rate of 35%.
A holder's conversion of a LYON into common stock is generally not a
taxable event (except with respect to cash received in lieu of a fractional
share). The holder's obligation to include in gross income the daily portions of
original issue discount with respect to a LYON will terminate prospectively on
the date of conversion. The holder's basis in the common stock received on
conversion of a LYON will be the same as the holder's basis in the LYON at the
time of conversion (exclusive of any tax basis allocable to a fractional share).
The holding period for the common stock received on conversion will include the
holding period of the converted LYON (assuming each is held as a capital asset)
except that the holder's holding period for common stock attributable to accrued
original issue discount may commence on the day following the date of
conversion.
If a holder elects to exercise its option to tender a LYON to us on a
purchase date and we issue common stock in satisfaction of all or part of the
purchase price, assuming that the LYONs qualify as securities for federal income
tax purposes, the exchange of the LYON for common stock should qualify as a
reorganization. If the purchase price is paid solely in common stock, neither
gain nor loss would generally be recognized by the holder, except as described
below with respect to a fractional share. If the purchase price is paid in a
combination of shares of common stock and cash (other than cash received in lieu
of a fractional share), gain (but not loss) realized by the holder would be
recognized, but only to the extent such gain does not exceed such cash. Such
gain would generally be a capital gain (and would be a long-term capital gain if
the tendered LYON were held for more than one year).
A holder's tax basis in the common stock received in the exchange will be
the same as the holder's tax basis in the LYON tendered to us in exchange for
the LYON (exclusive of any tax basis allocable to a fractional share interest as
described below). However, this tax basis will be decreased by the amount of
cash (other than cash received in lieu of a fractional share), if any, received
in exchange and increased by the amount of any gain recognized by the holder on
the exchange (other than gain with respect to a fractional share). The holding
period for common stock received in the exchange will include the holding period
for the LYON tendered to us in exchange for the LYON (assuming each is held as a
capital asset). However, the holding period for common stock attributable to
accrued original issue discount may commence on the day following the purchase
date.
Cash received in lieu of a fractional share of common stock upon
conversion of a LYON or upon a tender of a LYON to us on a purchase date should
be treated as a payment in exchange for the fractional share. Accordingly, if
the common stock is a capital asset in the hands of the holder, the receipt of
cash in lieu of a fractional share of common stock should generally result in
capital gain or loss, if any, measured by the difference between the cash
received for the fractional share and the holder's basis in the fractional
share.
If a holder elects to exercise its option to tender a LYON to us on a
purchase date or a change in control purchase date and we deliver cash in
satisfaction of the purchase price, the holder would recognize gain or loss,
measured by the difference between the amount of cash transferred by us to the
holder and the holder's basis in the tendered LYON. Gain or loss recognized by
the holder would generally be capital
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<PAGE> 42
gain or loss (and would be long-term capital gain or loss if the tendered LYON
were held for more than one year).
CONSTRUCTIVE DIVIDEND
If at any time we make a distribution of property to our stockholders
that would be taxable to the stockholders as a dividend for United States
federal income tax purposes and, in accordance with the anti-dilution provisions
of the LYONs, the conversion rate of the LYONs is increased, such increase may
be deemed to be the payment of a taxable dividend to holders of the LYONs.
For example, an increase in the conversion rate in the event of
distributions of our evidences of indebtedness or our assets or an increase in
the event of an Extraordinary Cash Dividend will generally result in deemed
dividend treatment to holders of the LYONs, but generally an increase in the
event of stock dividends or the distribution of rights to subscribe for common
stock will not. See "Description of LYONS -- Conversion Rights."
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information reporting will apply to payments of interest or dividends, if
any, made by us on, or the proceeds of the sale or other disposition of, the
LYONs or shares of common stock with respect to certain noncorporate holders,
and backup withholding at a rate of 31% may apply unless the recipient of such
payment supplies a taxpayer identification number, certified under penalties of
perjury, as well as certain other information or otherwise establishes an
exemption from backup withholding. Any amount withheld under the backup
withholding rules will be allowable as a credit against the holder's federal
income tax, provided that the required information is provided to the Internal
Revenue Service.
TAX EVENT
The modification of the terms of the LYONs by us upon a Tax Event as
described in "Description of LYONs -- Optional Conversion to Semiannual Coupon
Note Upon Tax Event," could possibly alter the timing of income recognition by
the holders with respect to the semiannual payments of interest due after the
option exercise date.
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UNDERWRITING
Subject to the terms and conditions set forth in the purchase agreement
between our company and Merrill Lynch, we have agreed to sell to Merrill Lynch,
and Merrill Lynch has agreed to purchase from us, $1,800,000,000 aggregate
principal amount at maturity of the LYONs at a purchase price equal to the
initial offering price set forth on the front cover of this prospectus
supplement, less a discount of $ per $1,000 aggregate principal amount at
maturity of LYONs (the "discount").
In the purchase agreement, Merrill Lynch has agreed, subject to the terms
and conditions set forth in the purchase agreement, to purchase all of the LYONs
being sold under the terms of the purchase agreement if any of the LYONs are
purchased.
We have agreed to indemnify Merrill Lynch against some types of
liabilities, including liabilities under the Securities Act, or to contribute to
payments Merrill Lynch may be required to make in respect of those liabilities.
The LYONs are being offered by Merrill Lynch, subject to prior sale,
when, as and if issued to and accepted by it, subject to approval of certain
legal matters by counsel for Merrill Lynch and other conditions. Merrill Lynch
reserves the right to withdraw, cancel or modify its offer and to reject orders
in whole or in part.
Sales of the LYONs made outside the United States will be made through a
non-U.S. broker-dealer affiliate of Merrill Lynch.
COMMISSIONS AND DISCOUNTS
Merrill Lynch has advised us that it proposes initially to offer the
LYONs to the public at the public offering price set forth on the cover page of
this prospectus supplement, and to certain dealers at that price less a
concession not in excess of $ per $1,000 aggregate principal amount at
maturity of LYONs. Merrill Lynch may allow, and such dealers may reallow, a
discount not in excess of $.10 per $1,000 aggregate principal amount at maturity
of LYONs to certain other dealers. After the initial offering, the public
offering price, concession and discount may change.
The following table shows the per share and total public offering price,
the underwriting discount to be paid by us to Merrill Lynch and the proceeds
before expenses to us. The information is presented assuming either no exercise
or full exercise by Merrill Lynch of the over-allotment option.
<TABLE>
<CAPTION>
PER LYON WITHOUT OPTION WITH OPTION
-------- -------------- -----------
<S> <C> <C> <C>
Public offering price........................... $ $ $
Underwriting discount........................... $ $ $
Proceeds, before expenses, to Solectron......... $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $550,000 and are payable by us.
Merrill Lynch has previously marketed (and anticipates continuing to
market) securities of issuers under the trademark "LYONs". The LYONs we are
offering hereby contain certain terms and provisions that are different from
such other previously marketed LYONs, the terms and provisions of which also
vary. See "Description of LYONs".
OVER-ALLOTMENT OPTION
We have granted an option to Merrill Lynch, exercisable for 30 days after
the date of this prospectus supplement, to purchase up to an additional
$270,000,000 aggregate principal amount at maturity of LYONs at the public
offering price set forth on the cover page of this prospectus supplement, less
the underwriting discount. Merrill Lynch may exercise this option solely to
cover over-allotments, if any, made on the sale of the LYONs offered hereby.
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<PAGE> 44
NO SALES OF SIMILAR SECURITIES
We and our executive officers have agreed not, to directly or indirectly,
without the prior written consent of Merrill Lynch, for a period of 90 days and
45 days, respectively, after the date of this prospectus supplement:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into
or exchangeable or exercisable for or repayable with our common stock,
or file a registration statement under the Securities Act relating to
any shares of our common stock; or
- enter into any swap or other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of our common stock whether any such swap or
transaction is to be settled by delivery of our common stock or other
securities, in cash or otherwise.
The foregoing restriction on sales does not apply to Solectron's ability to sell
securities to Merrill Lynch pursuant to the purchase agreement and issued
pursuant to the LYONs, our LYONs due 2019 and May 2020, the concurrent offering
of common stock and existing reservations, agreements and incentive stock plans
and securities issued pursuant to acquisitions.
The LYONs offered hereby are a new issue of securities for us with no
established trading market. We have been advised by Merrill Lynch that Merrill
Lynch intends to make a market in the LYONs, but Merrill Lynch is not obligated
to do so and may discontinue market making at any time and without notice. No
assurance can be given as to the liquidity of the trading market for the LYONs.
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of our LYONs is completed, rules of the SEC may
limit the ability of the underwriters to bid for and purchase our LYONs. As an
exception to these rules, Merrill Lynch is permitted to engage in particular
types of transactions that stabilize the price of our LYONs. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our LYONs.
If Merrill Lynch creates a short position in our LYONs in connection with
this offering, i.e., if they sell more than are set forth on the cover page of
this prospectus supplement, Merrill Lynch may reduce that short position by
purchasing our LYONs in the open market. Merrill Lynch may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither we nor the underwriters makes any representations or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price or our LYONs. In addition, neither we nor Merrill
Lynch makes any representation that Merrill Lynch will engage in such
transaction or that such transactions, once commenced, will not be discontinued
without notice.
OTHER RELATIONSHIPS
Merrill Lynch and its affiliates have engaged in, and may in the future
engage in, investment banking and other commercial dealings with Solectron in
the ordinary course of business. They have received customary fees and
commissions for these transactions.
LEGAL MATTERS
Certain legal matters relating to the validity of the LYONs offered
hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California, and for the underwriter by
Latham & Watkins, Los Angeles, California.
S-45
<PAGE> 45
PROSPECTUS
$5,000,000,000
SOLECTRON CORPORATION
BY THIS PROSPECTUS, WE MAY OFFER --
Common Stock
Preferred Stock
Debt Securities
SEE "RISK FACTORS" ON PAGE 5 FOR INFORMATION YOU SHOULD
CONSIDER BEFORE BUYING THE SECURITIES.
Our common stock is listed on the New York Stock Exchange under the symbol
"SLR." On April 13, 2000, the last reported sale price of our common stock on
the New York Stock Exchange was $40.00 per share.
-------------------------
We will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest.
-------------------------
This prospectus may not be used to offer and sell securities unless
accompanied by a prospectus supplement.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This prospectus is dated April 14, 2000
<PAGE> 46
SUMMARY
This prospectus is part of a Registration Statement on Form S-3 that we
filed with the Securities and Exchange Commission utilizing a "shelf"
registration process. Under this shelf process, we may, over the next two years,
sell any combination of securities described in this prospectus in one or more
offerings. This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information described
below under the heading "Where You Can Find More Information."
SOLECTRON CORPORATION
Solectron provides electronics manufacturing services to original equipment
manufacturers who design and sell networking equipment, workstations, personal
and notebook computers, computer peripherals, telecommunications equipment or
other electronic equipment, including Cisco Systems, Inc., Compaq Computer
Corporation, Ericsson Telecom AB, International Business Machines Corporation,
Nortel Networks Corporation and Hewlett Packard Company (HP). These companies
contract with Solectron to build their products for them or to obtain other
related services from Solectron.
We furnish integrated supply chain solutions that span the entire product
life cycle, inclusive technology, manufacturing and services. Our range of
services includes:
- advanced building block design solutions,
- product design,
- new product introduction management,
- materials purchasing and management,
- prototyping,
- printed circuit board assembly (the process of placing components on an
electrical printed circuit board that controls the processing functions
of a personal computer or other electronic equipment),
- systems assembly (for example, building complete systems such as mobile
telephones and testing them to ensure functionality),
- distribution,
- product repair, and
- warranty services.
Our performance of these services allows our customers to remain
competitive by focusing on their core competencies of sales, marketing and
research and development. Solectron has manufacturing sites in the Americas,
Europe and Asia, giving our customers access to manufacturing services in the
regions where they sell products.
We were originally incorporated in California in August 1977. In February
1997, we were reincorporated in Delaware. Our principal executive offices are
located at 777 Gibraltar Drive, Milpitas, California 95035. Our telephone number
is (408) 957-8500.
THE SECURITIES WE MAY OFFER
We may offer up to $5,000,000,000 of any of the following securities either
separately or in units: debt securities, preferred stock and common stock. The
prospectus supplement will describe the specific amounts, prices and terms of
these securities.
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<PAGE> 47
DEBT SECURITIES
We may offer unsecured general obligations in the form of either senior or
subordinated debt. The senior debt securities and the subordinated debt
securities are together referred to in this prospectus as the "debt securities".
The senior debt securities will have the same rank as all of our other
unsecured, unsubordinated debt. The subordinated debt securities will be
entitled to payment only after payment on our senior indebtedness. Senior
indebtedness generally includes all indebtedness for money borrowed by us,
except indebtedness that is stated to be not senior to, or to have the same
ranks as, or is expressly junior to the subordinated debt securities. We are a
holding company. Accordingly, substantially all of our operations are conducted
through our subsidiaries. As a result, the debt securities will be effectively
subordinated to creditors of our subsidiaries.
The senior and subordinated debt will be issued under separate indentures
between Solectron and State Street Bank and Trust Company of California, N.A.,
as trustee. We have summarized the general features of the debt from the
indentures. We encourage you to read the indentures which are exhibits to our
Registration Statement (No. 333-34494) and our recent annual report on Form
10-K, our quarterly reports on Form 10-Q for the fiscal quarters ended November
30, 1999 and February 29, 2000 and our current reports on Form 8-K filed
December 9, 1999, April 4, 2000 and April 11, 2000. Instructions on how you can
get copies of these documents are provided below under the heading "Where You
Can Find More Information."
GENERAL INDENTURE PROVISIONS THAT APPLY TO SENIOR AND SUBORDINATED DEBT
- Neither indenture limits the amount of debt that we may issue or provides
holders any protection should there be a highly leveraged transaction
involving our company.
- The indentures allow us to merge or to consolidate with another U.S.
company or convey, transfer or lease our properties and assets
substantially as an entirety to another U.S. company, so long as certain
conditions are met. If these events occur, the other company will be
required to assume our responsibilities on the debt, and we will be
released from all liabilities and obligations (except in the case of a
lease).
- The indentures provide that holders of a majority of the total principal
amount of the debt outstanding in any series may vote to change our
obligations or your rights concerning the debt. But to change the payment
of principal, interest, or adversely affect the right to convert or
certain other matters, every holder in that series must consent.
- We may discharge the indentures and defease restrictive covenants by
depositing sufficient funds with the trustee to pay the obligations when
due, as long as certain conditions are met. All amounts due to you on the
debt would be paid by the trustee from the deposited funds.
EVENTS OF DEFAULT
The following are the events of default under the indentures:
- Principal not paid when due,
- Sinking fund payment not made when due,
- Failure to pay interest for 30 days,
- Covenants not performed for 60 days after notice,
- Bankruptcy, insolvency or reorganization, and
- Any other event of default in the indenture.
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<PAGE> 48
REMEDY
Upon an event of default, other than a bankruptcy, insolvency or
reorganization, the trustee or holders of 25% of the principal amount
outstanding in a series may declare principal immediately payable. However, the
holders of a majority in principal amount may, under certain circumstances,
rescind this action.
GENERAL INDENTURE PROVISIONS THAT APPLY ONLY TO SENIOR DEBT SECURITIES
The indenture relating to the senior debt securities contains covenants
restricting our ability to incur secured debt and enter into sale and leaseback
transactions.
GENERAL INDENTURE PROVISIONS THAT APPLY ONLY TO SUBORDINATED DEBT SECURITIES
The subordinated debt securities will be subordinated to all senior
indebtedness.
PREFERRED STOCK
We may issue preferred stock in one or more series and will determine the
dividend, voting, and conversion rights, and other provisions at the time of
sale.
COMMON STOCK
Common stock holders are entitled to receive dividends declared by the
Board of Directors, subject to rights of preferred stock holders. Currently, we
do not pay a dividend. Each holder of common stock is entitled to one vote per
share. The holders of common stock have no preemptive rights or cumulative
voting rights.
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<PAGE> 49
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Commission, in accordance with the Securities Exchange Act of 1934. You may read
and copy our reports, proxy statements and other information filed by us at the
public reference facilities of the Commission in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for
further information about the public reference rooms. Our reports, proxy
statements and other information filed with the Commission are available to the
public over the Internet at the Commission's World Wide Web site at
http://www.sec.gov.
The Commission allows us to "incorporate by reference" the information we
filed with them, which means that we can disclose important information by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
by us with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until our offering is complete.
- Annual Report on Form 10-K for the fiscal year ended August 31, 1999.
- Quarterly Report on Form 10-Q for the fiscal quarter ended November 30,
1999.
- Quarterly Report on Form 10-Q for the fiscal quarter ended February 29,
2000.
- Current Report on Form 8-K, filed December 9, 1999.
- Current Report on Form 8-K, filed April 4, 2000.
- Current Report on Form 8-K, filed April 11, 2000.
- The description of our common stock contained in our Registration
Statement on Form 8-A filed with the Commission on July 18, 1988, and any
amendment or report filed for the purpose of updating such description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Susan S. Wang
Chief Financial Officer
Solectron Corporation
777 Gilbraltar Drive
Milpitas, California 95035
(408) 957-8500
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
4
<PAGE> 50
RISK FACTORS
Before making an investment decision you should consider carefully the
risks discussed in the following documents filed under the Exchange Act and in
any subsequent filings under the Exchange Act:
- the section of our Form 10-K for the fiscal year ended August 31, 1999,
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Trends and Uncertainties," which is incorporated
in this document by reference;
- the section of our Form 10-Q for the fiscal quarter ended November 30,
1999, entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Trends and Uncertainties," which
is incorporated in this document by reference;
- the section of our Form 10-Q for the fiscal quarter ended February 29,
2000, entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Trends and Uncertainties," which
is incorporated in this document by reference;
- the section of our Form 8-K, filed April 4, 2000 entitled "Risk Factors,"
which is incorporated in this document by reference; and
- the section of our Form 8-K, filed April 11, 2000 entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Trends and Uncertainties," which is incorporated in this
document by reference.
USE OF PROCEEDS
Unless otherwise indicated in the prospectus supplement, the net proceeds
from the sale of securities offered by this prospectus will be used for general
corporate purposes, including capital expenditures and to meet working capital
needs. We expect from time to time to evaluate the acquisition of businesses,
products and technologies for which a portion of the net proceeds may be used.
Pending such uses, we may invest the net proceeds in interest bearing
securities.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods indicated is
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, ----------------------------
------------------------------------------- FEBRUARY 28, FEBRUARY 29,
1995 1996 1997 1998 1999 1999 2000
----- ------ ----- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges....................... 9.51x 10.54x 9.93x 11.27x 9.02x 8.68x 9.23x
</TABLE>
These computations include us and our consolidated subsidiaries. For these
ratios, "earnings" represents income before taxes plus fixed charges (excluding
capitalized interest) and amortization of previously capitalized interest. Fixed
charges consists of (1) interest on all indebtedness and amortization of debt
discount and expense, (2) capitalized interest and (3) an interest factor
attributable to rentals.
DESCRIPTION OF THE DEBT SECURITIES
The debt securities will either be our senior debt securities or our
subordinated debt securities. The debt securities will be issued under one or
more separate indentures between us and State Street Bank and Trust Company of
California, N.A., as trustee. Senior debt securities will be issued under a
senior indenture and subordinated debt securities will be issued under a
subordinated indenture. Together, the senior indenture and subordinated
indenture are called indentures. The prospectus, together with its prospectus
supplement, will describe all the material terms of a particular series of debt
securities.
The following is a summary of the most important provisions and definitions
of the indentures. For additional information, you should look at the applicable
indenture that is filed as an exhibit to the
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registration statement which includes the prospectus. In this description of the
debt securities, the words "Solectron", "we", "us" or "our" refer only to
Solectron Corporation and not to any of our subsidiaries.
GENERAL
Debt securities may be issued in separate series without limitation as to
aggregate principal amount. We may specify a maximum aggregate principal amount
for the debt securities of any series.
We are not limited as to the amount of debt securities we may issue under
the indentures.
The prospectus supplement will set forth:
- whether the debt securities are senior or subordinated,
- the offering price,
- the title,
- any limit on the aggregate principal amount,
- the person who shall be entitled to receive interest, if other than the
record holder on the record date,
- the date the principal will be payable,
- the interest rate, if any, the date interest will accrue, the interest
payment dates and the regular record dates,
- the place where payments may be made,
- any mandatory or optional redemption provisions,
- if applicable, the method for determining how the principal, premium, if
any, or interest will be calculated by reference to an index or formula,
- if other than U.S. currency, the currency or currency units in which
principal, premium, if any, or interest will be payable and whether we or
the holder may elect payment to be made in a different currency,
- the portion of the principal amount that will be payable upon
acceleration of stated maturity, if other than the entire principal
amount,
- if the principal amount payable at stated maturity will not be
determinable as of any date prior to stated maturity, the amount which
will be deemed to be the principal amount,
- any defeasance provisions if different from those described below under
"Satisfaction and Discharge -- Defeasance,"
- any conversion or exchange provisions,
- whether the debt securities will be issuable in the form of a global
security,
- any subordination provisions if different from those described below
under "Subordinated Debt Securities,"
- any deletions of, or changes or additions to, the events of default or
covenants, and
- any other specific terms of such debt securities.
Unless otherwise specified in the prospectus supplement:
- the debt securities will be registered debt securities, and
- registered debt securities denominated in U.S. dollars will be issued in
denominations of $1,000 or an integral multiple of $1,000.
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Debt securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at time of
issuance is below market rates.
EXCHANGE AND TRANSFER
Debt securities may be transferred or exchanged at the office of the
security registrar or at the office of any transfer agent designated by us.
We will not impose a service charge for any transfer or exchange, but we
may require holders to pay any tax or other governmental charges associated with
any transfer or exchange.
In the event of any potential redemption of debt securities of any series,
we will not be required to:
- issue, register the transfer of, or exchange, any debt security of that
series during a period beginning at the opening of business 15 days
before the day of mailing of a notice of redemption and ending at the
close of business on the day of the mailing, or
- register the transfer of or exchange any debt security of that series
selected for redemption, in whole or in part, except the unredeemed
portion being redeemed in part.
We have initially appointed the trustee as the security registrar. Any
transfer agent, in addition to the security registrar, initially designated by
us will be named in the prospectus supplement. We may designate additional
transfer agents or change transfer agents or change the office of the transfer
agent. However, we will be required to maintain a transfer agent in each place
of payment for the debt securities of each series.
GLOBAL SECURITIES
The debt securities of any series may be represented, in whole or in part,
by one or more global securities. Each global security will:
- be registered in the name of a depositary that we will identify in a
prospectus supplement,
- be deposited with the depositary or nominee or custodian, and
- bear any required legends.
No global security may be exchanged in whole or in part for debt securities
registered in the name of any person other than the depositary or any nominee
unless:
- the depositary has notified us that it is unwilling or unable to continue
as depositary or has ceased to be qualified to act as depositary,
- an event of default is continuing, or
- any other circumstances described in a prospectus supplement.
As long as the depositary, or its nominee, is the registered owner of a
global security, the depositary or nominee will be considered the sole owner and
holder of the debt securities represented by the global security for all
purposes under the indentures. Except in the above limited circumstances, owners
of beneficial interests in a global security:
- will not be entitled to have the debt securities registered in their
names,
- will not be entitled to physical delivery of certificated debt
securities, and
- will not be considered to be holders of those debt securities under the
indenture.
Payments on a global security will be made to the depositary or its nominee
as the holder of the global security. Some jurisdictions have laws that require
that certain purchasers of securities take physical delivery of such securities
in definitive form. These laws may impair the ability to transfer beneficial
interests in a global security.
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Institutions that have accounts with the depositary or its nominee are
referred to as "participants." Ownership of beneficial interests in a global
security will be limited to participants and to persons that may hold beneficial
interests through participants. The depositary will credit, on its book-entry
registration and transfer system, the respective principal amounts of debt
securities represented by the global security to the accounts of its
participants.
Ownership of beneficial interests in a global security will be shown on and
effected through records maintained by the depositary, with respect to
participants' interests, or any participant, with respect to interests of
persons held by participants on their behalf.
Payments, transfers and exchanges relating to beneficial interests in a
global security will be subject to policies and procedures of the depositary.
The depositary policies and procedures may change from time to time. Neither we
nor the trustee will have any responsibility or liability for the depositary's
or any participant's records with respect to beneficial interests in a global
security.
PAYMENT AND PAYING AGENTS
The provisions of this paragraph will apply to the debt securities unless
otherwise indicated in the prospectus supplement. Payment of interest on a debt
security on any interest payment date will be made to the person in whose name
the debt security is registered at the close of business on the regular record
date. Payment on debt securities of a particular series will be payable at the
office of a paying agent or paying agents designated by us. However, at our
option, we may pay interest by mailing a check to the record holder. The
corporate trust office will be designated as our sole paying agent.
We may also name any other paying agents in the prospectus supplement. We
may designate additional paying agents, change paying agents or change the
office of any paying agent. However, we will be required to maintain a paying
agent in each place of payment for the debt securities of a particular series.
All moneys paid by us to a paying agent for payment on any debt security
which remain unclaimed for a period ending the earlier of:
- 10 business days prior to the date the money would be turned over to the
state, or
- at the end of two years after such payment was due
will be repaid to us. Thereafter, the holder may look only to Solectron for such
payment.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may not consolidate with or merge into any other person, in a
transaction in which we are not the surviving corporation, or convey, transfer
or lease its properties and assets substantially as an entirety to, any person,
unless:
- the successor, if any, is a U.S. corporation, limited liability company,
partnership, trust or other entity,
- the successor assumes Solectron's obligations on the debt securities and
under the indentures,
- immediately after giving effect to the transaction, no default or event
of default shall have occurred and be continuing, and
- certain other conditions are met.
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<PAGE> 54
EVENTS OF DEFAULT
Each indenture defines an event of default with respect to any series of
debt securities as one or more of the following events:
(1) failure to pay principal of or any premium on any debt security of that
series when due,
(2) failure to pay any interest on any debt security of that series for 30
days when due,
(3) failure to deposit any sinking fund payment when due,
(4) failure to perform any other covenant in the indenture continued for 60
days after being given the notice required in the indenture,
(5) our bankruptcy, insolvency or reorganization, and
(6) any other event of default specified in the prospectus supplement.
An event of default of one series of debt securities is not necessarily an
event of default for any other series of debt securities.
If an event of default, other than an event of default described in clause
(5) above, shall occur and be continuing, either the trustee or the holders of
at least 25% in aggregate principal amount of the outstanding securities of that
series may declare the principal amount of the debt securities of that series to
be due and payable immediately.
If an event of default described in clause (5) above shall occur, the
principal amount of all the debt securities of that series, will automatically
become immediately due and payable. Any payment by us on the subordinated debt
securities following any such acceleration will be subject to the subordination
provisions described below under "Subordinated Debt Securities."
After acceleration the holders of a majority in aggregate principal amount
of the outstanding securities of that series may, under certain circumstances,
rescind and annul such acceleration if all events of default, other than the
non-payment of accelerated principal, or other specified amount, have been cured
or waived.
Other than the duty to act with the required care during an event of
default, the trustee will not be obligated to exercise any of its rights or
powers at the request of the holders unless the holders shall have offered to
the trustee reasonable indemnity. Generally, the holders of a majority in
aggregate principal amount of the outstanding debt securities of any series will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the trustee or exercising any trust or power
conferred on the trustee.
A holder will not have any right to institute any proceeding under the
indentures, or for the appointment of a receiver or a trustee, or for any other
remedy under the indentures, unless:
(1) the holder has previously given to the trustee written notice of a
continuing event of default with respect to the debt securities of that
series,
(2) the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made a written request
and have offered reasonable indemnity to the trustee to institute the
proceeding, and
(3) the trustee has failed to institute the proceeding and has not received
direction inconsistent with the original request from the holders of a
majority in aggregate principal amount of the outstanding debt
securities of that series within 60 days after the original request.
Holders may, however, sue to enforce the payment of principal, premium or
interest on any debt security on or after the due date or to enforce the right,
if any, to convert any debt security without following the procedures listed in
(1) through (3) above.
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We will furnish the trustee an annual statement by our officers as to
whether or not we are in default in the performance of the indenture and, if so,
specifying all known defaults.
MODIFICATION AND WAIVER
Solectron and the trustee may make modifications and amendments to the
indentures with the consent of the holders of a majority in aggregate principal
amount of the outstanding securities of each series affected by the modification
or amendment.
However, neither we nor the trustee may make any modification or amendment
without the consent of the holder of each outstanding security of that series
affected by the modification or amendment if such modification or amendment
would:
- change the stated maturity of any debt security,
- reduce the principal, premium, if any, or interest on any debt security,
- reduce the principal of an original issue discount security or any other
debt security payable on acceleration of maturity,
- change the place of payment or the currency in which any debt security is
payable,
- impair the right to enforce any payment after the stated maturity or
redemption date,
- if subordinated debt securities, modify the subordination provisions in a
materially adverse manner to the holders,
- adversely affect the right to convert any debt security, or
- change the provisions in the indenture that relate to modifying or
amending the indenture.
SATISFACTION AND DISCHARGE; DEFEASANCE
We may be discharged from our obligations on the debt securities of any
series that have matured or will mature or be redeemed within one year if we
deposit with the trustee enough cash to pay all the principal, interest and any
premium due to the stated maturity date or redemption date of the debt
securities.
Each indenture contains a provision that permits us to elect:
- to be discharged from all of our obligations, subject to limited
exceptions, with respect to any series of debt securities then
outstanding, and/or
- to be released from our obligations under the following covenants and
from the consequences of an event of default resulting from a breach of
these covenants:
(1) the limitations on sale and leaseback transactions under the senior
indenture,
(2) the limitations on secured debt under the senior indenture,
(3) the subordination provisions under the subordinated indenture, and
(4) covenants as to payment of taxes and maintenance of properties.
To make either of the above elections, we must deposit in trust with the
trustee enough money to pay in full the principal, interest and premium on the
debt securities. This amount may be made in cash and/or U.S. government
obligations. As a condition to either of the above elections, we must deliver to
the trustee an opinion of counsel that the holders of the debt securities will
not recognize income, gain or loss for Federal income tax purposes as a result
of the action.
If any of the above events occurs, the holders of the debt securities of
the series will not be entitled to the benefits of the indenture, except for the
rights of holders to receive payments on debt securities or the
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registration of transfer and exchange of debt securities and replacement of
lost, stolen or mutilated debt securities.
NOTICES
Notices to holders will be given by mail to the addresses of the holders in
the security register.
GOVERNING LAW
The indentures and the debt securities will be governed by, and construed
under, the law of the State of New York.
REGARDING THE TRUSTEE
The indentures limit the right of the trustee, should it become a creditor
of Solectron, to obtain payment of claims or secure its claims.
The trustee is permitted to engage in certain other transactions. However,
if the trustee, acquires any conflicting interest, and there is a default under
the debt securities of any series for which they are trustee, the trustee must
eliminate the conflict or resign.
SENIOR DEBT SECURITIES
The senior debt securities will be unsecured and will rank equally with all
of our other unsecured and non-subordinated senior debt.
Covenants in the Senior Indenture
Limitations on Liens. Neither we nor any restricted subsidiary will issue,
incur, create, assume or guarantee any secured debt without securing the senior
debt securities equally and ratably with or prior to that secured debt unless
the sum of the following amounts would not exceed 10% of our consolidated net
tangible assets:
- the total amount of all secured debt that the senior debt securities are
not secured equally and ratably with, and
- the attributable debt in respect of sale and leaseback transactions
entered into after the date of the issuance of the debt securities.
We do include in the above calculation any sale and leaseback transactions
described under clause (2) of "Limitation on Sale and Leaseback Transactions"
below or any sale and leaseback transactions of principal property in which we
or our restricted subsidiary would be able to incur secured debt on the
principal property in an amount at least equal to the attributable debt with
respect to mortgages permitted under the definition of secured debt.
Limitations on Sale and Lease-back Transactions. Neither we nor any
restricted subsidiary will enter into any lease longer than three years covering
any of our principal property or any restricted subsidiary that is sold to any
other person in connection with that lease unless either:
(1) we or any restricted subsidiary would be entitled to incur indebtedness
secured by a mortgage on the principal property involved in such
transaction at least equal in amount to the attributable debt with
respect to the lease, without equally and ratably securing the senior
debt securities, pursuant to "Limitation on Liens" described above, or
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(2) an amount equal to the greater of the following amounts is applied 180
days to the retirement of our or any restricted subsidiary's long-term
debt or the purchase or development of comparable property:
(a) the net proceeds from the sale,
(b) the fair market value of the property at the time of the sale, or
(c) the attributable debt with respect to the sale and leaseback
transaction.
Definitions
"attributable debt" with regard to a sale and leaseback transaction means
the lesser of:
(1) the fair market value of such property as determined in good faith by
our board of directors, or
(2) discounted present value of all net rentals under the lease.
"consolidated net tangible assets" means the total amount of assets, less
reserves and other deductible items, after deducting:
- all current liabilities,
- all current maturities of debt having more than a 12 month maturity,
- all capital lease obligations,
- all goodwill, trade names, trademarks, patents, unamortized debt discount
and expense and other similar intangibles, other than capitalized
unamortized product development costs, and
- adjustments on account of minority interests of other persons holding
stock of our subsidiaries.
"mortgage" means a mortgage, security interest, pledge, lien, charge or
other encumbrance.
"principal property" means the land, improvements, buildings and fixtures
owned by us or a restricted subsidiary located in the United States that
constitutes our principal corporate office, any manufacturing plant or any
manufacturing facility and has a book value in excess of 1% of our consolidated
net tangible assets as of the determination date. Principal property does not
include any property that our board of directors has determined not to be of
material importance to the business conducted by us and our subsidiaries, taken
as a whole.
"restricted subsidiary" means any subsidiary that owns any principal
property. "Restricted subsidiary" does not include:
- any subsidiary primarily engaged in financing receivables or in the
finance business, or
- any of our less than 80% owned subsidiaries if the common stock of the
subsidiary is traded on any national securities exchange or quoted on the
Nasdaq National Market or over the counter.
"secured debt" means any of our debt or any debt of a restricted subsidiary
for borrowed money secured by a mortgage on any principal property or any stock
or indebtedness of a restricted subsidiary. Secured debt does not include:
- mortgages on property, shares of stock or indebtedness or other assets of
a corporation at the time it becomes a restricted subsidiary,
- mortgages on property, shares of stock or indebtedness or other assets
existing at the time of acquisition by Solectron or a restricted
subsidiary (including leases), or mortgages to secure payment of all or
any part of the purchase price, or to secure any debt within 180 days
after the acquisition thereof, or in the case of property, the completion
of construction, improvement or commencement of commercial operation of
the property,
- mortgages to secure indebtedness owing to Solectron or to a restricted
subsidiary,
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- mortgages existing at the date of the senior indenture,
- mortgages on property existing at the time the person is merged or
consolidated with us or a restricted subsidiary,
- mortgages on property at the time of a sale or lease of the properties of
a person as an entirety or substantially as an entirety to us or a
restricted subsidiary,
- mortgages incurred to finance the acquisition or construction of property
secured by mortgages in favor of the United States or a political
subdivision of the Unites States, or
- mortgages constituting any extension, renewal or replacement of any
mortgage listed above to the extent the mortgage is not increased.
SUBORDINATED DEBT SECURITIES
The indebtedness evidenced by the subordinated debt securities is
subordinated to the extent provided in the subordinated indenture to the prior
payment in full of all senior indebtedness, including any senior debt
securities.
Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, payments on the subordinated debt securities will
be subordinated in right of payment to the prior payment in full in cash of all
senior indebtedness.
In the event of any acceleration of the subordinated debt securities
because of an event of default, holders of any senior indebtedness would be
entitled to payment in full in cash of all senior indebtedness before the
holders of subordinated debt securities are entitled to receive any payment or
distribution.
We are required to promptly notify holders of senior indebtedness if
payment of the subordinated debt securities is accelerated because of an event
of default.
We may also not make payment on the subordinated debt securities if:
- a default in the payment of designated senior indebtedness occurs and is
continuing, or
- any other default occurs and is continuing with respect to designated
senior indebtedness that permits holders of designated senior
indebtedness to accelerate its maturity, and the trustee receives a
payment blockage notice from us or some other person permitted to give
the notice under the subordinated indenture.
We may and shall resume payments on the subordinated debt securities:
- in case of a payment default, when the default is cured or waived, and
- in case of a nonpayment default, the earlier of when the default is cured
or waived or 179 days after the receipt of the payment blockage notice if
the maturity of the designated senior indebtedness has not been
accelerated.
No new payment blockage period may start unless:
- 365 days have elapsed from the effectiveness of the prior payment
blockage notice, and
- all scheduled payments on the subordinated debt securities have been paid
in full.
No nonpayment default that existed or was continuing on the date of
delivery of any payment blockage notice to the trustee shall be the basis for a
subsequent payment blockage notice.
As a result of these subordination provisions, in the event of our
bankruptcy, dissolution or reorganization, holders of senior indebtedness may
receive more, ratably, and holders of the subordinated debt securities may
receive less, ratably, than our other creditors. The subordination provisions
will not prevent the occurrence of any event of default under the subordinated
indenture.
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If the trustee or any holder receives any payment that should not have been
made to them in contravention of subordination provisions before all senior
indebtedness is paid in full, then such payment will be held in trust for the
holders of senior indebtedness.
Senior debt securities will constitute senior indebtedness under the
subordinated indenture.
Definitions
"designated senior indebtedness" means our existing credit agreement and
off-balance sheet real estate leases and any of our other senior indebtedness
that expressly provides that it is "designated senior indebtedness."
"indebtedness" means:
(1) all of our indebtedness, obligations and other liabilities for:
- borrowed money, including our obligations in respect of overdrafts,
foreign exchange contracts, currency exchange agreements, interest
rate protection agreements, and any loans or advances from banks,
whether or not evidenced by notes or similar instruments, or
- evidenced by bonds, debentures, notes or similar instruments, whether
or not the recourse of the lender is to the whole of the assets or to
only a portion of the assets, other than any account payable or other
accrued current liability or obligation incurred in the ordinary
course of business in connection with the obtaining of materials or
services,
(2) all of our reimbursement obligations and other liabilities with respect
to letters of credit, bank guarantees or bankers' acceptances,
(3) all of our obligations and liabilities in respect of leases required,
in conformity with generally accepted accounting principles, to be
accounted for as capitalized lease obligations on our balance sheet,
(4) all of our obligations and other liabilities under any lease or related
document (including a purchase agreement) in connection with the lease
of real property which provides that we are contractually obligated to
purchase or cause a third party to purchase the leased property and
thereby guarantee a minimum residual value of the leased property to
the lessor and our obligations under such lease or related document to
purchase or to cause a third party to purchase such leased property,
(5) all of our obligations with respect to an interest rate or other swap,
cap or collar agreement or other similar instrument or agreement or
foreign currency hedge, exchange, purchase or similar instrument or
agreement,
(6) all of our direct or indirect guaranties or similar agreements in
respect of, and obligations or liabilities to purchase or otherwise
acquire or otherwise assure a creditor against loss in respect of,
indebtedness, obligations or liabilities of another person of the kind
described in clauses (1) through (5),
(7) any of our indebtedness or other obligations described in clauses (1)
through (5) secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by us regardless of whether
the indebtedness or other obligation secured thereby shall have been
assumed by us, and
(8) any and all deferrals or amendments of the kind described in clauses
(1) through (7).
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"senior indebtedness" means the principal of, premium, if any, interest
including all interest accruing subsequent to the commencement of any bankruptcy
or similar proceeding, rent and all fees, costs, expenses and other amounts on
our indebtedness, including all deferrals or renewals. Senior indebtedness shall
not include:
- any indebtedness that expressly provides it shall not be senior in right
of payment to the subordinated debt securities or expressly provides that
such indebtedness is on the same basis or "junior" to the subordinated
debt securities or
- indebtedness to any of our subsidiaries, a majority of the voting stock
of which is owned, directly or indirectly, by us.
Senior indebtedness does include our previously issued 7 3/8% Senior Notes due
2006 and the Liquid Yield Option Notes (Zero Coupon-Senior) due 2019.
"subsidiary" means:
- any corporation of which more than 66 2/3% is owned by us or by one or
more or our other subsidiaries, and
- any partnership of which more than 66 2/3% of the equity capital or
profit interest is owned by us or by one or more of our other
subsidiaries.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 801,200,000 shares. Those shares
consist of (1) 800,000,000 shares designated as common stock, $0.001 par value,
and (2) 1,200,000 shares designated as preferred stock, $0.001 par value. The
only equity securities currently outstanding are shares of common stock. As of
March 31, 2000, there were approximately 596,213,808 shares of common stock
issued and outstanding.
COMMON STOCK
Holders of common stock are entitled to receive dividends declared by the
Board of Directors, out of funds legally available for the payment of dividends,
subject to the rights of holders of preferred stock. Currently, we are not
paying a dividend. Each holder of common stock is entitled to one vote per
share. Upon any liquidation, dissolution or winding up of our business, the
holders of common stock are entitled to share equally in all assets available
for distribution after payment of all liabilities and provision for liquidation
preference of shares of preferred stock then outstanding. The holders of common
stock have no preemptive rights and no rights to convert their common stock into
any other securities. There are also no redemption or sinking fund provisions
applicable to the common stock.
All outstanding shares of common stock are fully paid and nonassessable.
Our common stock is listed on the New York Stock Exchange under the symbol
"SLR." The transfer agent and registrar for the common stock is Boston Equiserve
Limited Partnership.
PREFERRED STOCK
The following description of preferred stock and the description of the
terms of a particular series of preferred stock that will be set forth in the
related prospectus supplement are not complete. These descriptions are qualified
in their entirety by reference to the certificate of designation relating to
that series. The rights, preferences, privileges and restrictions of the
preferred stock of each series will be fixed by the certificate of designation
relating to that series. The prospectus supplement also will contain a
description of certain United States federal income tax consequences relating to
the purchase and ownership of the series of preferred stock that is described in
the prospectus supplement.
As of March 31, 2000, there were no shares of preferred stock outstanding.
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 1,200,000 shares of preferred stock in one or more
series and to fix the following terms of the preferred stock:
- designations, powers, preferences, privileges,
- relative participating, optional or special rights, and
- the qualifications, limitations or restrictions, including dividend
rights, conversion rights, voting rights, terms of redemption and
liquidation preferences.
Any or all of these rights may be greater than the rights of the common
stock.
The Board of Directors, without stockholder approval, can issue preferred
stock with voting, conversion or other rights that could negatively affect the
voting power and other rights of the holders of common stock. Preferred stock
could thus be issued quickly with terms calculated to delay or prevent a change
in control of Solectron or make it more difficult to remove our management.
Additionally, the issuance of preferred stock may have the effect of decreasing
the market price of the common stock.
The prospectus supplement will specify:
- the maximum number of shares,
- the designation of the shares,
- the annual dividend rate, if any, whether the dividend rate is fixed or
variable, the date dividends will accrue, the dividend payment dates, and
whether dividends will be cumulative,
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- the price and the terms and conditions for redemption, if any, including
redemption at our option or at the option of the holders, including the
time period for redemption, and any accumulated dividends or premiums,
- the liquidation preference, if any, and any accumulated dividends upon
the liquidation, dissolution or winding up of Solectron's affairs,
- any sinking fund or similar provision, and, if so, the terms and
provisions relating to the purpose and operation of the fund,
- the terms and conditions, if any, for conversion or exchange of shares of
any other class or classes of our capital stock or any series of any
other class or classes, or of any other series of the same class, or any
other securities or assets, including the price or the rate of conversion
or exchange and the method, if any, of adjustment,
- the voting rights, and
- any or all other preferences and relative, participating, optional or
other special rights, privileges or qualifications, limitations or
restrictions.
Preferred stock will be fully paid and nonassessable upon issuance. The
preferred stock or any series of preferred stock may be represented, in whole or
in part, by one or more global certificates, which will have an aggregate
principal amount equal to that of the preferred stock represented by the global
certificate.
Each global certificate will:
- be registered in the name of a depositary or a nominee of the depositary
identified in the prospectus supplement,
- be deposited with such depositary or nominee or a custodian for the
depositary, and
- will bear a legend regarding the restrictions on exchanges and
registration of transfer and any other matters as may be provided for
under the certificate of designation.
DELAWARE GENERAL CORPORATION LAW SECTION 203
We are a Delaware corporation subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
transaction with an "interested stockholder" for a period of three years after
the date the person became an interested stockholder, unless (with certain
exceptions) the business combination or the transaction in which the person
became an interested stockholder is approved in a prescribed manner, as
described below.
The Section 203 restrictions do not apply if:
(1) the business combination or transaction is approved by our Board of
Directors before the date the interested stockholder obtained such
status,
(2) upon consummation of the transaction which resulted in the stockholder
obtaining such status, the stockholder owned at least 85% of the shares
of stock entitled to vote generally in the election of directors (the
"voting stock") that are outstanding at the time the transaction
commenced. The 85% calculation does not include those shares
- owned by directors who are also officers of the target corporation, or
- held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer, or
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(3) if on or after the date the interested stockholder obtained such
status, the business combination is approved by our Board of Directors
and at a stockholder meeting by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Generally, a "business combination" includes a merger, asset sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with affiliates
and associates, owns, or within three years prior to the determination of
interested stockholder status, did own, 15% or more of a corporation's voting
stock. Section 203 may prohibit or delay mergers or other takeover or change in
control attempts with respect to Solectron. As a result, Section 203 may
discourage attempts to acquire us even though such transaction may offer our
stockholders the opportunity to sell their stock at a price above the prevailing
market price.
PLAN OF DISTRIBUTION
We may sell the securities separately or together:
- through one or more underwriters or dealers in a public offering and sale
by them,
- directly to investors, or
- through agents.
We may describe the securities from time to time in one or more
transactions at a fixed price or prices, which may be changed from time to time:
- at market prices prevailing at the times of sale,
- at prices related to such prevailing market prices, or
- at negotiated prices.
We will describe the method of distribution of the securities in the
prospectus supplement.
Underwriters, dealers or agents may receive compensation in the form of
discounts, concessions or commissions from us or our purchasers (as their agents
in connection with the sale of securities). These underwriters, dealers or
agents may be considered to be underwriters under the Securities Act. As a
result, discounts, commissions, or profits on resale received by the
underwriters, dealers or agents may be treated as underwriting discounts and
commissions. The prospectus supplement will identify any such underwriter,
dealer or agent, and describe any compensation received by them from us. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
Underwriters, dealers and agents may be entitled to indemnification by us
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments made by the underwriters,
dealers or agents, under agreements between us and the underwriters, dealers and
agents.
We may grant underwriters who participate in the distribution of securities
an option to purchase additional securities to cover over-allotments, if any, in
connection with the distribution.
All debt securities will be new issues of securities with no established
trading market. Underwriters involved in the public offering and sale of debt
securities may make a market in the debt securities. However, they are not
obligated to make a market and may discontinue market making activity at any
time. No assurance can be given as to the liquidity of the trading market for
any debt securities.
Underwriters or agents and their associates may be customers of, engage in
transactions with or perform services for us in the ordinary course of business.
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LEGAL MATTERS
>The validity of the issuance of Solectron's Securities offered by this
prospectus will be passed upon for Solectron by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements and schedules of Solectron
Corporation as of August 31, 1999 and 1998, and for each of the years in the
three-year period ended August 31, 1999 have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent auditors, incorporated by reference herein, and upon the
authority of said firm as experts in auditing and accounting.
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$1,800,000,000
SOLECTRON CORPORATION LOGO
LIQUID YIELD OPTION(TM) NOTES DUE 2020
(ZERO COUPON -- SENIOR)
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
NOVEMBER , 2000
(TM)TRADEMARK OF MERRILL LYNCH & CO., INC.
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