<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 29, 2000
REGISTRATION NO. 333-94939
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FLEXTRONICS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
SINGAPORE 3672 NOT APPLICABLE
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
11 UBI ROAD 1, #07-01/02
MEIBAN INDUSTRIAL BUILDING
SINGAPORE 408723
(65) 844-3366
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL E. MARKS
CHIEF EXECUTIVE OFFICER
FLEXTRONICS INTERNATIONAL LTD.
11 UBI ROAD 1, #07-01/02
MEIBAN INDUSTRIAL BUILDING
SINGAPORE 408723
(65) 844-3366
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
DAVID K. MICHAELS, ESQ. JEFFREY N. OSTRAGER, ESQ.
TRAM T. PHI, ESQ. CURTIS, MALLET-PREVOST, COLT & MOSLE LLP
FENWICK & WEST LLP 101 PARK AVENUE, SUITE 3500
TWO PALO ALTO SQUARE NEW YORK, NEW YORK 10178
PALO ALTO, CALIFORNIA 94306 (212) 696-6000
(650) 494-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger described in the Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[FLEXTRONICS LOGO]
February 29, 2000
Dear Shareholder:
You are cordially invited to attend an extraordinary general meeting of
shareholders of FLEXTRONICS INTERNATIONAL LTD. to be held on March 30, 2000 at
10:00 a.m., California time, at the principal U.S. offices of Flextronics
located at 2090 Fortune Drive, San Jose, California 95131.
At the extraordinary general meeting, you will be asked to consider and vote
upon the approval of the issuance of Flextronics ordinary shares to DII
stockholders pursuant to the merger agreement, which provides for the merger of
a wholly owned subsidiary of Flextronics into The DII Group, Inc. You will also
be asked to consider and vote upon the approval of an increase of the ordinary
shares authorized and reserved under our 1993 Share Option Plan. The increase in
the 1993 Plan is necessary to secure sufficient additional shares for option
grants that we believe will be necessary to retain key employees of DII after
the merger. We believe that approval of the increase in the 1993 Plan is
critical to the success of the combined company after the merger.
As a result of the merger, DII will become a wholly owned subsidiary of
Flextronics, and each share of DII common stock will be converted into the right
to receive 1.61 Flextronics ordinary shares. Flextronics ordinary shares are
listed on the Nasdaq National Market under the trading symbol "FLEX." Based on
the capitalization of Flextronics and DII on February 11, 2000 and after giving
effect to the issuance by Flextronics of 8,600,000 ordinary shares in an
offering that we completed on February 29, 2000, DII stockholders will own
approximately 32% of the outstanding ordinary shares of the combined company
after the merger. We expect that the merger will be completed on or about April
3, 2000.
Accompanying this letter is a Notice of Extraordinary General Meeting of
Shareholders and a disclosure document relating to the merger. This document
describes the merger in detail. We encourage you to read it carefully. IN
PARTICULAR, YOU SHOULD CONSIDER THE DISCUSSION IN "RISK FACTORS" BEGINNING ON
PAGE 21 OF THE DISCLOSURE DOCUMENT.
Our board of directors has approved the merger agreement described in the
attached documents and has determined that the merger is in the best interests
of Flextronics and its shareholders. After careful consideration, our board of
directors recommends that the shareholders of Flextronics vote in favor of the
issuance of Flextronics ordinary shares in the merger and the increase of the
ordinary shares available under our share option plan.
All shareholders are cordially invited to attend the extraordinary general
meeting in person. However, whether or not you plan to attend the meeting,
please complete, sign and return the proxy provided with the accompanying
documents. If you attend the extraordinary general meeting, you may vote in
person even though you have previously returned your proxy. It is important that
your shares be represented and voted at the extraordinary general meeting.
Sincerely,
[/s/ MICHAEL E. MARKS]
Michael E. Marks
Chairman of the Board and Chief Executive
Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAS APPROVED THE FLEXTRONICS ORDINARY SHARES TO BE ISSUED IN THE
MERGER OR DETERMINED WHETHER THE DISCLOSURE DOCUMENT IS ACCURATE OR ADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The disclosure document is dated February 29, 2000 and is first being mailed
to shareholders of Flextronics on or about February 29, 2000.
THE DISCLOSURE DOCUMENT IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
THE DISCLOSURE DOCUMENT INCORPORATES IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT FLEXTRONICS AND DII THAT IS NOT INCLUDED IN OR DELIVERED WITH
THIS DOCUMENT. THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO FLEXTRONICS
SHAREHOLDERS UPON WRITTEN OR ORAL REQUEST. SHAREHOLDERS SHOULD CONTACT
FLEXTRONICS AT 2090 FORTUNE DRIVE, SAN JOSE, CALIFORNIA 95131, ATTN: INVESTOR
RELATIONS, (408) 428-1300, OR DII AT 6273 MONARCH PARK PLACE, NIWOT, COLORADO
80503, ATTN: INVESTOR RELATIONS, (303) 652-2221.
TO OBTAIN TIMELY DELIVERY OF REQUESTED DOCUMENTS BEFORE THE EXTRAORDINARY
GENERAL MEETING, YOU MUST REQUEST THEM NO LATER THAN MARCH 23, 2000, WHICH IS
FIVE BUSINESS DAYS BEFORE THE MEETING DATE.
ALSO SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 131 OF THE DISCLOSURE
DOCUMENT.
<PAGE> 3
FLEXTRONICS INTERNATIONAL LTD.
2090 FORTUNE DRIVE
SAN JOSE, CALIFORNIA 95131
------------------------
NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 30, 2000
To our shareholders:
NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting of the
shareholders of FLEXTRONICS INTERNATIONAL LTD. will be held at our principal
U.S. offices located at 2090 Fortune Drive, San Jose, California, at 10:00 a.m.,
California time, on March 30, 2000 for the following purposes:
To pass the following resolutions as ordinary resolutions:
1. ISSUANCE OF ORDINARY SHARES PURSUANT TO THE AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 22, 1999, RELATING TO THE ACQUISITION OF THE DII
GROUP, INC.
RESOLVED THAT, without prejudice to the authority conferred upon the
directors at the Flextronics annual general meeting held on August 27, 1999
and notwithstanding the provisions of Article 46 of the Articles of
Association of Flextronics, approval be and is hereby given for the issuance
to stockholders of DII of 1.61 Flextronics ordinary shares for each
outstanding share of common stock of DII pursuant to the Agreement and Plan
of Merger dated as of November 22, 1999 entered into among Flextronics,
Slalom Acquisition Corp., a wholly owned subsidiary of Flextronics, and The
DII Group, Inc., providing for the acquisition of DII by Flextronics, and
the directors be and are hereby authorized to do all acts and to execute and
deliver all instruments or documents as they may deem necessary or desirable
in connection with, or to give effect to, the issuance of the ordinary
shares.
2. INCREASE IN 1993 SHARE OPTION PLAN
RESOLVED THAT approval be and is hereby given for Flextronics' 1993 Share
Option Plan to be amended to increase the maximum number of ordinary shares
authorized for issuance under the 1993 Plan from 16,400,000 ordinary shares
to 20,400,000 ordinary shares and that an additional 4,000,000 ordinary
shares be reserved for issuance under the 1993 Plan, and that the ordinary
shares, when issued and paid for in accordance with the terms of the 1993
Plan, will be validly issued, fully paid and nonassessable ordinary shares.
Only shareholders of record at the close of business on February 11, 2000
will be entitled to receive copies of this notice and the accompanying
disclosure document. However, holders of record on March 30, 2000, the date of
the extraordinary general meeting, will be entitled to vote at the meeting.
A shareholder (member) entitled to attend and vote at the extraordinary
general meeting is entitled to appoint more than one proxy to attend and vote on
his behalf. If a member appoints more than one proxy, the appointments will be
invalid unless he specifies the proportion of his shareholding, expressed as a
percentage of the whole, to be represented by each proxy. A proxy need not also
be a shareholder (member).
We need at least 33 1/3% of all outstanding ordinary shares of Flextronics
to be represented at the extraordinary general meeting in order to constitute a
quorum. Accordingly, it is important that your shares be represented at the
meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE.
An instrument appointing a proxy must be left at the registered office of
Flextronics located at 36, Robinson Road, #18-01, City House, Singapore 068877
or at Boston EquiServe L.P., 150 Royall Street, M/S 45-01-07, Canton,
Massachusetts 02021, United States of America, before 10:00 a.m., California
time, on March 28, 2000, which is 48 hours before the extraordinary general
meeting. The instrument appointing a proxy or proxies must be signed by the
appointer or his attorney duly authorized in writing. Where the instrument
appointing a proxy or proxies is executed by a corporation, it must be executed
either under its seal or signed by an officer or attorney duly authorized. You
may revoke your proxy at any time prior to the time it is voted.
By Order of the Board of Directors,
/s/ Yap Lune Teng
Yap Lune Teng
Joint Secretary
Singapore
February 29, 2000
<PAGE> 4
[LOGO]
February 29, 2000
Dear Stockholder:
The board of directors of The DII Group, Inc. is furnishing the
accompanying disclosure document in connection with its solicitation of proxies
for use at a special meeting of our stockholders to be held at 10:00 a.m.,
Colorado time, on March 30, 2000 at our executive offices located at 6273
Monarch Park Place, Niwot, Colorado. Whether or not you plan to attend, we urge
you to complete, sign and date the enclosed proxy card and return it in the
enclosed postage-paid envelope to ensure that your shares are represented at the
meeting. If you attend the meeting, you may vote in person if you wish, even
though you have previously returned your proxy.
At the special meeting, DII stockholders will be asked to consider and vote
upon a single proposal to approve and adopt a merger agreement with Flextronics
International Ltd. and approve a merger that will result in our company becoming
a wholly owned subsidiary of Flextronics. The merger entitles you to receive
1.61 shares of Flextronics for each share of DII stock you own. Flextronics
ordinary shares are listed on the Nasdaq National Market under the trading
symbol "FLEX." Based on the capitalization of DII and Flextronics as of February
11, 2000 and after giving effect to the issuance by Flextronics of 8,600,000
ordinary shares in an offering that Flextronics completed on February 29, 2000,
DII stockholders will own approximately 32% of the outstanding ordinary shares
of Flextronics after the merger.
Only DII stockholders of record at the close of business on February 11,
2000 will be entitled to notice of and to vote at the special meeting. As of the
record date, DII had outstanding 36,780,913 shares of common stock. Each
stockholder is entitled to one vote for each share of common stock held. Holders
of a majority of the outstanding shares will constitute a quorum for the special
meeting. The affirmative vote of the holders of at least a majority of the
shares of common stock entitled to vote at the special meeting is required to
approve and adopt the merger agreement and to approve the merger.
DII's board of directors has determined that the merger is advisable, fair
to and in the best interests of DII and its stockholders. DII's board of
directors unanimously approved the merger agreement and unanimously recommends
that you vote "FOR" approval and adoption of the merger agreement and approval
of the merger.
Attached is a Notice of Special Meeting of Stockholders and a disclosure
document relating to the merger. This disclosure document describes the merger
in detail. Please review the disclosure document carefully. IN PARTICULAR, YOU
SHOULD CONSIDER THE DISCUSSION IN "RISK FACTORS" BEGINNING ON PAGE 21 OF THIS
DOCUMENT. For your convenience, we have prepared a "Questions and Answers About
the Merger" discussion section which is set forth in the first three pages of
the disclosure document.
Sincerely,
/s/ Ronald R. Budacz
Ronald R. Budacz
Chairman of the Board and
Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS DISCLOSURE DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This document is dated February 29, 2000 and the approximate mailing date
of this document is February 29, 2000. The disclosure document is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
This disclosure document incorporates important business and
financial information about Flextronics and DII that is not included in or
delivered with this disclosure document. This information is available
without charge to DII stockholders upon written or oral request.
Stockholders should contact DII at 6273 Monarch Park Place, Niwot,
Colorado 80503, Attn: Investor Relations, (303) 652-2221, or Flextronics
at 2090 Fortune Drive, San Jose, California 95131, Attn: Investor
Relations, (408) 428-1300. To obtain timely delivery of requested
documents before the special meeting, you must request them no later than
March 23, 2000, which is five business days before the meeting date.
<PAGE> 5
[DIIGROUP LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 30, 2000
TO OUR STOCKHOLDERS:
A special meeting of the stockholders of The DII Group, Inc. will be held
at 10:00 a.m., Colorado time, on March 30, 2000, at the executive offices of DII
located at 6273 Monarch Park Place, Niwot, Colorado, for the following purpose:
To consider and vote upon a proposal to approve and adopt the Agreement and
Plan of Merger dated November 22, 1999 among Flextronics International
Ltd., Slalom Acquisition Corp., a wholly owned subsidiary of Flextronics,
and DII. The merger agreement provides for the merger of Slalom with and
into DII, resulting in DII becoming a wholly owned subsidiary of
Flextronics. In the merger, DII stockholders will receive 1.61 Flextronics
ordinary shares for each share of DII common stock.
We do not anticipate that any other matters will be presented for action at
the meeting. If any other matters are properly brought before the meeting, the
persons named in the proxies will have discretion to vote on these matters in
accordance with their respective judgments.
You are urged to read the attached disclosure document carefully as it
contains a more complete description of the proposed merger.
The affirmative vote of the holders of at least a majority of the shares of
DII common stock entitled to vote is necessary to approve and adopt the merger
proposal.
Only stockholders of record on February 11, 2000, the record date, are
entitled to notice of and to vote at the special meeting and at any adjournments
or postponements of the special meeting.
By Order of the Board of Directors,
/s/ Carl R. Vertuca, Jr.
Carl R. Vertuca, Jr.
Executive Vice President -- Finance,
Administration and Corporate Development
and Secretary
Niwot, Colorado
February 29, 2000
YOUR VOTE IS IMPORTANT
IF YOU DO NOT EXPECT TO ATTEND THE SPECIAL MEETING, OR IF YOU PLAN TO ATTEND BUT
WISH TO VOTE BY PROXY, PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU CAN REVOKE YOUR
PROXY AT ANY TIME BEFORE IT IS VOTED.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 4
What the Companies Do..................................... 4
Summary of the Transaction................................ 5
No Other Negotiations..................................... 6
Conditions to Closing the Merger.......................... 7
Votes Required for Approval............................... 7
Termination of the Merger Agreement....................... 8
Termination Fee........................................... 8
The Stock Option Agreement................................ 9
The Voting Agreements..................................... 9
Opinions of Financial Advisors............................ 10
Absence of Appraisal Rights............................... 10
Accounting Treatment of the Merger........................ 10
Interests of Executive Officers and Directors in the
Merger................................................. 10
Antitrust Approvals Required to Complete the Merger....... 11
Restrictions on Selling Flextronics Ordinary Shares
Received in the Merger................................. 11
Market Price and Dividend Data............................ 12
Amendment to Flextronics' 1993 Share Option Plan.......... 12
Forward-Looking Statements in this Document............... 12
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
FLEXTRONICS INTERNATIONAL LTD............................. 14
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE DII
GROUP, INC................................................ 16
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA........ 17
RECENT DEVELOPMENTS......................................... 19
COMPARATIVE PER SHARE DATA.................................. 20
RISK FACTORS................................................ 21
Risks Related to the Merger............................... 21
Risks Related to the Business of the Combined Company
After the Merger....................................... 24
THE COMPANIES............................................... 31
Flextronics............................................... 31
Slalom.................................................... 31
DII....................................................... 31
THE DII SPECIAL MEETING..................................... 33
Date, Time, Place and Purpose of the DII Special
Meeting................................................ 33
Record Date and Outstanding Shares........................ 33
Quorum and Vote Required.................................. 33
Proxies................................................... 33
Solicitation of Proxies; Expenses......................... 34
Recommendation of the DII Board of Directors.............. 34
THE FLEXTRONICS EXTRAORDINARY GENERAL MEETING............... 35
Date, Time, Place and Purpose of the Flextronics
Extraordinary General Meeting.......................... 35
Record Date and Outstanding Shares........................ 35
Quorum and Vote Required.................................. 35
Proxies................................................... 35
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Solicitation of Proxies; Expenses......................... 36
Proposal No. 1: Ordinary Resolution to Approve the
Issuance of Ordinary Shares in the Merger.............. 36
Proposal No. 2: Ordinary Resolution to Approve the
Increase of the Number of Shares Authorized for
Issuance Under the 1993 Share Option Plan.............. 37
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............. 44
Background of the Merger.................................. 44
Flextronics' Reasons For the Merger....................... 46
Recommendation of Flextronics' Board of Directors......... 48
DII's Reasons For the Merger.............................. 48
Recommendation of DII's Board of Directors................ 50
Opinions of DII's Financial Advisors...................... 50
Interests of Executive Officers and Directors in the
Merger................................................. 70
Closing and Effectiveness of the Merger................... 71
Structure of the Merger................................... 71
Conversion of DII Common Stock............................ 71
Exchange of DII Stock Certificates for Share Certificates
in the Combined Company................................ 71
Absence of Appraisal Rights............................... 72
Material United States Federal Income Tax Consequences of
the Merger; Other United States Tax and Singapore
Estate Tax Matters..................................... 72
Accounting Treatment of the Merger........................ 74
Regulatory Filings and Approvals Required to Complete the
Merger................................................. 75
Restrictions on Sales of Flextronics Ordinary Shares by
Affiliates of DII and Flextronics...................... 75
Listing on the Nasdaq National Market of Flextronics
Ordinary Shares to be Issued in the Merger............. 76
Delisting and Deregistration of DII Common Stock After the
Merger................................................. 76
DII Stockholder Rights After the Merger................... 76
TERMS OF THE MERGER AGREEMENT............................... 77
Representations and Warranties............................ 77
Conduct of Business Before the Closing of the Merger...... 78
No Other Negotiations..................................... 79
Right of the DII Board to Withdraw its Recommendation..... 81
Public Disclosure......................................... 81
DII's Employee Benefit Plans.............................. 81
Treatment of DII Stock Options, Performance Shares and
Purchase Rights........................................ 82
Conditions to Closing the Merger.......................... 82
Termination of the Merger Agreement....................... 84
Termination Fee........................................... 85
Amendment, Extension and Waiver of the Merger Agreement... 86
RELATED AGREEMENTS.......................................... 87
The Stock Option Agreement................................ 87
The Voting Agreements..................................... 89
MARKET PRICE AND DIVIDEND DATA.............................. 90
BENEFITS OF THE MERGER TO DII DIRECTORS AND EXECUTIVE
OFFICERS.................................................. 92
Positions with Flextronics................................ 92
Accelerated Vesting of Options and Performance Shares..... 92
Forgiveness of Indebtedness............................... 92
Severance Arrangements.................................... 92
Indemnification and Insurance............................. 94
</TABLE>
ii
<PAGE> 8
<TABLE>
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PAGE
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EXECUTIVE OFFICERS OF FLEXTRONICS........................... 95
EXECUTIVE COMPENSATION...................................... 96
Summary of Cash and Certain Other Compensation............ 96
Employment Agreements..................................... 99
Certain Transactions...................................... 100
Compensation Committee Interlocks and Insider
Participation.......................................... 100
FLEXTRONICS INTERNATIONAL LTD. UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS................ 101
DESCRIPTION OF CAPITAL SHARES OF FLEXTRONICS................ 110
Ordinary Shares........................................... 110
New Shares................................................ 110
Shareholders.............................................. 110
Transfer of Shares........................................ 111
Shareholders' Meetings.................................... 111
Voting Rights............................................. 111
Dividends................................................. 111
Bonus and Rights Issues................................... 112
Takeovers................................................. 112
Liquidation or Other Return of Capital.................... 112
Indemnity................................................. 112
Limitations on Rights to Hold or Vote Ordinary Shares..... 113
Transfer Agent............................................ 113
COMPARISON OF RIGHTS OF HOLDERS OF FLEXTRONICS ORDINARY
SHARES AND HOLDERS OF DII COMMON STOCK.................... 114
Number and Qualification of Directors..................... 114
Classified Board of Directors............................. 114
Action by Written Consent of Shareholders................. 115
Special or Extraordinary General Meetings................. 115
Removal of Directors...................................... 115
Filling Vacancies on the Board of Directors............... 115
Loans to Officers and Employees........................... 116
Indemnification and Limitation of Liability............... 116
Inspections of Shareholders List.......................... 118
Dividends, Distributions and Repurchase of Shares......... 118
Mergers, Reorganizations and Sales of Substantially All of
a Corporation's Assets................................. 119
Amendment of Certificate of Incorporation or Articles of
Association; Amendment of Bylaws....................... 120
Shareholder Voting........................................ 120
Interested Director Transactions.......................... 121
Interested Stockholder Transactions....................... 121
Shareholder Derivative Suits.............................. 121
Appraisal Rights.......................................... 122
Dissolution............................................... 122
Transferability of Shares................................. 122
Issuance of New Shares.................................... 122
Preferred Stock........................................... 123
Shareholder Rights Plan................................... 123
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
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<S> <C>
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS, MANAGEMENT
AND DIRECTORS OF FLEXTRONICS.............................. 125
BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS, MANAGEMENT
AND DIRECTORS OF DII...................................... 127
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 129
LEGAL MATTERS............................................... 130
EXPERTS..................................................... 130
STOCKHOLDER PROPOSALS....................................... 130
WHERE YOU CAN FIND MORE INFORMATION......................... 131
</TABLE>
<TABLE>
<S> <C>
ANNEX A Agreement and Plan of Merger
ANNEX B Stock Option Agreement
ANNEX C Parent Voting Agreement
ANNEX D Company Voting Agreement
ANNEX E Opinion of Salomon Smith Barney Inc.
ANNEX F Opinion of Broadview International LLC
</TABLE>
iv
<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE FLEXTRONICS AND DII PROPOSING TO MERGE?
A: The merger allows us the opportunity to significantly extend our leadership
in global supply chain facilitation, enhance our technologies, further
capitalize on the economic benefits of our respective infrastructure and add
potentially strong value for the shareholders of the combined company. In
particular, this combination will provide Flextronics and DII the opportunity
to continue our shared strategic vision to become a comprehensive outsource
provider to electronic OEMs. For a complete description of Flextronics' and
DII's reasons for the merger, we encourage you to refer to pages 46-50 of
this document.
Q: WHAT IS THE MERGER?
A: The merger is the combination of two businesses, Flextronics and DII, which
will result in DII becoming a wholly owned subsidiary of Flextronics. The
merger will be effected by converting the outstanding shares of DII common
stock into Flextronics ordinary shares.
Based on the exchange ratio of 1.61 and the respective capitalizations of
Flextronics and DII as of February 11, 2000 and after giving effect to the
issuance by Flextronics of 8,600,00 shares in an offering that Flextronics
completed on February 29, 2000, those persons who are stockholders of DII
immediately before the merger will own approximately 32% of the combined
company afterward, and those persons who are shareholders of Flextronics
immediately before the merger will own approximately 68% of the combined
company afterward. Holders of DII employee stock options will automatically
receive options to purchase Flextronics shares on terms substantially the
same as their DII stock options, with quantity and exercise price adjusted
for the exchange ratio, except that the terms of the stock option agreement
may be altered to comply with Singapore legal requirements.
For a more complete description of the merger, see "Approval of the Merger
and Related Transactions" on page 44 and "Terms of the Merger Agreement" on
page 77.
Q: WHAT WILL DII STOCKHOLDERS RECEIVE IN THE MERGER?
A: As a result of the merger, DII stockholders will receive ordinary shares of
Flextronics in exchange for their shares of DII common stock. The ordinary
shares of Flextronics that they receive in the merger will represent stock
ownership in the combined company after the merger.
Specifically, each DII stockholder will receive 1.61 Flextronics ordinary
shares for each share of DII common stock owned. For example, if you own 50
shares of DII common stock, you will receive 80 Flextronics ordinary shares
in exchange for your DII shares.
Flextronics will not issue fractional ordinary shares; instead, each DII
stockholder will receive cash for fractional shares, based on the market
value of Flextronics ordinary shares. In the above example, in addition to
the 80 Flextronics ordinary shares, you would also receive cash instead of
the 0.5 Flextronics ordinary share.
The number of Flextronics ordinary shares to be issued for each share of DII
common stock is fixed and will not be adjusted based upon changes in the
values of Flextronics ordinary shares or DII common stock. As a result, the
value of the shares DII stockholders will receive in the merger will not be
known before the merger and will go up or down as the market price of
Flextronics ordinary shares goes up or down. To estimate the value of the
Flextronics shares you would receive for your DII shares, multiply the number
of DII shares you own by the product of 1.61 and the market price of a
Flextronics ordinary share.
Flextronics' and DII's stock prices are volatile. We encourage you to obtain
current market quotations of Flextronics ordinary shares and DII common
stock.
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For a more complete description of what you will receive in the merger, see
"Approval of the Merger and Related Transactions -- Conversion of DII Common
Stock" on page 71.
Q: WHAT WILL FLEXTRONICS SHAREHOLDERS RECEIVE IN THE MERGER?
A: Flextronics shareholders will not receive any new Flextronics ordinary shares
as a result of the merger. Flextronics shareholders before the merger will
continue to own their Flextronics ordinary shares, which will represent stock
ownership in the combined company after the merger.
Q: WHAT DO I NEED TO DO NOW?
A: Following your review of this document, mail your signed proxy card in the
enclosed return envelope as soon as possible so that your shares may be
represented at your meeting. If you return your signed proxy but do not
include instructions on how to vote it on the merger-related proposal, your
shares will be voted "FOR" the merger-related proposal. IF YOU ARE A DII
STOCKHOLDER AND YOUR SHARES ARE NOT VOTED, THIS WILL HAVE THE EFFECT OF A
VOTE AGAINST THE MERGER.
For a more complete description of voting your shares, see "The Flextronics
Extraordinary General Meeting -- Quorum and Vote Required" on page 35 and
"The DII Special Meeting -- Quorum and Vote Required" on page 33.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted. You can
do this in one of three ways.
If you are a Flextronics shareholder, you can send a written notice to the
Secretary of Flextronics stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card. Third, you can attend
the extraordinary general meeting and vote in person. Your attendance will be
sufficient to revoke your proxy.
If you are a DII stockholder, you can send a written notice to the Secretary
of DII stating that you would like to revoke your proxy. Second, you can
complete and submit a new proxy card. Third, you can attend the special
meeting, file a written notice of revocation of your proxy with the Secretary
of DII and vote in person. Your attendance alone will not revoke your proxy.
Q: DO THE BOARDS OF DIRECTORS OF DII AND FLEXTRONICS RECOMMEND VOTING IN FAVOR
OF THE MERGER?
A: Yes. After careful consideration, DII's board of directors unanimously
recommends that its stockholders vote in favor of the proposal to adopt and
approve the merger agreement and approve the merger. Likewise, after careful
consideration, the Flextronics board of directors recommends that its
shareholders vote in favor of the proposal to issue Flextronics ordinary
shares in the merger.
For a more complete description of the recommendations of the boards of
directors of Flextronics and DII, see "Approval of the Merger and Related
Transactions -- Flextronics' Reasons for the Merger" on page 46,
"-- Recommendation of Flextronics' Board of Directors" on page 48, "-- DII's
Reasons for the Merger" on page 48 and "-- Recommendation of DII's Board of
Directors" on page 50.
Q: HAVE EXECUTIVE OFFICERS AND DIRECTORS OF FLEXTRONICS AND DII AGREED TO VOTE
THEIR SHARES IN FAVOR OF THE MERGER?
A: Yes.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE MERGER?
A: Yes. For example, the combined company might not realize the expected
benefits of the merger. In evaluating the merger, you should carefully
consider the factors discussed in "Risk Factors" on page 21.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No, unless you instruct your broker to do so. Your broker does not have
discretion to vote
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your shares on the merger-related proposal. As a result, because of the vote
required for approval by DII stockholders, if you are a DII stockholder and you
fail to vote directly or by instructing your broker to vote your shares, this
will have the effect of a vote against the merger.
For a more complete description of voting shares held in "street name," see "The
Flextronics Extraordinary General Meeting -- Quorum and Vote Required" on
page 35 and "The DII Special Meeting -- Quorum and Vote Required" on page 33.
Q: IF I AM A DII STOCKHOLDER, SHOULD I SEND IN MY DII STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions for
exchanging your DII stock certificates for Flextronics share certificates
representing your stock ownership in the combined company.
Q: IF I AM A FLEXTRONICS SHAREHOLDER, SHOULD I DO ANYTHING WITH MY FLEXTRONICS
SHARE CERTIFICATES?
A: No. Your Flextronics share certificates will represent stock ownership of the
combined company after the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We expect
to complete it on or about April 3, 2000. However, the merger is subject to
several conditions which could affect the timing of its completion.
For a more complete description of the conditions to the merger, see "Terms
of the Merger Agreement -- Conditions to Closing the Merger" on page 82.
Q: WILL I RECOGNIZE A TAXABLE GAIN OR LOSS AS A RESULT OF THE MERGER?
A: We expect that if the merger is completed, you will not recognize gain or
loss for income tax purposes, except that DII stockholders will recognize
gain or loss with respect to cash received for fractional shares. However, we
urge you to consult your own tax advisor to determine your particular tax
consequences.
For a more complete description of the tax consequences, see "Approval of the
Merger and Related Transactions -- Material United States Federal Income Tax
Consequences of the Merger; Other United States Tax and Singapore Estate Tax
Matters" on page 72.
Q: WHO SHOULD I CALL WITH QUESTIONS?
A: If you are a Flextronics shareholder and would like additional copies of this
document without charge, or if you have questions about the merger, including
the procedures for voting your shares, you should contact:
Flextronics International Ltd.
Attn: Investor Relations
2090 Fortune Drive
San Jose, California 95131
Telephone: (408) 428-1300
or
Corporate Investor Communications
111 Commerce Road
Carlstadt, New Jersey 07072
Telephone: (201) 460-2238
If you are a DII stockholder, and would like additional copies of this
document without charge, or if you have questions about the merger, including
the procedures for voting your shares, you should contact:
The DII Group, Inc.
Attn: Investor Relations
6273 Monarch Park Place
Niwot, Colorado 80503
Telephone: (303) 652-2221
or
Morrow & Co., Inc.
445 Park Avenue, 5th Floor
New York, New York 10022
Telephone: (212) 754-8000
Toll Free: (800) 566-9061
You may also obtain additional information about Flextronics and DII from
documents each of us files or has filed with the Securities and Exchange
Commission by following the instructions in "Where You Can Find More
Information" on page 131.
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SUMMARY
This summary may not contain all of the information that is important to
you. You should carefully read this entire document and the other documents we
refer to for a more complete understanding of the merger. In particular, you
should read the documents attached to this document, which include the merger
agreement, the stock option agreement, the voting agreements, the fairness
opinion of Salomon Smith Barney Inc. and the fairness opinion of Broadview
International LLC, which are attached as Annexes A, B, C, D, E and F,
respectively.
In addition, we incorporate by reference important business and financial
information about Flextronics and DII into this document. You may obtain the
information incorporated by reference into this document without charge by
following the instructions in "Where You Can Find More Information" on page 131.
Unless otherwise indicated, all information pertaining to share and per
share amounts of Flextronics ordinary shares, as well as the exchange ratio,
have been adjusted to reflect the two-for-one stock split effected as a bonus
issue, the Singapore equivalent of a stock dividend, paid on December 22, 1999.
For example, after giving effect to the stock split, the exchange ratio is now
1.61 Flextronics ordinary shares for each share of DII common stock.
WHAT THE COMPANIES DO
Flextronics International Ltd.
11 Ubi Road l, #07-01/02
Meiban Industrial Building
Singapore 408723
(65) 844-3366
Nasdaq stock symbol: FLEX
Flextronics is a leading provider of advanced electronics manufacturing
services to original equipment manufacturers, or OEMs, primarily in the
telecommunications and networking, consumer electronics and computer industries.
Flextronics provides a wide range of integrated services, from initial product
design to volume production and fulfillment. Flextronics' manufacturing services
range from printed circuit board fabrication and assembly to complete product
assembly and test. In addition, Flextronics provides advanced engineering
services, including product design, printed circuit board layout, quick-turn
prototyping and test development. Throughout the production process, Flextronics
offers logistics services, such as materials procurement, inventory management,
packaging and distribution.
The DII Group, Inc.
6273 Monarch Park Place
Niwot, Colorado 80503
(303) 652-2221
Nasdaq stock symbol: DIIG
DII is a leading global provider of electronics design and manufacturing
services to OEMs primarily in the telecommunications, data communications,
high-end computing and medical devices industries. DII provides a comprehensive
set of integrated design and manufacturing services, from initial product design
to volume production and order fulfillment. DII's manufacturing services range
from printed circuit board fabrication and assembly to complete product assembly
and test. In addition, DII provides advanced engineering services, including
semiconductor design, printed circuit board design, printed circuit board
layout, quick-turn prototyping and test development. Throughout the production
process, DII offers logistics services, such as materials procurement, inventory
management and distribution.
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SUMMARY OF THE TRANSACTION
THE MERGER
If the merger is approved, DII will become a wholly owned subsidiary of
Flextronics. In the merger, DII stockholders will receive 1.61 Flextronics
ordinary shares for each share of DII common stock. The merger agreement is
attached to this document as Annex A. We encourage you to read the merger
agreement carefully. For a more complete description of the merger agreement,
see "Terms of the Merger Agreement" beginning on page 77.
FLEXTRONICS' REASONS FOR THE MERGER
In reaching its decision, Flextronics' board of directors identified
several potential benefits of the merger, including:
- enabling Flextronics to expand operations to new locations and to
complement current operations in existing locations;
- enabling Flextronics to enhance its engineering capabilities, especially
with DII's application specific integrated circuit and gate array design
capabilities;
- allowing Flextronics to better serve OEM customers by offering a greater
range of manufacturing facilities and service offerings, including the
capability to build more complex and faster printed circuit boards
through DII's Multek operations;
- expanding Flextronics' customer base with the addition of new customer
relationships, and the strengthening of existing customer relationships;
and
- expanding the depth of Flextronics' management team with the addition of
DII's team of senior managers and plant managers with experience in the
electronics manufacturing services industry.
DII'S REASONS FOR THE MERGER
In reaching its decision, DII's board of directors identified several
potential benefits of the merger, including:
- enabling DII to realize its objective of becoming a first tier
electronics manufacturing services company and thereby provide to DII
stockholders the higher market valuations enjoyed by first tier
electronics manufacturing services companies;
- creating a combined company with a global presence, broader service
offerings than other top tier competitors and added capacity to meet the
growing needs of OEM customers;
- combining DII's core strengths in the semiconductor design and printed
circuit board design and manufacturing areas with Flextronics' strengths
in the systems assembly, engineering, manufacturing and distribution
areas, thereby providing DII stockholders with the opportunity to realize
significant benefits and long-term value;
- the exchange ratio in the merger represented a premium of approximately
26% over the closing price of DII common stock on November 19, 1999, the
last trading day prior to the announcement of the merger, a premium of
approximately 43% over the trading price of DII common stock two weeks
prior to November 19, 1999, and a premium of approximately 86% over the
trading price of DII common stock four weeks prior to November 19, 1999;
- enabling the combined company to service a greatly expanded and more
diverse customer base;
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<PAGE> 15
- combining the complementary strengths of DII's and Flextronics'
management, resulting in a management team with greater knowledge of the
electronics manufacturing services industry and more business experience
than that of either company standing alone; and
- the combined company will be in a stronger position to compete for OEM
divestiture opportunities and to acquire complementary businesses as the
electronics manufacturing services industry increasingly consolidates.
RISKS
Risks associated with the merger include:
- fluctuation in the value received by DII stockholders because they will
receive Flextronics ordinary shares based on a fixed ratio, even if the
market value of DII common stock or Flextronics ordinary shares changes
before the merger closes;
- the possibility that the expected benefits of the merger might not be
realized;
- the possible loss of key employees as a result of the merger;
- the difficulty of integrating our two companies;
- the merger may fail to qualify as a pooling of interests, which would
harm the financial results of the combined company; and
- the potential failure to complete the merger, which could harm each
company's stock price and future business and operations.
Please refer to the risks described in "Risk Factors" on page 21 and
"Approval of the Merger and Related Transactions -- Flextronics' Reasons For the
Merger" on page 46 and "-- DII's Reasons For the Merger" on page 48.
NO OTHER NEGOTIATIONS
Until the merger is completed or the merger agreement is terminated, DII
has agreed, with limited exceptions, not to take any action, directly or
indirectly, with respect to an acquisition proposal, as defined on page 80 of
this document.
If DII receives an unsolicited, written, bona fide acquisition proposal
before the date of its stockholders' meeting that DII's board reasonably
concludes may constitute a superior offer, as defined on page 81, DII may
furnish non-public information regarding itself and may enter into discussions
with the person or group who has made the acquisition proposal if DII provides
written notice to Flextronics and follows other specified procedures.
DII has agreed to inform Flextronics promptly as to any acquisition
proposal, request for non-public information or inquiry which DII believes would
lead to an acquisition proposal. DII has further agreed to inform Flextronics of
the status and details of any acquisition proposal.
DII may withdraw its recommendation in favor of the merger if it receives a
superior offer and Flextronics does not respond with a corresponding offer at
least as favorable as the superior offer.
For a more complete description of these limitations on DII's actions with
respect to an acquisition proposal, please refer to the sections entitled "Terms
of the Merger Agreement -- No Other Negotiations" on page 79, and the
corresponding section of the merger agreement.
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<PAGE> 16
CONDITIONS TO CLOSING THE MERGER
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of several conditions. The conditions that must be
satisfied or waived before the merger can be completed include the following,
subject to exceptions and qualifications:
- the merger agreement must be adopted and approved and the merger must be
approved by the holders of a majority of DII common stock outstanding as
of the record date;
- the proposal to issue Flextronics ordinary shares in the merger must be
approved by the holders of a majority of Flextronics ordinary shares
present and voting in person or by proxy, attorney or representative at
the Flextronics shareholders' meeting;
- waiting periods under applicable antitrust laws must expire or be
terminated;
- no governmental injunction or order preventing the closing of the merger
or restricting Flextronics' conduct or operation of the business of DII
and its subsidiaries in a material way may be in effect;
- we must each receive an opinion of our respective tax advisors to the
effect that the merger will qualify as a tax-free reorganization;
- the Flextronics ordinary shares to be issued to DII stockholders in the
merger must have been approved for quotation on the Nasdaq National
Market;
- the respective representations and warranties of Flextronics and DII in
the merger agreement must be true and correct in all material respects;
- we must comply in all material respects with our respective agreements
and covenants in the merger agreement;
- no material adverse change must have occurred with respect to Flextronics
or DII; and
- DII must have received a letter from Deloitte & Touche LLP to the effect
that no conditions exist relating to DII that preclude Flextronics from
accounting for the merger as a pooling of interests, and Flextronics must
have received a letter from Arthur Andersen LLP to the effect that
Flextronics may account for the merger as a pooling of interests.
Some of the conditions may be waived by Flextronics and DII. For a more
complete description of the conditions to closing the merger, see "Terms of the
Merger Agreement -- Conditions to Closing the Merger" on page 82.
VOTES REQUIRED FOR APPROVAL
DII proposal. The holders of a majority of the shares of DII common stock
as of February 11, 2000, the record date, must approve and adopt the merger
agreement and approve the merger at the DII special stockholders' meeting. DII
stockholders are entitled to cast one vote per share of DII common stock owned
as of the record date. Nine directors and executive officers of DII, who
together hold approximately 2.2% of DII common stock outstanding as of the
record date, have agreed to vote in favor of the merger.
Flextronics proposal. The holders of a majority of the Flextronics ordinary
shares present and voting in person or by proxy, attorney or representative on
March 30, 2000 at the Flextronics extraordinary general meeting, must approve
the proposal to issue Flextronics ordinary shares in the merger and the proposal
to increase the ordinary shares authorized and reserved under the Flextronics
1993 Plan. Flextronics shareholders are entitled to cast one vote per
Flextronics ordinary share owned as of the date of the Flextronics extraordinary
general meeting. Nine directors and executive officers
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<PAGE> 17
of Flextronics, who together hold approximately 4.4% of Flextronics ordinary
shares outstanding as of the record date, have agreed to vote in favor of the
proposal.
For a more complete description of the votes required for approval of the
merger, see "The Flextronics Extraordinary General Meeting -- Quorum and Vote
Required" on page 35 and "The DII Special Meeting -- Quorum and Vote Required"
on page 33.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated under specified circumstances at any
time prior to closing the merger as follows:
- by our mutual consent;
- by either of us, if the merger is not completed by May 22, 2000, which
may be extended by either party to August 22, 2000 under some conditions;
- by either of us, if an order, decree, ruling or other action of a
governmental entity prohibiting the merger is issued and not appealable;
- by either of us, if the DII stockholders do not adopt and approve the
merger agreement and approve the merger at the DII stockholders' meeting,
except that DII may not terminate the merger agreement if the cause of
the failure to obtain approval is due to the action of DII;
- by either of us, if the Flextronics shareholders do not approve the
proposal to issue shares in the merger at the Flextronics shareholders'
meeting, except that Flextronics may not terminate the merger agreement
if the cause of the failure to obtain approval is due to the action of
Flextronics;
- by Flextronics, prior to approval of the merger proposal by DII
stockholders, if a trigger event, as defined on page 84, occurs with
respect to DII; or
- by either of us, upon a material breach of any representation or warranty
or other agreement in the merger agreement of the other company.
For a more complete description of the manner in which the merger agreement
may be terminated, see "Terms of the Merger Agreement -- Termination of the
Merger Agreement" on page 84.
TERMINATION FEE
If the merger agreement is terminated, DII may be required to pay
Flextronics a termination fee equal to 3% of DII's equity value. Generally, this
obligation arises on the part of DII if:
- its board adversely amends or withdraws its recommendation to its
stockholders in favor of the merger proposal or similar specified events
occur and Flextronics terminates the merger agreement; or
- its stockholders fail to approve the merger proposal by the required
vote, a third party publicly announces an acquisition proposal with
respect to DII before the merger agreement is terminated, DII's breach of
the merger agreement caused the failure to complete this merger, and
within one year after termination DII and a third party enter into an
agreement for or complete an acquisition, as defined on page 85.
For a more complete description of the payment of the termination fee, see
"Terms of the Merger Agreement -- Termination Fee" on page 85.
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<PAGE> 18
THE STOCK OPTION AGREEMENT
DII granted Flextronics an option to buy up to a number of shares of DII
common stock equal to 19.9% of the outstanding shares of DII common stock on the
date of exercise of the option at an exercise price of $65.406 per share.
Based on the number of shares of DII common stock outstanding on February
11, 2000, Flextronics' option would be exercisable for approximately 7,319,402
shares of DII common stock. However, the option is not currently exercisable,
and it will become exercisable only if specified conditions are triggered. These
triggering conditions include:
- the withdrawal or amendment by the DII board of its recommendation to its
stockholders in favor of the merger proposal or similar specified events;
- the acquisition by a third party of 25% of the outstanding voting
securities of DII or any of its subsidiaries;
- the commencement of a proxy solicitation seeking to alter the composition
of the DII board; or
- the public announcement prior to the termination of the merger agreement
of any offer or proposal to acquire 10% or more of the outstanding voting
securities or assets of DII or a liquidation or dissolution of DII, and
at least one of the following events occurs on or after the date of the
public announcement:
- the failure by DII stockholders to approve the merger proposal at the
DII stockholders' meeting,
- the failure to hold the DII stockholders' meeting or similar specified
events, or
- the commencement of a tender offer or exchange offer for 15% or more of
the outstanding shares of DII common stock.
Flextronics required that DII grant the option as a prerequisite to
entering into the merger agreement. The option may discourage third parties who
are interested in acquiring a significant stake in DII and is intended by us to
increase the likelihood that the merger will be completed.
For a more complete description of the stock option agreement, please refer
to "Related Agreements -- The Stock Option Agreement" on page 87. The stock
option agreement is attached to this document as Annex B. We urge you to read
this agreement in its entirety.
THE VOTING AGREEMENTS
Nine directors and executive officers of Flextronics entered into voting
agreements with DII. The voting agreements require these Flextronics directors
and executive officers to vote all the Flextronics ordinary shares they own in
favor of the merger-related proposal. These Flextronics directors and executive
officers together held approximately 4.4% of the outstanding Flextronics
ordinary shares as of the record date.
Nine directors and executive officers of DII entered into voting agreements
with Flextronics. The voting agreements require these DII directors and
executive officers to vote all the shares of DII common stock that they own in
favor of the merger proposal. These DII directors and executive officers
together held approximately 2.2% of the outstanding DII common stock as of the
record date.
For a more complete description of the DII and Flextronics voting
agreements, please refer to "Related Agreements -- The Voting Agreements" on
page 89. The form of Flextronics voting
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agreement is attached to this document as Annex C, and the form of DII voting
agreement is attached to this document as Annex D. We urge you to read both
agreements in their entirety.
OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the merger, the DII board of directors considered
opinions from two financial advisors, Salomon Smith Barney Inc. and Broadview
International LLC, as to the fairness of the exchange ratio to DII stockholders
from a financial point of view. For a more complete description of the financial
advisors' opinions, see "Approval of the Merger and Related
Transactions -- Opinions of DII's Financial Advisors" on page 50. These opinions
are attached to this document as Annexes E and F, and we urge you to read both
opinions in their entirety.
ABSENCE OF APPRAISAL RIGHTS
DII stockholders are not entitled to appraisal rights with respect to the
merger. For a more complete description of appraisal rights, see "Approval of
the Merger and Related Transactions -- Absence of Appraisal Rights" on page 72.
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger as a pooling of interests for financial
reporting and accounting purposes in accordance with generally accepted
accounting principles. After the merger, the results of operations of DII will
be included in the consolidated financial statements of Flextronics on a
retroactive basis for all periods presented.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
When considering the recommendations of Flextronics' and DII's boards of
directors, you should be aware that the directors and executive officers of
Flextronics and DII have interests in the merger and have arrangements that are
different from those of Flextronics shareholders and DII stockholders generally.
These include:
- Michael E. Marks, the Chief Executive Officer and Chairman of the board
of directors of Flextronics, will be the Chief Executive Officer and
Chairman of the board of directors of the combined company after the
merger;
- Ronald R. Budacz, the Chief Executive Officer and Chairman of the board
of directors of DII, will become the Deputy Chairman of the board of
directors of the combined company after the merger;
- the current Flextronics' directors will be directors of the combined
company;
- several other executive officers of Flextronics and DII will become
executive officers of the combined company after the merger;
- forgiveness of indebtedness, together with additional payments for taxes,
of an aggregate of $1,165,528 for all executive officers of DII,
including $322,873 for Mr. Budacz, relating to loans made to DII's
executive officers in January 1996 and April 1997 to enable the
executives to satisfy their tax obligations in connection with the
vesting of their performance shares in 1996 and 1997;
- at the effective time of the merger, each outstanding option to purchase
DII common stock, including any stock option held by any executive
officer of DII, will be assumed by Flextronics and will become an option
to acquire ordinary shares of the combined company after the merger, with
the number of shares subject to the option and the option exercise price
to be adjusted according to the 1.61 exchange ratio;
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- executive officers of DII have options and performance shares, the
vesting of which will accelerate in connection with the merger;
- Flextronics' and DII's directors and executive officers have customary
rights to indemnification against specified liabilities; and
- each of DII's executive officers is entitled to receive benefits under
severance agreements with DII if the executive's employment is terminated
within eighteen months of the merger, either by DII without cause or by
the executive for good reason.
The benefits provided under the severance agreements between DII and its
executive officers include aggregate payments of $21.0 million for Mr. Budacz
and an aggregate of approximately $22.0 million for all of DII's executive
officers other than Mr. Budacz. In addition, it is likely that the changes
contemplated by the merger will constitute good reason under the severance
agreements of several executive officers of DII, including Mr. Budacz.
As a result, these directors and executive officers could be more likely to
vote to approve the merger agreement and the merger than if they did not hold
these interests. For a more complete description of the interests of persons in
the merger, see "Approval of the Merger and Related Transactions -- Interests of
Executive Officers and Directors in the Merger" on page 70 and "Benefits of the
Merger to DII Directors and Executive Officers" on page 92.
ANTITRUST APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to antitrust laws. We have made the required filings
with the Department of Justice and the Federal Trade Commission, and the
applicable waiting period has expired. In addition, we must make similar filings
with the German Federal Cartel Office, the Brazilian Economic Protection
Administrative Counsel, the Mexican Federal Competition Commission and the Irish
Minister for Enterprise, Trade and Employment. It is possible that we will not
have received all necessary approvals or the required waiting period may not
have expired with respect to these filings. As a result, the completion of the
merger could be delayed past April 3, 2000.
The Department of Justice or the Federal Trade Commission, as well as a
foreign regulatory agency or government, state or private person, may challenge
the merger at any time before or after its completion. For a more complete
description of the antitrust issues in connection with the merger, see "Approval
of the Merger and Related Transactions -- Regulatory Filings and Approvals
Required to Complete the Merger" on page 75.
RESTRICTIONS ON SELLING FLEXTRONICS ORDINARY SHARES RECEIVED IN THE MERGER
All Flextronics ordinary shares received by DII stockholders in connection
with the merger will be freely transferable unless the holder is considered an
affiliate of either of us. For a more complete description of transfer
restrictions applicable to affiliates, see "Approval of the Merger and Related
Transactions -- Restrictions on Sale of Flextronics Ordinary Shares by
Affiliates of DII and Flextronics" on page 75.
Affiliates of Flextronics have agreed not to sell any Flextronics ordinary
shares, and affiliates of DII have agreed not to sell any shares of DII common
stock or any Flextronics ordinary shares acquired in connection with the merger,
until the day that the combined company publicly announces financial results
covering at least thirty days of combined operations after the merger.
11
<PAGE> 21
MARKET PRICE AND DIVIDEND DATA
Flextronics ordinary shares and DII common stock are listed on the Nasdaq
National Market. The following table sets forth the closing per share sales
price of Flextronics ordinary shares and DII common stock, as reported on
Nasdaq, and the estimated equivalent per share price of DII common stock on
November 19, 1999, the last trading day before the public announcement of the
proposed merger, and on February 25, 2000, the most recent practicable date
before the mailing of this document:
<TABLE>
<CAPTION>
ESTIMATED
FLEXTRONICS DII EQUIVALENT DII
ORDINARY SHARES COMMON STOCK PER SHARE PRICE
--------------- ------------ ---------------
<S> <C> <C> <C>
November 19, 1999................. $ 40.625 $51.8125 $65.4063
February 25, 2000................. $61.3125 $ 97.25 $98.7131
</TABLE>
We urge you to obtain current market quotations. For a more complete
description of market price information see "Market Price and Dividend Data" on
page 90.
AMENDMENT TO FLEXTRONICS' 1993 SHARE OPTION PLAN
At the Flextronics extraordinary general meeting, Flextronics shareholders
will be asked to consider and vote upon the approval of an increase of the
ordinary shares authorized and reserved under Flextronics' 1993 Share Option
Plan from 16,400,000 ordinary shares to 20,400,000 ordinary shares. The increase
in the 1993 Plan is necessary to secure sufficient additional shares for option
grants that we believe will be necessary to retain key employees of DII after
the merger. We believe that approval of the increase in the 1993 Plan is
critical to the success of the combined company after the merger.
FORWARD-LOOKING STATEMENTS IN THIS DOCUMENT
This document and the documents incorporated by reference into this
document contain forward-looking statements within the safe harbor provisions of
the Private Securities Litigation Reform Act. These statements include
statements with respect to Flextronics' and DII's financial condition, results
of operations and business and the expected impact of the merger on the combined
company's financial performance. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions
identify forward-looking statements. In particular, statements regarding
expected strategic benefits, advantages and other effects of the merger
described in "Approval of the Merger and Related Transactions -- DII's Reasons
for the Merger," "-- Flextronics' Reasons for the Merger" and elsewhere in this
document are forward-looking statements. Actual results could differ materially
from those projected in the forward-looking statements as a result of many
factors, including those described under "Risk Factors."
We make no representation as to whether any projected or estimated
financial information referenced in this document will be attained. Projections
or estimations of future performance are necessarily subject to a high degree of
uncertainty and may vary materially from actual results. Neither Flextronics nor
DII undertakes any obligation to release publicly the results of any revision to
these forward-looking statements which may be made to reflect events or
circumstances arising after the date of this document. These forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties that could cause actual results to differ materially from the
results contemplated by the forward-looking statements. These risks and
uncertainties include:
- the possibility that the value of the Flextronics ordinary shares to be
issued to DII stockholders in the merger will decrease prior to closing
the merger;
12
<PAGE> 22
- the challenges in integrating DII and Flextronics;
- the possibility that the anticipated benefits from the merger will not be
fully realized;
- the possibility that the merger might not be accounted for as a pooling
of interests; and
- other risk factors described in "Risk Factors" and as may be detailed
from time to time in Flextronics' and DII's public announcements and
filings with the Securities and Exchange Commission.
In evaluating the merger, you should carefully consider the discussion of
these and other factors in "Risk Factors" on page 21.
13
<PAGE> 23
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
FLEXTRONICS INTERNATIONAL LTD.
The following table sets forth selected financial data for Flextronics for
the fiscal years ended March 31, 1995, 1996, 1997, 1998 and 1999 and the nine
months ended December 31, 1998 and 1999. This data has been derived from, and
should be read in conjunction with, the audited consolidated financial
statements and other financial information included in Flextronics' Form 8-K
filed with the Securities and Exchange Commission on December 23, 1999, and the
unaudited consolidated interim financial information contained in Flextronics'
Form 10-Q for the quarter ended December 31, 1999, including the related notes,
which are incorporated by reference in this document. See "Where You Can Find
More Information" on page 131. This selected financial data has been restated
retroactively to reflect Flextronics' acquisition of Kyrel EMS Oyj in July 1999
in a transaction accounted for as a pooling of interests.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, ---------------------------
------------------------------------------------------------ DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- ---------- ---------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $447,954 $834,064 $820,742 $1,191,194 $2,043,374 $1,448,557 $2,661,578
Cost of sales..................... 406,076 754,546 747,491 1,081,189 1,878,360 1,329,240 2,469,479
-------- -------- -------- ---------- ---------- ---------- ----------
Gross margin...................... 41,878 79,518 73,251 110,005 165,014 119,317 192,099
Selling, general and
administrative.................. 21,959 37,111 39,711 57,217 75,109 52,742 85,653
Goodwill and intangible
amortization.................... 762 1,296 2,651 3,663 3,664 2,667 4,344
Provision for excess facilities... -- 1,254(1) 5,868(2) 8,869(3) 3,361(4) -- --
Acquired in-process research and
development..................... 91 29,000(1) -- -- 2,000(4) -- --
-------- -------- -------- ---------- ---------- ---------- ----------
Income from operations............ 19,066 10,857 25,021 40,256 80,880 63,908 102,102
Merger-related expenses........... (816) -- -- (7,415)(3) -- -- (2,455)(5)
Interest and other expense, net... (1,790) (4,880) (7,648) (12,272) (20,832) (17,953) (16,632)
-------- -------- -------- ---------- ---------- ---------- ----------
Income before income taxes........ 16,460 5,977 17,373 20,569 60,048 45,955 83,015
Provision for income taxes........ 2,631 8,693 3,175 2,318 7,632 5,381 10,473
-------- -------- -------- ---------- ---------- ---------- ----------
Net income (loss)................. $ 13,829 $ (2,716) $ 14,198 $ 18,251 $ 52,416 $ 40,574 $ 72,542
======== ======== ======== ========== ========== ========== ==========
Diluted net income (loss) per
share(6)........................ $ 0.22 $ (0.04) $ 0.19 $ 0.23 $ 0.55 $ 0.44 $ 0.64
======== ======== ======== ========== ========== ========== ==========
Weighted average ordinary shares
and equivalents outstanding --
diluted(6)...................... 63,172 65,388 72,956 80,032 95,970 92,142 112,654
DIVIDENDS......................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF
------------------------------------------------------------ DECEMBER 31,
1995 1996 1997 1998 1999 1999
-------- -------- -------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)......... $ 52,205 $ 37,723 $(16,314) $ 132,580 $ 251,598 $ 666,568
Total assets...................... 278,004 395,306 497,830 780,844 1,217,869 2,252,991
Long-term debt and capital leases,
excluding current portion....... 32,371 38,407 32,623 192,418 219,995 233,230
Shareholders' equity.............. 81,207 109,900 125,075 233,195 484,938 1,090,374
</TABLE>
- -------------------------
(1) In fiscal 1996, Flextronics wrote off $29.0 million of in-process research
and development associated with the acquisition of Astron and also recorded
charges totaling $1.3 million for costs associated with the closing of one
of its Malaysian plants and its Shekou, China operations.
(2) In fiscal 1997, Flextronics incurred plant closing expenses aggregating $5.9
million in connection with closing its manufacturing facility in Texas,
downsizing manufacturing operations in Singapore and the write-off of excess
equipment and severance obligations at the nCHIP semiconductor fabrication
operations.
(3) In fiscal 1998, Flextronics incurred plant closing expenses aggregating $8.9
million in connection with closing its manufacturing facility in Wales, U.K.
Flextronics also incurred $7.4 million of merger-related costs as a result
of the acquisitions of Neutronics Electronic Industries Holding AG, DTM
Products, Inc., Energipilot AB, Altatron, Inc. and Conexao Informatica Ltda.
in fiscal 1998.
(4) In fiscal 1999, Flextronics incurred plant closing expenses aggregating $3.4
million in connection with consolidating its manufacturing facilities in
Hong Kong after the acquisition of Advanced Component Labs and
14
<PAGE> 24
restructuring some of its U.S. manufacturing facilities. Flextronics also
wrote off $2.0 million of in-process research and development associated
with the acquisition of Advanced Component Labs.
(5) In fiscal 2000, Flextronics incurred $2.5 million of merger-related costs in
connection with the acquisition of Kyrel EMS Oyj.
(6) On December 22, 1999, Flextronics completed a two-for-one stock split
effected as a bonus issue, the Singapore equivalent of a stock dividend.
This stock dividend has been reflected in Flextronics' financial statements
for all periods presented unless otherwise noted. All share and per share
amounts have been retroactively restated to reflect the stock split.
15
<PAGE> 25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE DII GROUP, INC.
The following table sets forth selected financial data for DII for the
fiscal years ended December 31, 1994 and 1995, December 29, 1996, December 28,
1997 and January 3, 1999 and the nine months ended September 27, 1998 and
October 3, 1999. This data has been derived from, and should be read in
conjunction with, the audited consolidated financial statements and other
financial information included in DII's Form 10-K/A for the fiscal year ended
January 3, 1999, and the unaudited consolidated interim financial information
contained in DII's Form 10-Q for the quarter ended October 3, 1999, including
the related notes, which are incorporated by reference in this document. See
"Where You Can Find More Information" on page 131.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
---------------------------------------------------------------------- --------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 29, DECEMBER 28, JANUARY 3, SEPTEMBER 27, OCTOBER 3,
1994 1995 1996 1997 1999 1998 1999
------------ ------------ ------------ ------------ ---------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $258,464 $396,978 $458,893 $779,603 $925,543 $663,229 $892,650
Cost of sales............... 213,487 319,572 370,610 647,663 786,611 564,623 764,485
Unusual charges............. 5,105(1) -- 11,883(3) -- 70,340(4) 49,314(4) --
-------- -------- -------- -------- -------- -------- --------
Gross margin................ 39,872 77,406 76,400 131,940 68,592 49,292 128,165
Selling, general and
administrative............. 21,717 38,851 48,540 68,783 81,160 59,066 63,864
Goodwill and intangible
amortization............... 778 2,481 3,118 3,968 4,661 3,383 3,876
Unusual charges............. 6,995(1) -- -- -- 2,454(4) 1,844(4) --
Merger-related expenses..... -- -- 4,649(3) -- -- -- --
Interest and other expense,
net........................ (1,214) 1,857 4,420 9,524 18,849 11,909 21,274
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes...................... 11,596 34,217 15,673 49,665 (38,532) (26,910) 39,151
Provision (benefit) for
income taxes............... 2,793 10,563 5,638 14,345 (21,500) (7,522) 1,677
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item......... $ 8,803 $ 23,654(2) $ 10,035 $ 35,320 $(17,032) $(19,388) $ 37,474
======== ======== ======== ======== ======== ======== ========
Diluted income (loss) per
share before extraordinary
item....................... $ 0.41 $ 0.95(2) $ 0.40 $ 1.26 $ (0.68) $ (0.78) $ 1.23
======== ======== ======== ======== ======== ======== ========
Weighted average common
stock and equivalents
outstanding -- diluted..... 21,706 25,628 25,074 30,702 24,888 25,004 30,904
DIVIDENDS................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 29, DECEMBER 28, JANUARY 3, OCTOBER 3,
1994 1995 1996 1997 1999 1999
------------ ------------ ------------ ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Working capital............. $ 50,581 $ 96,332 $ 86,707 $160,618 $ 87,310 $ 57,809(6)
Total assets................ 211,460 327,311 335,851 592,729 747,309 932,692(6)
Convertible subordinated
notes...................... -- 86,250 86,250 86,250 86,235 --(5)
Long-term debt and capital
leases, excluding current
portion.................... 31,872 9,401 12,938 156,545 273,684 329,888(6)
Stockholders' equity........ 118,452 145,549 159,037 207,348 175,721 307,406(5,6)
</TABLE>
- -------------------------
(1) In fiscal 1994, DII recorded a pre-tax charge of $5.1 million in cost of
sales and $7.0 million in selling, general and administrative expenses
primarily associated with the write-down of inventory and receivables to
their net realizable value relating to two under-capitalized start-up
customers.
(2) In fiscal 1995, DII recorded an extraordinary loss of $0.7 million, net of
tax, relating to an early extinguishment of debt.
(3) In fiscal 1996, DII recorded $4.6 million of merger-related expenses
associated with the merger with Orbit Semiconductor, Inc. and $11.9 million
in cost of sales associated with the closing and sale of Orbit's 4-inch, 1.2
micron wafer fabrication facility, including impairment of long-lived assets
and non-recoverable inventory, write-off of a foreign investment of Orbit
and other exit costs.
(4) In fiscal 1998, DII recorded a total of $72.8 million for plant closing
expenses in fiscal year ended January 3, 1999, of which $51.2 million were
recognized during the nine months ended September 27, 1998. The expenses
were primarily due to the write-down of Orbit's 6-inch, 0.6 micron wafer
fabrication facility to net realizable value, losses on sales contracts,
incremental amounts of uncollectible accounts receivable, incremental
amounts of sales returns and allowances, inventory write-downs and other
exit costs. The sale of the manufacturing facility was completed in January
1999.
(5) As of February 18, 1999, DII converted substantially all of the convertible
subordinated notes into approximately 4,600,000 shares of common stock and
redeemed the unconverted portion for $0.1 million.
(6) In October 1999, DII completed a secondary offering of its common stock. A
total of 6,900,000 shares were sold at a price of $33.00 per share resulting
in net proceeds to DII of approximately $216.5 million. The effect of the
offering is excluded from these amounts.
16
<PAGE> 26
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth selected unaudited pro forma combined
financial data for Flextronics for the fiscal years ended March 31, 1997, 1998
and 1999 and the nine months ended December 31, 1998 and 1999. This information
is presented to reflect the effect of the merger with DII. Flextronics and DII
anticipate that the transaction will be accounted for as a pooling of interests
and, as a result, the historical financial data presented below has been
restated to include the results of DII for all periods presented. The unaudited
pro forma combined income statements do not reflect any cost savings and other
synergies or merger-related expenses anticipated by the Flextronics' management
as a result of the merger and are not necessarily indicative of the results to
be expected in the future. The pro forma adjustments are preliminary and based
on available information and assumptions made by management. The pro forma data
is presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred had the
merger been consummated in the earlier period, nor is it necessarily indicative
of future operating results or financial position. See "Flextronics
International Ltd. Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements" on page 101.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, ------------------------
-------------------------------------- DEC. 31, DEC. 31,
1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $1,276,150 $1,969,542 $2,967,672 $2,110,794 $3,552,164
Cost of sales................................ 1,114,616 1,727,597 2,663,726 1,892,871 3,231,900
Unusual charges.............................. 11,883(1) -- 70,340(4) 49,314(4) --
---------- ---------- ---------- ---------- ----------
Gross margin................................. 149,651 241,945 233,606 168,609 320,264
Selling, general and administrative.......... 88,251 126,000 156,269 111,808 149,517
Goodwill and intangible amortization......... 5,769 7,631 8,325 6,050 8,220
Provision for excess facilities and unusual
charges.................................... 5,868(2) 8,869(3) 5,815(4,5) 1,844(4) --
Acquired in-process research and
development................................ -- -- 2,000(5) -- --
---------- ---------- ---------- ---------- ----------
Income from operations....................... 49,763 99,445 61,197 48,907 162,527
Merger-related expenses...................... (4,649)(1) (7,415)(3) -- -- (2,455)(8)
Interest and other expense, net.............. (12,068) (21,796) (39,681) (29,862) (37,906)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes............ 33,046 70,234 21,516 19,045 122,166
Provision (benefit) for income taxes......... 8,813 16,663 (13,868) (2,141) 12,150
---------- ---------- ---------- ---------- ----------
Net income (loss)............................ $ 24,233 $ 53,571 $ 35,384 $ 21,186 $ 110,016
========== ========== ========== ========== ==========
Diluted net income per share(7).............. $ 0.21 $ 0.44 $ 0.27 $ 0.16 $ 0.68
========== ========== ========== ========== ==========
Weighted average ordinary shares and
equivalents outstanding -- diluted(7)...... 113,325 129,462 144,788 132,398 162,409
DIVIDENDS.................................... $ -- $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF
-------------------------------------- DECEMBER 31,
1997 1998 1999 1999
---------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................. $ 70,393 $ 293,198 $ 338,908 $ 584,311
Total assets................................. 833,681 1,373,573 1,965,178 3,090,368
Convertible subordinated notes............... 86,250 86,250 86,235 --(6)
Long-term debt and capital leases, excluding
current portion............................ 45,561 348,963 493,679 233,911
Shareholders' equity......................... 284,112 440,543 660,659 1,587,020(6)
</TABLE>
- -------------------------
(1) In fiscal 1997, DII recorded $4.6 million of merger-related expenses
associated with the merger with Orbit Semiconductor, Inc. and $11.9 million
in cost of sales associated with the closing and sale of Orbit's 4-inch,
1.2 micron wafer fabrication facility, including impairment of long-lived
assets and non-recoverable inventory, write-off of a foreign investment of
Orbit and other exit costs.
17
<PAGE> 27
(2) In fiscal 1997, Flextronics incurred plant closing expenses aggregating to
$5.9 million in connection with closing its manufacturing facility in
Texas, downsizing manufacturing operations in Singapore, the write-off of
excess equipment and severance obligations at the nCHIP semiconductor
fabrication operations.
(3) In fiscal 1998, Flextronics incurred plant closing expenses aggregating to
$8.9 million in connection with closing its manufacturing facility in
Wales, U.K. Flextronics also incurred $7.4 million of merger-related costs
as a result of the acquisitions of Neutronics, DTM, Energipilot, Altatron
and Conexao in fiscal 1998.
(4) In fiscal 1999, DII recorded a total of $72.8 million for plant closing
expenses in fiscal year ended January 3, 1999, of which $51.2 million was
recognized during the nine months ended September 27, 1998. The expenses
were primarily due to the write-down of Orbit's 6-inch, 0.6 micron wafer
fabrication facility to net realizable value, losses on sales contracts,
incremental amounts of uncollectible accounts receivable, incremental
amounts of sales returns and allowances, inventory write-downs and other
exit costs. The sale of the manufacturing facility was completed in January
1999.
(5) In fiscal 1999, Flextronics incurred plant closing expenses aggregating to
$3.4 million in connection with consolidating its manufacturing facilities
in Hong Kong after the acquisition of Advanced Component Labs and
restructuring some of its U.S. manufacturing facilities. Flextronics also
wrote off $2.0 million of in-process research and development associated
with the acquisition of Advanced Component Labs. In calendar 1998, DII
incurred $2.4 million in connection with the write-down of Orbit's 6-inch,
0.6 micron wafer fabrication facility.
(6) As of February 18, 1999, DII converted substantially all of the convertible
subordinated notes into approximately 4,600,000 shares of common stock and
redeemed the unconverted portion for $0.1 million.
(7) The pro forma combined net income per share is based on the combined
weighted average number of ordinary and dilutive equivalent shares of
Flextronics and DII based upon the exchange ratio of 1.61 Flextronics
ordinary shares for each share of DII common stock.
(8) In fiscal 2000, Flextronics incurred $2.5 million of merger-related costs
as a result of the acquisition of Kyrel EMS Oyj.
18
<PAGE> 28
RECENT DEVELOPMENTS
On January 19, 2000, Flextronics announced it had entered into a definitive
agreement pursuant to which Cabletron Systems Inc. will sell its manufacturing
and repair services operations located in Rochester, New Hampshire and Limerick,
Ireland to Flextronics. Under the terms of the agreement, Flextronics will
acquire manufacturing related assets and inventories for approximately $100.0
million and will hire Cabletron System's worldwide manufacturing workforce of
approximately 1,000. The transaction was completed on February 29, 2000 and was
accounted for as a purchase of assets.
On February 1, 2000, Flextronics announced it had entered into a definitive
agreement to acquire Palo Alto Products International Pte. Ltd. Palo Alto
Products operates manufacturing and plastic injection molding operations in
Thailand and Texas, a manufacturing and die building operation in Taiwan, and a
design center in Palo Alto. Flextronics anticipates that the transaction will be
accounted for as a pooling of interests and it expects the transaction to be
completed during the first quarter of fiscal 2001.
On February 29, 2000, Flextronics completed a public offering of 8,600,000
ordinary shares at a public offering price of $59.00 per share, with net
proceeds of approximately $494.1 million.
On January 12, 2000, DII announced that it had signed a memorandum of
understanding with Ascom Business Systems AG, a wholly owned subsidiary of Ascom
Holdings AG, to purchase its manufacturing facility and related assets located
in Solothurn, Switzerland. Subject to concluding this transaction, DII will
enter into a long-term supply agreement with Ascom Business Systems AG to
provide printed circuit board assembly, final systems assembly and various
engineering support services. The transaction is expected to be completed during
the second quarter of 2000. Completion of the transaction is subject to
applicable governmental approvals and customary conditions of closing. The
transaction will be accounted for as a purchase of assets. Subject to final
negotiations, due diligence and working capital levels at the time of closing,
the estimated purchase price will be in the range of $60.0 million to $75.0
million.
On January 19, 2000, DII announced its financial results for fiscal 1999.
The audit of DII's 1999 financial statements is not yet complete. The following
table presents selected financial information for 1999 and 1998 (in thousands,
except per share amounts). The information as of and for the year ended January
2, 2000 is unaudited, and the information as of and for the year ended January
3, 1999 has been derived from DII's audited consolidated financial statements.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------
1999 1998(1)
----------- --------
(UNAUDITED)
<S> <C> <C>
RESULTS OF OPERATIONS:
Net sales................................................... $1,339,943 $925,543
Gross profit................................................ 181,778 68,592
Income (loss) before income taxes........................... 63,659 (38,532)
Net income (loss)........................................... 58,382 (17,032)
Basic earnings (loss) per common share...................... 1.91 (0.68)
Diluted earnings (loss) per common share.................... 1.81 (0.68)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
JANUARY 2, JANUARY 3,
2000 1999
----------- ----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 103,736 55,972
Working capital............................................. 169,743 87,310
Total assets................................................ 1,108,127 747,309
Convertible subordinated notes.............................. -- 86,235
Long-term debt and capital leases, excluding current
portion................................................... 241,682 273,684
Stockholders' equity........................................ 549,396 175,721
</TABLE>
- -------------------------
(1) DII recorded an unusual pre-tax charge of $72,794, or $44,425 after tax, in
fiscal 1998 related to the divestiture of Orbit Semiconductor, a wholly
owned subsidiary.
19
<PAGE> 29
COMPARATIVE PER SHARE DATA
The following table sets forth selected historical per share data of
Flextronics and DII, DII per share data on an equivalent share basis and
combined per share data on an unaudited pro forma basis after giving effect to
the merger on a pooling-of-interests accounting basis. The information presented
in this table is derived from the financial information of Flextronics and DII.
The information set forth below is only a summary. This data should be read in
conjunction with the Selected Historical and Pro Forma Financial Data, the
Flextronics International Ltd. Unaudited Pro Forma Condensed Combined Financial
Statements and the separate historical consolidated financial statements of
Flextronics and DII included elsewhere in this document or incorporated by
reference. This table is not necessarily indicative of the results of future
operations of Flextronics or actual results that would have occurred if the
merger had taken place prior to the period indicated.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, NINE MONTHS ENDED
------------------------ DECEMBER 31,
1999 1998 1997 1999
------ ----- ----- -----------------
<S> <C> <C> <C> <C>
DILUTED NET INCOME (LOSS) PER SHARE:
Historical:
Flextronics.................................. $ 0.55 $0.23 $0.19 $0.64
DII.......................................... (0.68) 1.26 0.40 1.23
Pro forma:
Combined company(1).......................... 0.27 0.44 0.21 0.68
DII equivalent(2)............................ 0.43 0.66 0.34 1.09
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
---------- ------------------
<S> <C> <C>
BOOK VALUE PER SHARE:
Historical(3):
Flextronics............................................... $4.85 $ 9.48
DII....................................................... 7.17 15.01
Pro forma(3)(4):
Combined company.......................................... 4.73 9.12
DII equivalent(2)......................................... 7.62 14.69
</TABLE>
Neither Flextronics nor DII has declared or paid any cash dividend during
any of the periods specified above.
- -------------------------
(1) For the purposes of the pro forma combined company, Flextronics historical
financial data for the nine months ended December 31, 1999 and for each of
the years ended March 31, 1999, 1998 and 1997, have been combined with DII's
historical financial data for the nine months ended October 3, 1999 and for
each of the years ended January 3, 1999, December 28, 1997 and December 29,
1996. Pro forma share amounts are based on the pro forma combined weighted
average number of Flextronics ordinary shares and dilutive common and
equivalent shares of Flextronics and DII for each period presented, based
upon the exchange ratio of 1.61.
(2) DII equivalent pro forma per share amounts are calculated by multiplying the
pro forma net income per share and pro forma book value per share of the
combined company by the exchange ratio of 1.61 so that per share amounts are
equated to the respective values for one share of DII common stock.
(3) We computed historical book value per share by dividing shareholders' equity
as of December 31, 1999 and March 31, 1999 for Flextronics and January 2,
2000 and January 3, 1999 for DII by the number of ordinary or common shares
outstanding for each company, respectively, as of those dates.
(4) We computed pro forma book value per share by dividing pro forma
shareholders' equity, including pro forma adjustments, by the pro forma
number of Flextronics ordinary shares which would have been outstanding had
the merger been completed as of each balance sheet date, without including
outstanding options. For more detailed information, refer to the
"Flextronics International Ltd. Unaudited Pro Forma Condensed Combined
Consolidated Financial Statements" on page 101.
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RISK FACTORS
In addition to the other materials in this document, you should carefully
consider the following risk factors in evaluating whether to approve the merger.
In evaluating the merger-related proposal to be voted on at your meeting, which
if approved will result in stockholders of DII becoming shareholders of
Flextronics and the business of DII combining with the business of Flextronics,
please carefully consider the information presented throughout this document,
and in particular the following risk factors. Some of these risk factors relate
to the merger itself, and the balance relate to the business of the combined
company after the merger. In addition, you should refer to the risks associated
with the businesses of Flextronics and DII which are described in materials
incorporated into this document by reference.
RISKS RELATED TO THE MERGER
DII STOCKHOLDERS WILL RECEIVE FLEXTRONICS ORDINARY SHARES BASED ON A FIXED
RATIO, EVEN IF THE MARKET VALUE OF DII COMMON STOCK OR FLEXTRONICS ORDINARY
SHARES CHANGES BEFORE THE MERGER CLOSES.
The exchange ratio of 1.61 Flextronics ordinary shares per outstanding
share of DII common stock is fixed. The exchange ratio will not be adjusted,
regardless of fluctuations in the market price of DII common stock or
Flextronics ordinary shares. The specific dollar value of ordinary shares of the
combined company that DII stockholders will receive when the merger closes will
depend on the market value of Flextronics ordinary shares at the time of the
merger. The prices of Flextronics ordinary shares and DII common stock are
subject to fluctuation and have experienced significant volatility. We cannot
predict the market prices for either Flextronics ordinary shares or DII common
stock at any time before the merger closes, nor can we predict the market price
for the ordinary shares of the combined company after the merger closes. The
closing price for Flextronics ordinary shares on Nasdaq on November 19, 1999,
the last trading day prior to the public announcement of the merger, was
$40.625, and on February 25, 2000, the most recent practicable date before the
mailing of this document, was $61.3125. There can be no assurance that the
market price of Flextronics ordinary shares on and after the effective time will
not be lower than these prices. We encourage you to obtain current market
quotations of Flextronics ordinary shares and DII common stock, each of which is
quoted on the Nasdaq National Market.
INTEGRATION OF OUR TWO COMPANIES WILL BE DIFFICULT.
Merging our two companies involves technological, operational and
personnel-related risks. The integration process will be complex, time-consuming
and expensive, and will disrupt the business of the combined company after the
merger if it is not completed in a timely and efficient manner. If the merger is
approved, the combined company will utilize common information and
communications systems, facilities, operating procedures, financial controls and
human resources practices. We may encounter difficulties, costs and delays
involved in integrating these operations, including:
- integrating the information, communications and other operational systems
of our companies may be more challenging, expensive and time-consuming
than we anticipate;
- potential difficulties in coordinating and integrating geographically
separated organizations;
- loss of key employees that we do not anticipate losing;
- the attention of our management team may be diverted from other ongoing
business concerns more than we anticipate; and
- our business cultures may be more difficult to integrate than we
anticipate.
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FAILURE OF THE MERGER TO QUALIFY AS A POOLING OF INTERESTS WOULD HARM THE
FINANCIAL RESULTS OF THE COMBINED COMPANY.
If the merger does not qualify for the pooling-of-interests method of
accounting, the future reported earnings of the combined company would be harmed
due to amortization of goodwill and other intangible assets, which would likely
harm the trading price of our ordinary shares. The availability of
pooling-of-interests accounting treatment for this merger depends upon
circumstances and events occurring after the effective time of the merger. For
example, there must not be any significant changes in the business of the
combined company, including significant dispositions of assets, for a period of
two years following completion of the merger. Affiliates of Flextronics and DII
must not sell any shares of either company's stock, except in limited amounts,
until the day that the combined company publicly announces financial results
covering at least thirty days of combined operations after the effective time of
the merger. If the effective time of the merger occurs on April 3, 2000, we
expect that these combined financial results would be published in July 2000. If
affiliates of either company sell shares in excess of the limited exception
prior to that time, the merger may not qualify for accounting as a pooling of
interests.
FAILURE TO COMPLETE THE MERGER COULD HARM EACH COMPANY'S STOCK PRICE AND
FUTURE BUSINESS AND OPERATIONS.
Both Flextronics and DII face a number of special risks if the merger is
not completed, including the following:
- DII may be required to pay Flextronics a termination fee equal to 3% of
DII's equity value;
- the option DII granted to Flextronics to purchase up to a number of
shares of DII common stock equal to 19.9% of DII's outstanding common
stock may become exercisable;
- the price of Flextronics ordinary shares and DII common stock may decline
to the extent that the current market price of Flextronics ordinary
shares and DII common stock reflects a market assumption that the merger
will be completed; and
- costs related to the merger, such as legal and accounting fees and
financial advisor fees, must be paid even if the merger is not completed.
In addition, current and prospective Flextronics and DII employees may
experience uncertainty about their future roles with the combined company, which
may hurt each company's ability to attract and retain key management, marketing,
technical and administrative personnel. This may impede subsequent integration
of the two companies, and if the merger is not completed DII may be harmed.
Further, if the merger is terminated and DII's board of directors
determines to seek another business combination, DII cannot assure you that it
will be able to find a party willing to combine with it on equivalent or more
attractive terms. Furthermore, the option that DII granted to Flextronics, if
exercised, would make it impossible for DII to account for future business
combinations as a pooling of interests until two years after the date that
Flextronics exercised the option, which would make it less likely that an
attractive offer for DII would be found.
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EXECUTIVE OFFICERS AND DIRECTORS OF BOTH COMPANIES HAVE DIFFERENT INTERESTS
FROM YOURS.
The directors and executive officers of both Flextronics and DII have
interests in the merger that are different from yours. Because of these
different interests, these persons may be influenced to vote in favor of or to
recommend the merger. These benefits include:
- Michael E. Marks, the Chief Executive Officer and Chairman of the board
of directors of Flextronics, will be the Chairman of the board of
directors of the combined company after the merger;
- Ronald R. Budacz, the Chief Executive Officer and Chairman of the board
of directors of DII, will become the Deputy Chairman of the board of
directors of the combined company after the merger;
- Chuen Fah Alain Ahkong, Patrick Foley, Hui Shing Leong, Michael J.
Moritz, Richard L. Sharp and Tsui Sung Lam, who are currently directors
of Flextronics, will be directors of the combined company;
- several other executive officers of Flextronics and DII will become
officers of the combined company after the merger;
- each of Ronald R. Budacz, C.Y. Cheong, Micheal Corkery, Mark D. Herbst,
Dermott O'Flanagan, Carl A. Plichta, Steven C. Schlepp, Thomas J. Smach,
Ronald R. Snyder and Carl R. Vertuca, Jr., executive officers of DII, is
entitled to receive benefits under severance agreements with DII if the
executive's employment is terminated within eighteen months of the
merger, either by DII without cause or by the executive for good reason.
It is likely that the changes contemplated by the merger will constitute
good reason under the severance agreements of several executive officers
of DII, including Mr. Budacz. The executives are subject to non-compete
agreements for a period of one year, or five years in the case of Mr.
Budacz and three years in the case of Mr. Vertuca. The benefits under the
severance agreements include:
- aggregate cash payments of $21.0 million for Mr. Budacz and an aggregate
of approximately $22.0 million for all of DII's executive officers other
than Mr. Budacz,
- continuation of health benefits until age 65, and
- additional payments to the executive equal to any excise taxes payable
by the executive, with additional payments on an after-tax basis equal
to the executive's tax liability resulting from these payments;
- forgiveness of indebtedness, together with additional payments for taxes,
of an aggregate of $1,165,528 for all executive officers of DII,
including $322,873 for Mr. Budacz, relating to loans made to DII's
executive officers in January 1996 and April 1997 to enable the
executives to satisfy their tax obligations in connection with the
vesting of their performance shares in 1996 and 1997;
- at the effective time of the merger, each outstanding option to purchase
DII common stock, including any stock option held by any executive
officer of DII, will be assumed by Flextronics and will become an option
to acquire ordinary shares of the combined company after the merger, with
the number of shares subject to the option and the option exercise price
to be adjusted according to the 1.61 exchange ratio, provided that the
terms of the option agreement may be altered to comply with Singapore
legal requirements;
- executive officers of DII have options and performance shares, the
vesting of which will accelerate in connection with the merger; and
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- Flextronics' and DII's directors and executive officers have customary
rights to indemnification against specified liabilities.
FAILURE TO RETAIN KEY EMPLOYEES COULD DIMINISH THE BENEFITS OF THE MERGER.
The successful combination of Flextronics and DII will depend in part on
the retention of key personnel. Flextronics and DII cannot assure that they will
be able to retain key personnel.
WE MAY HAVE LESS CAPITAL RESOURCES AVAILABLE TO US TO FINANCE OUR GROWTH.
As a result of the merger, we anticipate that we will be required to
purchase DII's 8.5% Senior Subordinated Notes due 2007 at a cost of 101% of the
principal amount of the notes, which is $150.0 million. In addition, as a result
of the merger, DII's outstanding term and revolving credit facilities may
terminate unless the consents of the lenders are obtained. As a result, we
anticipate that we will be required to repay $84.0 million of the outstanding
borrowings under the facilities. We will also lose the ability to make any
further borrowings under these facilities. We may have less capital resources
available to us to finance our growth following the merger than the two
companies combined had prior to the merger.
RISKS RELATED TO THE BUSINESS OF THE COMBINED COMPANY AFTER THE MERGER
Unless otherwise stated, the terms "we" and "our" in this section refer to
the combined company after the merger.
IF WE DO NOT MANAGE EFFECTIVELY THE EXPANSION OF OUR OPERATIONS, OUR
BUSINESS MAY BE HARMED.
We have grown rapidly in recent periods, and this growth may not continue.
Internal growth will require us to develop new customer relationships and expand
existing ones, improve our operational and information systems and further
expand our manufacturing capacity.
We plan to increase our manufacturing capacity by expanding our facilities
and by adding new equipment. This expansion involves significant risks. For
example:
- we may not be able to attract and retain the management personnel and
skilled employees necessary to support expanded operations;
- we may not efficiently and effectively integrate new operations, expand
existing ones and manage geographically dispersed operations;
- we may incur cost overruns;
- we may encounter construction delays, equipment delays or shortages,
labor shortages and disputes and production start-up problems that could
adversely affect our growth and our ability to meet customers' delivery
schedules; and
- we may not be able to obtain funds for this expansion, and we may not be
able to obtain loans or operating leases with attractive terms.
In addition, we expect to incur new fixed operating expenses associated
with our expansion efforts, including substantial increases in depreciation
expense and rental expense, that will increase our cost of sales. If our
revenues do not increase sufficiently to offset these expenses, our operating
results would be adversely affected. Our expansion, both through acquisitions
and internal growth, has contributed to our incurring significant merger-related
expenses and experiencing volatility in our operating results and may continue
to do so in the future.
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WE MAY ENCOUNTER DIFFICULTIES WITH ACQUISITIONS, WHICH COULD HARM OUR
BUSINESS.
We have completed a number of acquisitions of businesses and facilities and
expect to continue to pursue growth through acquisitions in the future.
Acquisitions involve a number of risks and challenges, including:
- diversion of management's attention;
- the need to integrate acquired operations;
- potential loss of key employees and customers of the acquired companies;
- lack of experience operating in the geographic market of the acquired
business; and
- an increase in our expenses and working capital requirements.
To integrate acquired operations, we must implement our management
information systems and operating systems and assimilate and manage the
personnel of the acquired operations. The difficulties of this integration may
be further complicated by geographic distances. The integration of acquired
businesses may not be successful and could result in disruption to other parts
of our business.
Any of these and other factors could adversely affect our ability to
achieve anticipated levels of profitability for acquired operations or realize
other anticipated benefits of an acquisition. Furthermore, any future
acquisitions may require additional debt or equity financing, which could
increase our leverage or be dilutive to our existing shareholders. No assurance
can be given that we will consummate any acquisitions in the future.
WE HAVE NEW CUSTOMER RELATIONSHIPS FROM WHICH WE ARE NOT YET RECEIVING
SIGNIFICANT REVENUES, AND ORDERS FROM THESE CUSTOMERS MAY NOT REACH
ANTICIPATED LEVELS.
We have recently announced major new customer relationships and new
manufacturing programs for existing customers from which we anticipate
significant future sales. However, similar to our other customer relationships,
there are no volume purchase commitments under these new relationships and
programs, and the revenues we actually achieve may not meet our expectations. In
anticipation of future activities under these programs, we are incurring
substantial expenses as we add personnel and manufacturing capacity and procure
materials. Our operating results will be adversely affected if sales do not
develop to the extent and within the time frame that we anticipate. Finally, if
we are unable to achieve the increases in our manufacturing capacity necessary
to support these new and expanded relationships in a timely manner, or are
unable to implement the infrastructure to support these expanded operations, we
will not achieve the sales that we expect from these new and expanded
relationships.
OUR CUSTOMER REQUIREMENTS AND OPERATING RESULTS VARY SIGNIFICANTLY.
Electronics manufacturing service providers must provide increasingly rapid
product turnaround for their customers. We generally are not able to obtain
firm, long-term purchase commitments from our customers, and we continue to
experience reduced lead times in customer orders. Customers may cancel their
orders, change production quantities or delay production for a number of
reasons. Cancellations, reductions or delays by a significant customer or by a
group of customers would adversely affect our results of operations.
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In addition to the variable nature of our operating results due to the
short-term nature of our customers' commitments, other factors may contribute to
significant fluctuations in our results of operations. These factors include:
- the timing of customer orders;
- the volume of these orders relative to our capacity;
- market acceptance of customers' new products;
- changes in demand for customers' products and product obsolescence;
- the timing of our expenditures in anticipation of future orders;
- our effectiveness in managing manufacturing processes;
- changes in the cost and availability of labor and components;
- changes in our product mix;
- changes in economic conditions;
- local factors and events that may affect our production volume, such as
local holidays; and
- seasonality in customers' product requirements.
One of our significant end-markets is the consumer electronics market. This
market exhibits particular strength towards the end of the year in connection
with the holiday season. As a result, we have experienced relative strength in
revenues in our third fiscal quarter.
We make significant decisions, including the levels of business that we
will seek and accept, production schedules, component procurement commitments,
personnel needs and other resource requirements, based on our estimates of
customer requirements. The short-term nature of our customers' commitments and
the possibility of rapid changes in demand for their products reduces our
ability to estimate accurately future customer requirements. On occasion,
customers may require rapid increases in production, which can strain our
resources and reduce margins. Although we have increased our manufacturing
capacity and plan further increases, we may not have sufficient capacity at any
given time to meet our customers' demands. In addition, because many of our
costs and operating expenses are relatively fixed, a reduction in customer
demand can adversely affect our gross margins and operating income.
A MAJORITY OF OUR SALES COMES FROM A SMALL NUMBER OF CUSTOMERS; IF WE LOSE
ANY OF THESE CUSTOMERS, OUR SALES COULD DECLINE SIGNIFICANTLY.
Sales to our five largest customers have represented a majority of our net
sales in recent periods. Our five largest customers accounted for approximately
46% of consolidated net sales in the nine months ended December 31, 1999, and
41% in fiscal 1999. Our largest customers during fiscal 1999 were Philips,
Ericsson and Cisco, accounting for approximately 11%, 10% and 8%, respectively,
of consolidated net sales. The identity of our principal customers has varied
from year to year, and our principal customers may not continue to purchase
services from us at current levels, if at all. Significant reductions in sales
to any of these customers, or the loss of major customers, would have a material
and adverse effect on us. We may not be able to replace expired, canceled or
reduced contracts with new business in a timely manner. See "-- Our customer
requirements and operating results vary significantly" on page 25.
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WE DEPEND UPON THE ELECTRONICS INDUSTRY WHICH CONTINUALLY PRODUCES
TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO
CONTINUALLY MANUFACTURE THESE PRODUCTS ON A COST-EFFECTIVE BASIS WOULD HARM
OUR BUSINESS.
Factors affecting the electronics industry in general could have a material
and adverse effect on our customers and, as a result, on us. These factors
include:
- the inability of our customers to adapt to rapidly changing technology
and evolving industry standards, which results in short product life
cycles;
- the inability of our customers to develop and market their products, some
of which are new and untested. If customers' products become obsolete or
fail to gain widespread commercial acceptance, our business may be
materially and adversely affected; and
- recessionary periods in our customers' markets.
THERE MAY BE SHORTAGES OF, AND PRICE CHANGES IN, REQUIRED ELECTRONIC
COMPONENTS.
A substantial majority of our net sales is derived from turnkey
manufacturing in which we are responsible for procuring materials. This
arrangement typically results in our bearing the risk of component price
changes. Accordingly, component price changes could adversely affect our
operating results. At various times, there have been shortages of some of the
electronic components that we use, and suppliers of some components have lacked
sufficient capacity to meet the demand for these components. In recent months,
component shortages have become more prevalent in our industry. In some cases,
supply shortages could curtail production of products using a particular
component and could result in manufacturing and shipping delays.
OUR INDUSTRY IS EXTREMELY COMPETITIVE.
The electronics manufacturing services industry is extremely competitive
and includes hundreds of companies, several of which have achieved substantial
market share. In addition, current and prospective customers also evaluate our
capabilities against the merits of internal production. Some of our competitors,
including Solectron and SCI Systems, have substantially greater market shares
than we have, and substantially greater manufacturing, financial, research and
development and marketing resources. In recent years, many participants in the
industry, including us, have substantially expanded their manufacturing
capacity. If overall demand for electronics manufacturing services should
decrease, this increased capacity could result in substantial pricing pressures,
which could adversely affect our operating results.
WE ARE SUBJECT TO THE RISK OF INCREASED TAXES.
We have structured our operations in a manner designed to maximize income
in countries where tax incentives have been extended to encourage foreign
investment or where income tax rates are low. Our taxes could increase if these
tax incentives are not renewed upon expiration or tax rates applicable to us are
increased. Substantially all of the products manufactured by our Asian
subsidiaries are sold to customers based in North America and Europe. We believe
that profits from our Asian operations are not sufficiently connected to
jurisdictions in North America or Europe to give rise to income taxation there.
However, tax authorities in jurisdictions in North America and Europe could
challenge the manner in which profits are allocated among our subsidiaries, and
we may not prevail in any such challenge. If the profits recognized by our
subsidiaries in jurisdictions where taxes are lower became subject to income
taxes in other jurisdictions, our worldwide effective tax rate could increase.
In addition, the merger and subsequent transactions may cause our effective tax
rate to increase.
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WE CONDUCT OPERATIONS IN A NUMBER OF COUNTRIES AND ARE SUBJECT TO RISKS OF
INTERNATIONAL OPERATIONS.
The geographical distances between Asia, the Americas and Europe create a
number of logistical and communications challenges. The combined manufacturing
operations are located in a number of countries, including Austria, Brazil,
China, the Czech Republic, Finland, France, Germany, Hungary, Ireland, Italy,
Malaysia, Mexico, Sweden, the United Kingdom and the United States. As a result,
we are affected by economic and political conditions in those countries,
including:
- fluctuations in the value of currencies;
- changes in labor conditions;
- longer payment cycles;
- greater difficulty in collecting accounts receivable;
- burdens and costs of compliance with a variety of foreign laws;
- political and economic instability;
- increases in duties and taxation;
- imposition of restrictions on currency conversion or the transfer of
funds;
- limitations on imports or exports;
- expropriation of private enterprises; and
- reversal of the current policies, including favorable tax and lending
policies, encouraging foreign investment or foreign trade by our host
countries.
The attractiveness of our services to our U.S. customers can be affected by
changes in U.S. trade policies, such as "most favored nation" status and trade
preferences for certain Asian nations. In addition, some countries in which we
operate, such as Brazil, Mexico and Malaysia, have experienced periods of slow
or negative growth, high inflation, significant currency devaluations and
limited availability of foreign exchange. Furthermore, in countries such as
Mexico and China, governmental authorities exercise significant influence over
many aspects of the economy, and their actions could have a significant effect
on us. Finally, we could be adversely affected by inadequate infrastructure,
including lack of adequate power and water supplies, transportation, raw
materials and parts in countries in which we operate.
Risks Relating to China. Under its current leadership, the Chinese
government has been pursuing economic reform policies. However, the Chinese
government may not continue to pursue these policies, and these policies may not
be successful even if pursued. In addition, China does not have a comprehensive
and highly developed system of laws, and enforcement of laws and contracts is
uncertain. The United States annually reconsiders the renewal of most favored
nation trading status of China. China's loss of most favored nation status could
adversely affect us by increasing the cost to U.S. customers of products
manufactured by us in China.
Risks Relating to Mexico. The Mexican government exercises significant
influence over many aspects of the Mexican economy and its action could have a
significant effect on private sector entities in general and us in particular.
Risks Relating to Hungary. Hungary has undergone significant political and
economic change in recent years. Political, economic, social and other
developments, and changes in laws could have a material and adverse effect on
our business. Annual inflation and interest rates in Hungary have historically
been much higher than those in Western Europe. Exchange rate policies have not
always allowed for the free conversion of currencies at the market rate. Laws
and regulations in Hungary have been, and continue to be, substantially revised
during its transition to a market economy. As a result, laws and regulations may
be applied inconsistently. Also in some circumstances, it may not be
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possible to obtain the legal remedies provided for under those laws and
regulations in a reasonably timely manner, if at all.
Risks Relating to Brazil. During the past several years, the Brazilian
economy has been affected by significant intervention by the Brazilian
government. The Brazilian government has changed monetary, credit, tariff and
other policies to influence the course of Brazil's economy. The Brazilian
government's actions to control inflation and effect other policies have often
involved wage, price and exchange controls as well as other measures such as
freezing bank accounts and imposing capital controls.
WE ARE SUBJECT TO RISKS OF CURRENCY FLUCTUATIONS AND HEDGING OPERATIONS.
A significant portion of our business is conducted in the Swedish krona,
European euro and Brazilian real. In addition, some of our costs, such as
payroll and rent, are denominated in currencies such as the Austrian schilling,
the British pound, the Chinese renminbi, the German deutsche mark, the Hong Kong
dollar, the Hungarian forint, the Irish pound, the Malaysian ringgit, the
Mexican peso and the Singapore dollar, as well as the krona, the euro and the
real. In recent years, the Hungarian forint, Brazilian real and Mexican peso
have experienced significant devaluations, and in January 1999 the Brazilian
real experienced further significant devaluations. Changes in exchange rates
between these and other currencies and the U.S. dollar will affect our cost of
sales, operating margins and revenues. We cannot predict the impact of future
exchange rate fluctuations. We use financial instruments, primarily forward
purchase contracts, to hedge Japanese yen, European euro, U.S. dollar and other
foreign currency commitments arising from trade accounts payable and fixed
purchase obligations. Because we hedge only fixed obligations, we do not expect
that these hedging activities will have a material effect on our results of
operations or cash flows. However, our hedging activities may be unsuccessful,
and we may change or reduce our hedging activities in the future. As a result,
we may experience significant unexpected expenses from fluctuations in exchange
rates.
WE DEPEND ON OUR KEY PERSONNEL.
Our success depends to a large extent upon the continued services of our
key executives and skilled personnel. Generally our employees are not bound by
employment or non-competition agreements, and there can be no assurance that we
will retain our officers and key employees. We could be materially and adversely
affected by the loss of key personnel.
WE ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS.
We are subject to various federal, state, local and foreign environmental
laws and regulations, including those governing the use, storage, discharge and
disposal of hazardous substances in the ordinary course of our manufacturing
process. In addition, we are responsible for cleanup of contamination at some of
our current and former manufacturing facilities. If more stringent compliance or
cleanup standards under environmental laws or regulations are imposed, or the
results of our future testing and analyses at our operating facilities indicate
that we are responsible for the release of hazardous substances, we may be
subject to additional remediation liability. Further, there can be no assurance
that additional environmental matters will not arise in the future at sites
where no problem is currently known or at sites that we may acquire in the
future.
THE MARKET PRICE OF OUR ORDINARY SHARES IS VOLATILE.
The stock market in recent years has experienced significant price and
volume fluctuations that have affected the market prices of technology
companies. These fluctuations have often been unrelated to or disproportionately
impacted by the operating performance of these companies. The market for our
ordinary shares may be subject to similar fluctuations. Factors such as
fluctuations in
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our operating results, announcements of technological innovations or events
affecting other companies in the electronics industry, currency fluctuations and
general market conditions may have a significant effect on the market price of
our ordinary shares.
WE ARE SUBJECT TO RISKS FROM THE YEAR 2000 ISSUE.
We are aware of the issues associated with programming code in existing
computer systems. The Year 2000 computer issue refers to a condition in computer
software where a two-digit field rather than a four-digit field is used to
distinguish a calendar year. While we have not experienced material Year 2000
problems to date, some computer programs may be unable to function and we may
experience errors or interruptions due to the Year 2000 problem. Such an
uncorrected condition could significantly interfere with the conduct of our
business, could result in disruption of our operations, and could subject us to
potentially significant legal liabilities.
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THE COMPANIES
FLEXTRONICS
Flextronics is a leading provider of advanced electronics manufacturing
services to OEMs primarily in the telecommunications and networking, consumer
electronics and computer industries. Flextronics provides a wide range of
integrated services, from initial product design to volume production and
fulfillment. Its manufacturing services range from printed circuit board
fabrication and assembly to complete product assembly and test. Flextronics
believes that it has developed particular strengths in advanced interconnect,
miniaturization and packaging technologies, and in the engineering and
manufacturing of wireless communications products employing radio frequency
technology. In addition, Flextronics provides advanced engineering services,
including product design, printed circuit board layout, quick-turn prototyping
and test development. Throughout the production process, Flextronics offers
logistics services, such as materials procurement, inventory management,
packaging and distribution.
Through a combination of internal growth and acquisitions, Flextronics has
become the fourth largest provider of electronics manufacturing services, with
revenues of $2.0 billion in fiscal 1999 and $2.7 billion for the nine months
ended December 31, 1999. Flextronics believes that its size, global presence and
expertise enable it to win large outsourced manufacturing programs from leading
multinational OEMs. Flextronics offers a complete and flexible manufacturing
solution that provides accelerated time-to-market and time-to-volume production,
as well as reduced production costs. By working closely with customers
throughout the design, manufacturing and distribution process, and by offering
highly responsive services, Flextronics believes that it can become an integral
part of its customers' operations.
Flextronics customers include industry leaders such as Cisco, Compaq,
Ericsson, Hewlett-Packard, Lucent, Microsoft, Motorola, Nokia, Nortel Networks,
Philips, Qualcomm and 3Com. Due to its focus on high growth technology sectors,
its prospects are influenced by major trends, such as the buildout of the
communications and Internet infrastructure, the proliferation of wireless
devices and other trends in electronics technologies. In addition, its growth is
driven by the accelerating pace at which leading OEMs are adopting outsourcing
as a core business strategy.
Flextronics has established an extensive network of manufacturing
facilities in the world's major electronics markets -- Asia, the Americas and
Europe -- to serve the increased outsourcing needs of both multinational and
regional OEMs. Flextronics strategically locates manufacturing facilities near
its customers and their end markets. Flextronics has also established in low
cost regions fully-integrated, high volume industrial parks that provide a total
manufacturing and fulfillment solution by locating manufacturing and
distribution operations and suppliers at a single site. Its industrial parks are
located in China, Hungary and Mexico, and it is developing an additional
industrial park in Brazil. This integrated approach to production and
distribution benefits its customers by reducing logistical barriers and costs,
improving supply-chain management, increasing flexibility, lowering
transportation costs and reducing turnaround times.
SLALOM
Slalom is a wholly owned subsidiary of Flextronics incorporated on November
16, 1999 in the State of Delaware. Slalom does not engage in any operations and
exists solely to facilitate the merger.
DII
DII is a leading global provider of electronics design and manufacturing
services to OEMs primarily in the telecommunications, data communications,
high-end computing and medical device industries. DII provides a comprehensive
set of integrated design and manufacturing services, from
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initial product design including semiconductor design, to volume production and
order fulfillment. DII's manufacturing services range from printed circuit board
fabrication and assembly to complete product assembly and test. In addition, DII
provides advanced engineering services, including semiconductor design, printed
circuit board design, printed circuit board layout, quick-turn prototyping and
test development. Throughout the production process, DII offers logistics
services, such as materials procurement, inventory management and distribution.
Like many electronics design and manufacturing services providers, DII
designs, assembles and distributes printed circuit boards and completed
electronics products. DII seeks to differentiate itself from its electronics
design and manufacturing services competitors by providing comprehensive and
integrated design and manufacturing services, including semiconductor design and
printed circuit board design and fabrication. This allows it to reduce its
customers' product costs and compress the time from product concept to market
introduction. In addition, through its global network of 23 facilities in North
America, South America, Europe, China and Southeast Asia, DII is able to service
its customers' worldwide manufacturing requirements more effectively and at
lower costs. DII believes that the combination of these capabilities enables it
to become more integral to its customers' product development and manufacturing
strategy and provides it with a significant competitive advantage.
DII provides its customers with three primary product and service
offerings:
- semiconductor design;
- printed circuit board design and fabrication; and
- systems assembly and distribution.
DII provides these products and services to more than 300 OEMs, including
OEMs in the telecommunications, data communications, high-end computing and
medical device industries. Its customers include industry leaders, such as 3Com
Corporation, EMC Corporation, Hewlett-Packard Company, IBM, Motorola and Siemens
Medical Systems. Its ten largest customers, in the aggregate, accounted for 60%
of its total net sales in 1999. Approximately 40% of DII's total net sales in
fiscal 1999 were derived from customers utilizing two or more of its primary
product and service offerings.
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THE DII SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE OF THE DII SPECIAL MEETING
The DII special meeting will be held at 10:00 a.m., Colorado time, on March
30, 2000, at the executive offices of DII located at 6273 Monarch Park Place,
Niwot, Colorado.
The purpose of the DII special meeting is to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger dated November
22, 1999 among Flextronics International Ltd., Slalom Acquisition Corp., a
wholly owned subsidiary of Flextronics, and DII. The merger agreement provides
for the merger of Slalom with and into DII, resulting in DII becoming a wholly
owned subsidiary of Flextronics. In the merger, DII stockholders will receive
1.61 ordinary shares, par value S$0.01 per share, of Flextronics for each share
of DII common stock, par value $0.01 per share.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of DII common stock at the close of business on
February 11, 2000 are entitled to notice of and to vote at the DII special
meeting. As of the DII record date, there were approximately 1,589 stockholders
of record of DII common stock, holding an aggregate of approximately 36,780,913
shares of DII common stock.
QUORUM AND VOTE REQUIRED
Under Delaware law, the charter documents of DII and Nasdaq rules, approval
of the merger agreement requires the affirmative vote of a majority of the votes
entitled to be cast by holders of outstanding shares of DII common stock as of
the DII record date. Each stockholder of record of DII common stock on the DII
record date is entitled to cast one vote per share at the DII special meeting,
either in person or by properly executed proxy.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of DII common stock entitled to vote at the
DII special meeting constitutes a quorum for the transaction of business at the
DII special meeting. Broker non-votes and shares held by persons abstaining will
be counted in determining whether a quorum is present at the DII special
meeting. Abstentions will not be counted as a vote in favor of the merger, and
therefore have the same effect as a vote against the merger. If a broker or
nominee holding DII common stock in "street name" indicates on the proxy that it
does not have discretionary authority to vote on the merger, those shares will
not be considered as present and entitled to vote with respect to the merger
proposal. Therefore, broker non-votes will have the same effect as votes against
the merger.
Nine executive officers and directors of DII have entered into voting
agreements with Flextronics obligating them to vote their shares of DII stock in
favor of the merger. As of the DII record date, these executive officers and
directors of DII owned 2.2% of the outstanding shares of DII common stock.
PROXIES
All shares of DII common stock that are entitled to vote and are
represented at the DII special meeting by properly executed proxies received
prior to or at the DII special meeting and not duly and timely revoked will be
voted at the DII special meeting in accordance with the instructions indicated
on the proxies. If no instructions are indicated on the proxies, those proxies
will be voted "FOR" the approval of the merger.
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Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- filing a written notice of revocation, dated later than the proxy, with
the Secretary of DII at or before the vote on the merger at the DII
special meeting;
- duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of DII before the vote on the merger at
the DII special meeting; or
- attending the DII special meeting and voting in person, although
attendance at the DII special meeting will not itself constitute a
revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent to DII at
6273 Monarch Park Place, Niwot, Colorado, 80503, Attention: Secretary, or be
hand delivered to the Secretary, in each case at or before the vote on the
merger is taken at the special meeting.
SOLICITATION OF PROXIES; EXPENSES
DII will bear the expenses in connection with soliciting DII stockholders.
In addition to this solicitation, officers, directors and regular employees of
DII, without any additional compensation, may solicit proxies by mail, telephone
or personal contact. DII has retained Morrow & Co., Inc. to assist in the
solicitation of proxies for a fee of $7,500, plus reasonable out-of-pocket
expenses. DII will, upon request, reimburse brokerage houses and other nominees
for their reasonable expenses in sending proxy materials to their principals.
RECOMMENDATION OF THE DII BOARD OF DIRECTORS
At a special meeting on November 20, 1999, the DII board of directors
determined that the merger is advisable, fair to and in the best interests of
DII and its stockholders. DII's board of directors unanimously approved the
merger agreement and unanimously recommends that you vote "FOR" approval and
adoption of the merger agreement and approval of the merger.
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THE FLEXTRONICS EXTRAORDINARY GENERAL MEETING
DATE, TIME, PLACE AND PURPOSE OF THE FLEXTRONICS EXTRAORDINARY GENERAL MEETING
The extraordinary general meeting of Flextronics' shareholders will be held
at 10:00 a.m., California time, on March 30, 2000 at the principal U.S. offices
of Flextronics located at 2090 Fortune Drive, San Jose, California.
At the meeting, Flextronics shareholders will be asked to approve:
- the issuance of 1.61 Flextronics ordinary shares for each share of DII
common stock in connection with the merger with DII pursuant to the
merger agreement; and
- an amendment to Flextronics' 1993 Share Option Plan to increase by
4,000,000 the number of ordinary shares authorized and reserved for
issuance under the plan.
RECORD DATE AND OUTSTANDING SHARES
The close of business on February 11, 2000 was the record date for
shareholders entitled to notice of the extraordinary general meeting. As of that
date, Flextronics had 115,829,925 ordinary shares issued and outstanding.
However, holders of record of Flextronics ordinary shares on March 30, 2000, the
date of the extraordinary general meeting, are entitled to vote at the meeting.
QUORUM AND VOTE REQUIRED
The affirmative vote of the holders of a majority of the issued shares of
Flextronics present and voting in person or by proxy, attorney or representative
at the extraordinary general meeting is required for the approval of (1) the
issuance of Flextronics ordinary shares for shares of DII common stock in
connection with the merger, and (2) the amendment to the 1993 Plan to increase
by 4,000,000 the number of ordinary shares authorized and reserved under the
plan. Each holder of record on March 30, 2000, the date of the extraordinary
general meeting, is entitled to cast one vote per share at the meeting.
The presence in person or by proxy of holders of at least 33 1/3% of all
outstanding fully paid ordinary shares of Flextronics entitled to vote at the
extraordinary general meeting constitutes a quorum. Abstentions and broker
non-votes are each included in the determination of the number of shares present
for quorum purposes. Neither abstentions nor broker non-votes are counted in
tabulations of the votes cast on the merger-related proposal; however, broker
non-votes are counted in tabulations of the votes cast on the proposal to amend
the 1993 Plan. If a broker or nominee holding Flextronics ordinary shares in
"street name" indicates on the proxy that it does not have discretionary
authority to vote on the merger, those shares will not be considered as present
and entitled to vote with respect to the merger.
Nine executive officers and directors of Flextronics have entered into a
voting agreement with DII obligating them to vote their Flextronics ordinary
shares in favor of the merger-related proposal. As of the record date, these
executive officers and directors owned 4.4% of the outstanding Flextronics
ordinary shares to be cast at the Flextronics extraordinary general meeting.
PROXIES
All Flextronics ordinary shares that are entitled to vote and are
represented at the Flextronics extraordinary general meeting by properly
executed proxies received before 10:00 a.m., California time, on March 28, 2000,
which is 48 hours prior to the extraordinary general meeting, will be voted at
the meeting in accordance with the instructions indicated on the proxies. If no
instructions are
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indicated, those proxies will be vote "FOR" the issuance of the Flextronics
ordinary shares in connection with the merger and "FOR" the amendment to the
1993 Plan.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- filing a written notice of revocation, dated later than the proxy, with
the Secretary of Flextronics at least 48 hours prior to the Flextronics
extraordinary general meeting;
- duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Flextronics at least 48 hours prior to
the extraordinary general meeting; or
- attending the Flextronics extraordinary general meeting and voting in
person. Attendance at the meeting constitutes a revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent to
Flextronics at its registered office located at 36, Robinson Road, #18-01, City
House, Singapore 068877, or to Boston EquiServe L.P. at 150 Royall Street, M/S
45-01-07, Canton, Massachusetts 02021, United States of America, in each case
before 10:00 a.m., California time, on March 28, 2000, which is 48 hours prior
to the extraordinary general meeting.
SOLICITATION OF PROXIES; EXPENSES
The entire cost of soliciting proxies of Flextronics' shareholders will be
borne by Flextronics. In addition, officers, directors and employees of
Flextronics, without additional compensation, may solicit proxies by mail,
telephone or personal contact. Flextronics has retained Corporate Investors
Communications, an independent proxy solicitation firm, to assist in soliciting
proxies at an estimated fee of $12,000 plus reimbursement of reasonable
expenses.
PROPOSAL NO. 1
ORDINARY RESOLUTION TO APPROVE THE ISSUANCE
OF ORDINARY SHARES IN THE MERGER
Based on the shares of DII common stock outstanding as of February 11, 2000
and on the exchange ratio of 1.61 Flextronics ordinary shares for each share of
DII common stock outstanding immediately before the consummation of the merger,
Flextronics will issue approximately 59,689,000 ordinary shares in the merger.
This number gives effect to the vesting of 293,000 performance shares as a
result of the merger. In addition, each option and other right to acquire DII
common stock that is outstanding immediately before the merger will be assumed
by Flextronics and converted into an option or other right to acquire
Flextronics ordinary shares after the merger with the number of shares and the
exercise price to be adjusted based upon the exchange ratio. As of February 11,
2000, options and other rights to acquire approximately 3,527,353 shares of DII
common stock were outstanding, which based on the 1.61 exchange ratio will be
converted into options and other rights to acquire approximately 5,679,038
Flextronics ordinary shares.
For a discussion of the merger as it relates to the proposal to issue
Flextronics ordinary shares in connection with the merger, please refer to the
sections entitled "Approval of the Merger and Related Transactions" on page 44
and "Terms of the Merger Agreement" on page 77. The merger agreement is included
as Annex A to this document.
THE FLEXTRONICS BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL
TO ISSUE FLEXTRONICS ORDINARY SHARES IN THE MERGER.
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PROPOSAL NO. 2
ORDINARY RESOLUTION TO APPROVE THE INCREASE OF THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE UNDER THE 1993 SHARE OPTION PLAN
Flextronics shareholders are being asked to approve an amendment to the
1993 Share Option Plan, which was adopted by the board of directors and approved
by the shareholders in 1993, to increase the maximum number of ordinary shares
authorized for issuance under the 1993 Plan from 16,400,000 ordinary shares to
20,400,000 ordinary shares, to reserve an additional 4,000,000 ordinary shares
for issuance under the 1993 Plan and to provide that the ordinary shares, when
issued and paid for in accordance with the terms of the 1993 Plan, shall be
validly issued, fully paid and nonassessable ordinary shares in the capital of
Flextronics.
As of February 1, 2000, there were 1,987,276 shares available for issuance
under the 1993 Plan, and after this amendment 5,987,276 shares will be available
for issuance under the 1993 Plan. The Flextronics board believes the share
increase is necessary for Flextronics to continue to have a sufficient reserve
of ordinary shares available under the 1993 Plan to attract and retain the
services of key employees and other qualified personnel essential to
Flextronics' long-term success and to effectively compete for qualified
personnel in its markets. In particular, the Flextronics board believes that the
share increase is necessary to secure sufficient additional shares under the
1993 Plan for option grants that it believes will be necessary to retain key
employees of DII after the merger. Flextronics believes that approval of the
increase under the 1993 Plan is critical to the success of the combined company
after the merger.
INTERIM PLANS
Flextronics' 1997 Interim Option Plan, 1998 Interim Option Plan and 1999
Interim Option Plan were adopted by the board on June 5, 1997, January 14, 1998
and December 14, 1998, respectively. The adoption of the interim plans was
necessitated by the internal growth of Flextronics and Flextronics' acquisitions
of Neutronics Electronic Industries Holding AG, DTM Products, Inc., Energipilot
AB, Altatron, Inc. and Conexao Informatica Ltda. None of these acquired
companies had broad-based equity compensation plans in place prior to the
acquisition. Subsequent to each acquisition, Flextronics provided equity-based
compensation opportunities for employees of the acquired company consistent with
levels provided by Flextronics to its existing employees to provide incentives
to such employees to improve their personal performance and contribute to the
improvement of Flextronics' financial performance. As a result, the number of
shares available for new option grants under the 1993 Plan was nearly depleted,
requiring that Flextronics increase the number of shares available for issuance
under the 1993 Plan in order to continue to attract, retain and motivate key
employees and other qualified personnel.
The Flextronics board reserved an aggregate of 1,000,000 shares, 1,600,000
shares and 2,600,000 shares for issuance under the 1997 Interim Plan, the 1998
Interim Plan and the 1999 Interim Plan, respectively. Shares subject to an
option granted pursuant to the interim plans that expires or terminates for any
reason without being exercised will again become available for grant and
issuance pursuant to awards under the interim plans. The interim plans provide a
mechanism for Flextronics to grant non-qualified stock options to persons
without incurring the compensation charge that would otherwise result if
Flextronics issued shares under the 1993 Plan subject to future shareholder
approval. As the interim plans do not provide for the issuance of incentive
stock options, shareholder approval of the interim plans is not required.
Options to purchase 238,498 shares, 80,317 shares and 958,244 shares are
available for grant pursuant to the 1997 Interim Plan, 1998 Interim Plan and
1999 Interim Plan, respectively, as of February 1, 2000.
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From inception of the 1997 Interim Plan in June 1997 to February 1, 2000,
options to purchase an aggregate of 761,502 of Flextronics ordinary shares, net
of cancellations, were granted under the 1997 Interim Plan. From inception of
the 1998 Interim Plan in January 1998 to February 1, 2000, options to purchase
an aggregate of 1,491,683 of Flextronics ordinary shares, net of cancellations,
were granted under the 1998 Interim Plan. From inception of the 1999 Interim
Plan in December 1998 to February 1, 2000, options to purchase an aggregate of
1,641,756 of Flextronics ordinary shares, net of cancellations, were granted
under the 1999 Interim Plan.
NON-PLAN SHARE OPTION GRANT
On November 28, 1998, Flextronics' board of directors granted to Michael E.
Marks, Flextronics' President and Chief Executive Officer, a non-qualified,
non-plan share option grant to purchase 1,600,000 ordinary shares of Flextronics
at an exercise price of $12.00 per share, which was the fair market value of an
ordinary share on the date of grant. The non-plan grant vests over a four-year
period, with 25% of the shares vesting on the first anniversary of the date of
grant and 1/36 of the shares vesting for each full calendar month that Mr. Marks
renders services to Flextronics thereafter and will expire on the fifth
anniversary of the date of grant. In the event that Flextronics is acquired by
merger or asset sale, the non-plan grant will automatically accelerate in full
if it is not assumed by the successor corporation or replaced with a comparable
option to purchase shares of the capital stock of the successor corporation. The
Plan Administrator has the discretionary authority to accelerate any options
assumed or replaced in connection with such acquisition upon the subsequent
termination of Mr. Marks' service within a designated period following the
acquisition. In connection with a hostile change in control of Flextronics,
whether by successful tender offer for more than 50% of the outstanding voting
shares or by proxy contest for the election of board members, the Plan
Administrator will have the discretionary authority to provide for automatic
acceleration of the non-plan grant either at the time of the change in control
or upon the subsequent termination of Mr. Marks' service.
The non-plan grant to Mr. Marks was necessitated by the prior limitation in
the 1993 Plan on the number of options or separately exercisable stock
appreciation rights granted under the 1993 Plan to any one participant to
2,000,000 ordinary shares in the aggregate over the term of the 1993 Plan. As
the non-plan grant is a non-qualified share option grant, shareholder approval
of the non-plan grant is not required.
1993 SHARE OPTION PLAN
The following is a summary of the principal features of the 1993 Plan, as
most recently amended. The summary, however, does not purport to be a complete
description of all the provisions of the 1993 Plan. Any shareholder of
Flextronics who wishes to obtain a copy of the actual plan document may do so
upon written request to Flextronics at its principal U.S. offices located at
2090 Fortune Drive, San Jose, California 95131.
EQUITY INCENTIVE PROGRAMS
The 1993 Plan contains two separate equity incentive programs:
- a discretionary option grant program, and
- an automatic option grant program.
The discretionary option grant program will be administered, with respect
to officers and directors, by the Primary Committee consisting of the
compensation committee of the board and, with respect to all other employees, by
the secondary committee, currently consisting of the Chairman of the board of
directors, Mr. Marks. These committees (the "Plan Administrator") will
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have complete discretion, subject to the provisions of the 1993 Plan, to
authorize option grants under the 1993 Plan. However, all grants under the
automatic option grant program will be made in strict compliance with the
provisions of that program, and no administrative discretion will be exercised
by the Plan Administrator with respect to the grants made under the automatic
option grant program.
SHARE RESERVE
A total of 16,400,000 ordinary shares has been reserved for issuance over
the ten-year term of the 1993 Plan. In no event may any one participant in the
1993 Plan be granted options or separately exercisable stock appreciation rights
for more than 2,000,000 ordinary shares annually.
In the event any change is made to the outstanding ordinary shares by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without Flextronics' receipt of consideration, appropriate adjustments will be
made to the securities issuable, in the aggregate and to each participant, under
the 1993 Plan and to each outstanding option.
As of February 1, 2000, 14,385,906 ordinary shares were subject to
outstanding options and an aggregate of 3,264,333 shares were available for
option grants under the 1993 Plan and the interim plans.
ELIGIBILITY
Officers and other key employees of Flextronics and its parent or
subsidiaries, whether now existing or subsequently established, and consultants
and independent contractors of Flextronics and its parent and subsidiaries, are
eligible to participate in the discretionary option grant program. Non-employee
members of the board are only eligible to participate in the automatic option
grant program. Non-employee members of the board may not participate in the
automatic option grant program if such participation is (1) prohibited, or (2)
restricted, either absolutely or subject to various securities requirements,
whether legal or administrative, being complied with, in the jurisdiction in
which the board member is resident under the relevant securities laws of that
jurisdiction.
As of February 1, 2000 approximately five executive officers and
approximately 700 other employees were eligible to participate in the 1993 Plan,
and five non-employee board members were eligible to participate in the
automatic option grant program.
VALUATION
The fair market value per ordinary share on any relevant date under the
1993 Plan is the closing selling price per share on that date on the Nasdaq
National Market. On February 1, 2000, the closing selling price per share was
$54.00.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the discretionary option grant program at an
exercise price per share not less than 85% of the fair market value per ordinary
share on the option grant date. Flextronics does not intend to issue options
with an exercise price below fair market value. No granted option will have a
term in excess of five years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any
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time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
discretionary option grant program. Tandem stock appreciation rights provide the
holders with the right to surrender their options for an appreciation
distribution from Flextronics equal in amount to the excess of:
- the fair market value of the vested ordinary shares subject to the
surrendered option, over
- the aggregate exercise price payable for such shares.
Any appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in ordinary shares.
Limited stock appreciation rights may be granted to officers of Flextronics
as part of their option grants. Any option with a limited stock appreciation
right in effect for at least six months may be surrendered to Flextronics upon
the successful completion of a hostile take-over of Flextronics. In return for
the surrendered option, the officer will be entitled to a cash distribution from
Flextronics in an amount per surrendered option share equal to the excess of:
- the take-over price per share, over
- the exercise price payable for such share.
The Plan Administrator will have the authority to effect the cancellation
of outstanding options under the discretionary option grant program which have
exercise prices in excess of the then current market price of ordinary shares
and to issue replacement options with an exercise price based on the market
price of ordinary shares at the time of the new grant.
AUTOMATIC OPTION GRANT PROGRAM
Under the automatic option grant program, each individual who first becomes
a non-employee board member will automatically be granted at that time a stock
option for a number of ordinary shares as determined by the Plan Administrator.
In addition, on the date of each annual general meeting, each individual who is
at that time serving as a non-employee board member, whether or not such
individual is standing for re-election, will automatically be granted an option
to purchase 6,000 ordinary shares, provided such individual has served as a
non-employee board member for at least six months. There will be no limit on the
number of such 6,000-share options which any one non-employee board member may
receive over the period of board service.
Each option will have an exercise price per share equal to 100% of the fair
market value per ordinary share on the option grant date and a maximum term of
five years measured from the option grant date. Each option will become
exercisable for the option shares in 24 equal monthly installments over the
optionee's period of board service, with the first such installment to become
exercisable upon the completion of one month of board service measured from the
option grant date.
Each automatic option grant will automatically accelerate upon the
optionee's death or permanent disability or upon an acquisition of Flextronics
by merger or asset sale or a hostile change in control of Flextronics. In
addition, upon the successful completion of a hostile take-over, each automatic
option grant which has been outstanding for at least six months may be
surrendered to Flextronics for a cash distribution per surrendered option share
in an amount equal to the excess of:
- the take-over price per share, over
- the exercise price payable for such share.
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GENERAL PROVISIONS
Acceleration. In the event that Flextronics is acquired by merger or asset
sale, each outstanding option under the discretionary option grant program which
is not assumed by the successor corporation or replaced with a comparable option
to purchase shares of the capital stock of the successor corporation will
automatically accelerate in full. The Plan Administrator has the discretionary
authority to accelerate any options assumed or replaced in connection with an
acquisition upon the subsequent termination of the optionee's service within a
designated period following the acquisition. In connection with a hostile change
in control of Flextronics, whether by successful tender offer for more than 50%
of the outstanding voting stock or by proxy contest for the election of board
members, the Plan Administrator will have the discretionary authority to provide
for automatic acceleration of outstanding options under the discretionary option
grant program either at the time of such change in control or upon the
subsequent termination of the optionee's service.
The acceleration of vesting in the event of a change in the ownership or
control of Flextronics may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of Flextronics.
Financial Assistance. The Plan Administrator may permit one or more
optionees to pay the exercise of outstanding options under the 1993 Plan by
delivering a promissory note payable in installments. The Plan Administrator
will determine the terms of any such promissory note. However, the maximum
amount of financing provided any optionee may not exceed the cash consideration
payable for the purchased shares plus all applicable taxes incurred in
connection with the acquisition of the shares. Any such promissory note may be
subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the optionee's period of service.
Amendment and Termination. The board may amend or modify the 1993 Plan in
any or all respects whatsoever subject to any required shareholder approval. The
board may terminate the 1993 Plan at any time, and the 1993 Plan will in all
events terminate on November 30, 2003.
FEDERAL INCOME TAX CONSEQUENCES
Option Grants. Options granted under the 1993 Plan may be either incentive
stock options which satisfy the requirements of Section 422 of the Internal
Revenue Code or non-statutory options which are not intended to meet such
requirements. The federal income tax treatment for the two types of options
differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised unless the optionee is subject to the
alternative minimum tax. The optionee will, however, recognize taxable income in
the year in which the purchased shares are sold or otherwise disposed of. For
federal tax purposes, dispositions are divided into two categories:
- qualifying, and
- disqualifying.
A qualifying disposition occurs if the sale or other disposition is made
after the optionee has held the shares for more than two years after the option
grant date and more than one year after the exercise date. Upon a qualifying
disposition, the optionee will recognize capital gain or loss. If either of
these two holding periods is not satisfied, then a disqualifying disposition
will result. Upon a disqualifying disposition, any gain up to the difference
between the option exercise price and the fair market value of the shares on the
date of exercise or, if less, the amount realized on the sale of shares, will be
treated as ordinary income. Any additional gain will be capital gain.
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<PAGE> 51
If the optionee makes a disqualifying disposition of the purchased shares,
then Flextronics will be entitled to an income tax deduction, for the taxable
year in which the disposition occurs, equal to the excess of (1) the fair market
value of such shares on the option exercise date over (2) the exercise price
paid for the shares. In no other instance will Flextronics be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by Flextronics in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when Flextronics' repurchase right lapses, an amount
equal to the excess of:
- the fair market value of the shares on the date the repurchase right
lapses, over
- the exercise price paid for the shares.
The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the option
an amount equal to the excess of (1) the fair market value of the purchased
shares on the exercise date over (2) the exercise price paid for such shares. If
the Section 83(b) election is made, the optionee will not recognize any
additional income as and when the repurchase right lapses.
Flextronics will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of Flextronics in which the ordinary income is recognized by the optionee.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. Flextronics will be entitled to an income tax
deduction equal to the appreciation distribution for the taxable year in which
the ordinary income is recognized by the optionee.
NEW PLAN BENEFITS
The amount of future option grants under the discretionary option grant
program of the 1993 Plan to:
- Flextronics' Chief Executive Officer;
- the four other most highly compensated executive officers of Flextronics
whose salary and bonus for fiscal 1999 exceeded $100,000;
- all current executive officers as a group; and
- all employees, including all officers who are not executive officers, as
a group,
are not determinable because, under the terms of the discretionary option grant
program of the 1993 Plan, grants are made in the discretion of the Plan
Administrator or its designees. Future option exercise prices under the 1993
Plan are not determinable because they are based upon the fair market value of
Flextronics ordinary shares on the date of grant.
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The following table shows in the aggregate the options that will be granted
to non-employee directors under the automatic option grant program of the 1993
Plan in fiscal 2000.
<TABLE>
<CAPTION>
NAME AND POSITION EXERCISE PRICE (PER SHARE) NUMBER OF SHARES
----------------- -------------------------- ----------------
<S> <C> <C>
All current directors who are not Fair market value on date of grant 30,000
executive officers as a group (5
persons)...............................
</TABLE>
THE FLEXTRONICS BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT
TO THE 1993 PLAN.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
This section of the document describes various aspects of the proposed
merger, including the merger agreement. While we believe that the description
covers the material terms of the merger, this summary may not contain all of the
information that is important to you. You should carefully read this entire
document and the other documents to which we refer for a more complete
understanding of the merger.
BACKGROUND OF THE MERGER
Senior management of DII regularly reviews DII's strategic plan, including
DII's market valuation, technology vision, growth opportunities and the
electronics manufacturing services industry. Since 1998, DII has focused its
efforts on becoming a first tier electronics manufacturing services company. As
part of this strategic plan, DII has discussed ways to maximize stockholder
value with its financial advisors, Salomon Smith Barney Inc. and Broadview
International LLC. Since 1998, DII has sold off non-core operations and
successfully completed a number of acquisitions. Senior management also has
reviewed opportunities to acquire or merge with other electronics manufacturing
services companies in order to grow faster and compete more effectively in a
consolidating industry. In addition, senior management believed that by becoming
a first tier electronics manufacturing services company, DII's stockholders
would benefit from the higher market valuations given to first tier electronics
manufacturing services companies. Beginning in July 1999, senior management
began to explore opportunities to acquire or merge with other electronics
manufacturing services companies with its financial advisors.
In early August 1999, at the direction of DII's management, a
representative of Salomon Smith Barney contacted Michael Marks, Chairman of the
board of directors and Chief Executive Officer of Flextronics, to discuss
whether Flextronics would be interested in an exploratory meeting with DII. Mr.
Marks indicated that he was interested in such a meeting.
On August 9, 1999, Flextronics executed a confidentiality agreement
providing for the confidential treatment by Flextronics of DII's non-public
information.
On August 12, 1999, Mr. Marks, Mr. Carl R. Vertuca, DII's Executive Vice
President -- Finance, Administration and Corporate Development, and
representatives from Salomon Smith Barney held an exploratory conversation
regarding how DII and Flextronics might operate as a combined entity. On August
13, 1999, Mr. Marks indicated that, while he was interested in further
discussions, other business commitments prevented Flextronics from involvement
in discussions until later in the year.
On August 16 and 17, 1999, at a regularly scheduled meeting of the DII
board of directors, Mr. Ronald R. Budacz, Chairman of the board of directors and
Chief Executive Officer of DII and Mr. Vertuca told the board that management
had not identified any suitable second tier electronics manufacturing services
companies to acquire.
In late August and early September 1999, Mr. Vertuca and DII's financial
advisors met on a preliminary basis with two other first tier electronics
manufacturing services companies regarding a possible combination. At the
direction of DII management, Salomon Smith Barney also contacted another
potential strategic partner which was not an electronics manufacturing services
company. After an initial contact, this company indicated that it was not
interested in pursuing a strategic combination.
On October 8, 1999, the DII board of directors held a telephonic meeting to
discuss the status of discussions with potential partners, and the board
authorized Mr. Vertuca and Mr. Thomas J. Smach, DII's Vice President and Chief
Financial Officer, to conduct more detailed meetings with the three first tier
electronic manufacturing services companies.
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<PAGE> 54
In mid-October 1999, Messrs. Vertuca and Smach, together with DII's
financial advisors, met with each of the first tier electronic manufacturing
services partner candidates, including Flextronics, to review the strategic
rationale and potential for a combination.
In late October 1999, Messrs. Budacz, Vertuca and Smach, together with
DII's financial advisors, met a second time with each of the three candidates to
further discuss the merits of a combination. DII's meeting with Flextronics was
held on October 29, 1999 with Mr. Marks. Following these meetings, DII's
financial advisors, at the direction of DII management, instructed the three
candidates to submit offers by November 1, 1999.
Flextronics submitted a preliminary proposal, offering a fixed exchange
ratio of 1.38 Flextronics shares for each share of DII. Following discussions,
Flextronics increased the exchange ratio to 1.48 per share of DII.
On November 3, 1999, following additional discussions, Flextronics revised
its proposal to an exchange ratio of 1.566. This represented an offer price of
$54.91 as of November 3, 1999.
On November 4, 1999, Messrs. Budacz and Vertuca met with Mr. Marks and Mr.
Robert Dykes, Flextronics' President, Systems Group and Chief Financial Officer,
to further discuss the terms of a potential strategic combination. Following the
meeting, Flextronics submitted a final proposal, offering a fixed exchange ratio
of 1.61. This represented an offer price of $56.95 as of November 4, 1999. DII
and Flextronics then signed an agreement that between November 4, 1999 and 6:00
a.m., California time, on November 30, 1999, DII would not solicit or entertain
any merger or acquisition proposal from any party other than Flextronics.
On November 8, 1999, the DII board of directors held a special meeting in
Hong Kong. The board was presented with the terms of the Flextronics offer and
authorized management to proceed with due diligence and the negotiation of a
definitive merger agreement.
On November 9, 1999, DII executed a confidentiality agreement pertaining to
Flextronics' non-public information and Flextronics and DII executed mutual
standstill agreements.
On November 10, 1999, Fenwick & West LLP, legal counsel to Flextronics,
circulated the first draft of the merger agreement and related documents to DII
and Curtis, Mallet-Prevost, Colt & Mosle LLP, legal counsel to DII. During the
weeks of November 8 and 15, representatives of Flextronics and DII, together
with their respective legal advisors, negotiated the definitive agreements and
held numerous conversations concerning the due diligence review being conducted.
At a telephonic meeting of the Flextronics board of directors on November
19, 1999, the board reviewed the results of management's and legal counsel's due
diligence investigations of DII. The board reviewed in detail the principal
terms of the draft merger agreement, stock option agreement, voting agreements
and related agreements. Following extensive discussion, the Flextronics board of
directors approved the merger agreement and related documents and resolved to
recommend the approval of the issuance of the Flextronics ordinary shares by
Flextronics shareholders.
On November 20, 1999, the DII board of directors held a special meeting
with members of DII's senior management and legal and financial advisors, and
reviewed the following:
- the status of the negotiations for the proposed transaction;
- the principal terms of the merger agreement and the related documents;
- the benefits and potential risks of the transaction with Flextronics; and
- the results of the due diligence evaluation of Flextronics.
Salomon Smith Barney and Broadview reviewed their various financial
analyses with respect to the fairness of the exchange ratio and rendered their
oral opinions to the DII board of directors,
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<PAGE> 55
subsequently confirmed in writing, that the exchange ratio in the merger was
fair to DII stockholders from a financial point of view.
DII's legal advisors discussed the board's responsibilities and fiduciary
duties in considering a strategic business combination and further discussed the
terms of the merger agreement and the related documents. Following discussion,
the DII board:
- determined that the proposed merger was advisable, fair to and in the
best interests of DII and its stockholders;
- unanimously approved the merger agreement and related documents; and
- resolved to recommend the approval and adoption of the merger agreement
and approval of the merger by DII stockholders.
Between November 20 and 22, the parties continued negotiations of the
merger agreement and related agreements. The parties and their legal counsel
finalized all of the transaction documents during the morning of November 22,
1999.
On November 22, 1999, the parties executed the merger agreement and the DII
stock option agreement, nine directors and officers of DII and nine directors
and officers of Flextronics executed voting agreements, and the parties publicly
announced the proposed merger.
FLEXTRONICS' REASONS FOR THE MERGER
Flextronics' board of directors has determined that the terms of the merger
and the merger agreement are fair to, and in the best interests of, Flextronics
and its shareholders. Accordingly, Flextronics' board of directors has approved
the merger agreement and the consummation of the merger and recommends that you
vote "FOR" approval of the issuance of Flextronics ordinary shares in connection
with the merger.
In reaching its decision, Flextronics' board of directors identified
several potential benefits of the merger, the most important of which included:
- enabling Flextronics to expand operations to new locations and to
complement current operations in existing locations;
- enabling Flextronics to enhance its engineering capabilities, especially
with DII's application specific integrated circuit and gate array design
capabilities;
- allowing Flextronics to better serve OEM customers by offering a greater
range of manufacturing facilities and service offerings, including the
capability to build more complex and faster printed circuit boards
through DII's Multek operations;
- expanding Flextronics' customer base with the addition of new customer
relationships, and the strengthening of existing customer relationships;
- expanding the depth of Flextronics' management team with the addition of
DII's team of senior managers and plant managers with experience in the
electronics manufacturing services industry;
- the potential to achieve increased operating and other efficiencies
through increased scale; and
- representing a significant step in Flextronics' strategy of becoming a
comprehensive outsource solutions provider to OEM customers.
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<PAGE> 56
Flextronics' board of directors consulted with Flextronics' senior
management, as well as its legal counsel, in reaching its decision to approve
the merger. Among the factors considered by Flextronics' board of directors in
its deliberations were the following:
- the financial condition, results of operations, cash flow, business and
prospects of Flextronics and DII;
- the current economic and industry environment, including the continued
trend for OEM customers to outsource the design, manufacture and
distribution of their products to a vendor that can combine skills from
design through manufacturing to after-sale support;
- the complementary nature of the technology, products, services and
customer base of Flextronics and DII;
- the quality of DII's facilities and operations;
- the intense competition in the computer, networking and
telecommunications industries and the ability of larger industry
participants to increase market share;
- the key strengths that DII will provide as a merger partner, including
DII's application specific integrated circuit and gate array design
capabilities, its customer relationships and its reputation as a leading
worldwide electronics manufacturer; and
- the fairness to Flextronics of the terms of the merger agreement, stock
option agreement and related agreements, which were the product of
extensive arm's length negotiations.
In assessing the transaction, Flextronics' board of directors considered a
variety of information, including information and advice based on due diligence
investigations by members of Flextronics' board of directors and management and
Flextronics' legal and accounting advisors concerning the business, operations,
properties and prospects of DII, trends in DII's business and capabilities of
DII's management team.
Flextronics' board of directors also identified and considered a number of
uncertainties and risks in its deliberations concerning the merger, including
the following:
- the risk that the potential benefits sought in the merger might not be
fully realized, if at all;
- the risk that the combined company might experience slow growth relative
to the prior growth rate of the individual companies; and
- other risks associated with the businesses of DII, Flextronics and the
combined company and the merger described in this document under "Risk
Factors" on page 21.
As a result of the foregoing considerations, Flextronics' board of
directors determined that the potential advantages of the merger outweighed the
benefits of remaining a separate company. Flextronics' board of directors
believes that the combined company will have a greater opportunity than
Flextronics alone to compete in its industry.
In view of the variety of factors considered in connection with its
evaluation of the merger, Flextronics' board of directors did not find it
practicable to quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination and did not do so. In addition,
many of the factors contained elements which may affect the fairness of the
merger in both a positive and negative way. Except as described above,
Flextronics' board of directors, as a whole, did not attempt to analyze each
individual factor separately to determine how it impacted the fairness of the
merger. Consequently, individual members of Flextronics' board of directors may
have given different weights to different factors and may have viewed different
factors as affecting the determination of fairness differently.
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<PAGE> 57
RECOMMENDATION OF FLEXTRONICS' BOARD OF DIRECTORS
After careful consideration, the Flextronics board of directors has
determined the merger agreement and the merger to be fair to and in the best
interests of the Flextronics shareholders. In connection with the merger, the
Flextronics board of directors recommends approval of the proposal to issue
Flextronics ordinary shares in connection with the merger.
In considering the recommendation of the Flextronics board of directors
with respect to the merger, you should be aware that some directors and officers
of Flextronics have interests in the merger that are different from, or are in
addition to, the interests of Flextronics shareholders generally. Please see
"-- Interests of Executive Officers and Directors in the Merger" on page 70.
DII'S REASONS FOR THE MERGER
At the meeting held on November 20, 1999, the board of directors of DII
determined that the terms of the merger and the merger agreement were fair to,
and in the best interests of, DII and its stockholders, and approved the merger
agreement and the consummation of the merger. The board of directors of DII
unanimously recommends that the stockholders of DII vote "FOR" the approval and
adoption of the merger agreement and approval of the merger. In reaching its
decision, DII's board of directors identified several potential benefits of the
merger, including:
- enabling DII to realize its objective of becoming a first tier
electronics manufacturing services company and thereby provide to DII
stockholders the higher market valuations enjoyed by first tier
electronics manufacturing services companies;
- creating a combined company with a global presence, broader service
offerings than other top tier competitors and added capacity to meet the
growing needs of OEM customers;
- combining DII's core strengths in the semiconductor design and printed
circuit board design and manufacturing areas with Flextronics' strengths
in the systems assembly, engineering, manufacturing and distribution
areas, thereby providing DII stockholders with the opportunity to realize
significant benefits and long-term value;
- the exchange ratio in the merger represented a premium of approximately
26% over the closing price of DII common stock on November 19, 1999, the
last trading day prior to the announcement of the merger, a premium of
approximately 43% over the trading price of DII common stock two weeks
prior to November 19, 1999, and a premium of approximately 86% over the
trading price of DII common stock four weeks prior to November 19, 1999;
- enabling the combined company to service a greatly expanded and more
diverse customer base;
- combining the complementary strengths of DII's and Flextronics'
management, resulting in a management team with greater knowledge of the
electronics manufacturing services industry and more business experience
than that of either company standing alone; and
- the combined company will be in a stronger position to compete for OEM
divestiture opportunities and to acquire complementary businesses as the
electronics manufacturing services industry increasingly consolidates.
In the course of its deliberations, the DII board of directors reviewed a
number of factors relevant to the merger with DII's management and outside
advisors, including:
- historical information concerning Flextronics' and DII's respective
businesses, results of operations and financial condition, operations,
technology, management and competitive position;
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<PAGE> 58
- DII management's view as to the financial condition, results of
operations and businesses of Flextronics and DII, both before and after
giving effect to the merger, based on due diligence and publicly
available earnings estimates;
- current financial market conditions and historical market prices,
volatility and trading information with respect to Flextronics ordinary
shares and DII common stock;
- the consideration to be received by DII stockholders in the merger and an
analysis of the market value of the Flextronics ordinary shares to be
issued in exchange for each share of DII common stock in light of
comparable merger transactions;
- the treatment of the merger as a tax-free exchange and the expected
qualification of the merger as a pooling of interests for accounting and
financial reporting purposes;
- the belief that the terms of the merger agreement and the stock option
agreement, including the parties' representations, warranties and
covenants, and the conditions to the parties' respective obligations, are
reasonable;
- DII management's view as to DII's prospects as an independent company;
- DII management's view as to the potential for DII to enter into strategic
relationships or combine with other third parties;
- the financial presentations of DII's financial advisors, including the
opinions of DII's financial advisors to the effect that the exchange
ratio was fair to DII stockholders from a financial point of view;
- the impact of the merger on DII's customers and employees; and
- reports from management, legal advisors and financial advisors as to the
results of their due diligence investigation of Flextronics.
The DII board of directors also considered a number of potentially negative
factors in its deliberations concerning the merger, including:
- the risk that the benefits sought to be achieved by the merger will not
be realized;
- the risk that because the exchange ratio is fixed and will not be
adjusted for changes in the market price of either Flextronics ordinary
shares or DII common stock, the per share value of the consideration to
be received by DII stockholders might be less than the price per share
implied by the exchange ratio immediately prior to the announcement of
the merger;
- the possibility that provisions of the merger agreement, the stock option
agreement and the voting agreements might have the effect of discouraging
other persons potentially interested in merging with or acquiring DII
from pursuing such an opportunity or, if pursued, from consummating such
a transaction;
- the risk that the merger might not be consummated;
- challenges relating to the integration of the two companies;
- the possibility of management and employee disruption associated with the
merger and integrating the operations of the companies, and the risk
that, despite the efforts of the combined company, key personnel of DII
might not continue with the combined company; and
- other risks relating to the operations of the combined company and the
merger, including those risks described in "Risk Factors" on page 21.
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DII's board of directors believed that these risks were outweighed by the
potential benefits of the merger.
This discussion of DII's reasons for the merger and the information and
factors considered by the DII board is not intended to be exhaustive. Each
member of DII's board may have considered different factors and DII's board
evaluated these factors as a whole and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination.
RECOMMENDATION OF DII'S BOARD OF DIRECTORS
After carefully evaluating these factors, both positive and negative, the
DII board of directors has determined that the merger is advisable, fair to and
in the best interests of DII and its stockholders, and unanimously recommends
that DII stockholders vote "FOR" the approval and adoption of the merger
agreement and approval of the merger.
In considering the recommendation of the DII board of directors with
respect to the merger, DII stockholders should be aware that the directors and
executive officers of DII have interests in the merger that are different from,
or are in addition to, the interests of DII stockholders generally. Please see
"-- Interests of Executive Officers and Directors in the Merger" on page 70 and
"Benefits of the Merger to DII Directors and Executive Officers" on page 92.
OPINIONS OF DII'S FINANCIAL ADVISORS
Information in this section pertaining to share and per share amounts of
Flextronics, as well as the exchange ratio, have not been adjusted to reflect
Flextronics' two-for-one stock split effected as a bonus issue, the Singapore
equivalent of a stock dividend, paid to holders of Flextronics ordinary shares
on December 22, 1999.
SALOMON SMITH BARNEY INC.
DII retained Salomon Smith Barney to act as financial advisor to DII in
connection with the merger. Pursuant to Salomon Smith Barney's engagement letter
with DII, dated October 18, 1999, Salomon Smith Barney rendered an opinion to
the DII board of directors on November 20, 1999 to the effect that, based upon
and subject to the considerations and limitations set forth in the opinion,
Salomon Smith Barney's experience as investment bankers, its work described
below and other factors it deemed relevant, as of that date, the exchange ratio
was fair, from a financial point of view, to DII stockholders.
The full text of Salomon Smith Barney's opinion, which sets forth the
assumptions made, general procedures followed, matters considered and limits on
the review undertaken, is included as Annex E to this document. The summary of
Salomon Smith Barney's opinion set forth below is qualified in its entirety by
reference to the full text of the opinion. STOCKHOLDERS ARE URGED TO READ
SALOMON SMITH BARNEY'S OPINION CAREFULLY AND IN ITS ENTIRETY.
In arriving at its opinion, Salomon Smith Barney reviewed a draft of the
merger agreement, dated November 16, 1999, and held discussions with senior
officers, directors and other representatives and advisors of each of DII and
Flextronics concerning the businesses, operations and prospects of DII and
Flextronics. Salomon Smith Barney examined publicly available business and
financial information relating to DII and Flextronics as well as financial
forecasts and other information and data for DII and Flextronics which were
provided to or otherwise discussed with Salomon Smith Barney by the managements
of DII and Flextronics, including certain strategic implications and operational
benefits anticipated to result from the merger. Salomon Smith Barney
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reviewed the financial terms of the merger as set forth in the merger agreement
in relation to, among other things:
- current and historical market prices and trading volumes of DII common
stock and Flextronics ordinary shares;
- the historical and estimated earnings and other operating data of DII and
Flextronics; and
- the historical and estimated capitalization and financial condition of
DII and Flextronics.
Salomon Smith Barney considered, to the extent publicly available, the
financial terms of other similar transactions recently effected that Salomon
Smith Barney considered relevant in evaluating the exchange ratio and analyzed
financial, stock market and other publicly available information relating to the
businesses of other companies whose operations Salomon Smith Barney considered
relevant in evaluating those of DII and Flextronics. Salomon Smith Barney also
evaluated the pro forma financial impact of the merger on Flextronics. In
addition, Salomon Smith Barney conducted other analyses and examinations and
considered other information and financial, economic and market criteria as it
deemed appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney and further relied on the
assurances of the managements of DII and Flextronics that they were not aware of
any facts that would make any of such information inaccurate or misleading. With
respect to financial forecasts and other information and data provided to or
otherwise reviewed by or discussed with it, Salomon Smith Barney was advised by
the managements of DII and Flextronics that such forecasts and other information
and data had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of DII and Flextronics as
to the future financial performance of DII and Flextronics and the strategic
implications and operational benefits anticipated to result from the merger.
Salomon Smith Barney expressed no view with respect to such forecasts and other
information and data or the assumptions on which they were based. Salomon Smith
Barney assumed, with the consent of DII's board, that the merger will be treated
as a tax-free reorganization for U.S. federal income tax purposes and as a
pooling of interests for accounting and financial reporting purposes. Salomon
Smith Barney has not made or been provided with an independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, of DII or
Flextronics nor did Salomon Smith Barney make any physical inspection of the
properties or assets of DII or Flextronics. Salomon Smith Barney assumed that
the final terms of the merger agreement would not vary materially from those set
forth in the draft reviewed by Salomon Smith Barney. Salomon Smith Barney
further assumed that the merger will be consummated in accordance with the terms
of the merger agreement, without waiver of any of the conditions to the merger
contained in the merger agreement.
Salomon Smith Barney did not express any opinion as to what the value of
Flextronics ordinary shares actually will be when issued in the merger or the
price at which Flextronics ordinary shares will trade subsequent to the merger.
Salomon Smith Barney was not asked to consider, and its opinion does not
address, the relative merits of the merger as compared to any alternative
business strategies that might exist for DII or the effect of any other
transaction in which DII might engage. Salomon Smith Barney's opinion
necessarily was based on information available to it, and financial, stock
market and other conditions and circumstances existing and disclosed to Salomon
Smith Barney as of the date of the opinion.
SALOMON SMITH BARNEY'S ADVISORY SERVICES AND OPINION WERE PROVIDED FOR THE
INFORMATION OF DII'S BOARD OF DIRECTORS IN ITS EVALUATION OF THE PROPOSED MERGER
AND DID NOT CONSTITUTE A
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RECOMMENDATION OF THE MERGER TO DII OR A RECOMMENDATION TO ANY STOCKHOLDER AS TO
HOW THAT STOCKHOLDER SHOULD VOTE ON ANY MATTERS RELATING TO THE PROPOSED MERGER.
In connection with rendering its opinion, Salomon Smith Barney made a
presentation to the DII board of directors on November 20, 1999, with respect to
the material analyses performed by Salomon Smith Barney in evaluating the
fairness of the exchange ratio. The following is a summary of this presentation.
The summary includes information presented in tabular format. IN ORDER TO
UNDERSTAND FULLY THE FINANCIAL ANALYSES USED BY SALOMON SMITH BARNEY, THESE
TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO
NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. The following
quantitative information, to the extent it is based on market data, is, except
as otherwise indicated, based on market data as it existed at or prior to
November 19, 1999 and is not necessarily indicative of current or future market
conditions. Salomon Smith Barney's analyses, and the summary provided below,
were not adjusted to reflect Flextronics' two-for-one stock split effected on
December 22, 1999.
Implied Historical Exchange Ratio. Salomon Smith Barney derived implied
historical exchange ratios by dividing the closing price per share of DII common
stock by the closing price per Flextronics ordinary share for each trading day
in the period from November 19, 1998 though November 19, 1999. Salomon Smith
Barney calculated that the implied exchange ratio as of November 19, 1999 was
0.64, the highest implied exchange ratio during the period was 0.86, and the
lowest implied exchange ratio during the period was 0.46. Salomon Smith Barney
also calculated the average implied exchange ratios for each of the following
calendar periods ending November 19, 1999:
<TABLE>
<S> <C>
Last 12 Months.............................................. 0.63
Last 6 Months............................................... 0.64
Last 3 Months............................................... 0.60
Last Month.................................................. 0.58
</TABLE>
Salomon Smith Barney noted that in each case described above, other than
the highest implied exchange ratio during the twelve-month period, the implied
exchange ratio or the average implied exchange ratio derived by Salomon Smith
Barney was lower than the exchange ratio in the merger.
Comparable Companies Analyses. Salomon Smith Barney compared publicly
available financial, operating and stock market information, and forecasted
financial information, for DII, Flextronics, and selected other publicly traded
companies that operate in the contract electronics manufacturing, design
services and related sectors (contract electronics manufacturing sector) or the
printed circuit board business. Salomon Smith Barney divided these companies
into three categories: (1) Tier I contract electronics manufacturing companies,
(2) Tier II contract electronics manufacturing companies, and (3) companies in
the printed circuit board business, intended to reflect the printed circuit
board component of the DII business. Salomon Smith Barney classified the
contract electronics manufacturing companies as Tier I or Tier II based upon an
analysis of several factors which included, but was not limited to, the revenue,
geographic scope, product and service capabilities and customer base of each
company. Generally, Tier I companies have larger revenue and broader geographic
scope, product and service capabilities and customer base than Tier II
companies; however, Salomon Smith Barney evaluated these and other factors as a
whole and did not quantify or otherwise assign relative weights to the specific
factors considered.
The Tier I selected comparable companies were:
- Celestica Inc.,
- Jabil Circuit, Inc.,
- Sanmina Corporation,
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<PAGE> 62
- SCI Systems, Inc., and
- Solectron Corporation.
The Tier II selected comparable companies were:
- ACT Manufacturing, Inc.,
- C-MAC Industries Inc.,
- Benchmark Electronics, Inc., and
- Plexus Corp.
The selected comparable companies in the printed circuit board business
were:
- Hadco Corporation, and
- Merix Corporation.
The estimated financial information used by Salomon Smith Barney in the
course of these analyses was based on information published by certain
investment banking firms and First Call Corporation. First Call Corporation
publishes summaries of financial forecasts made by various investment banking
firms.
Salomon Smith Barney noted that based on relative size, mix of businesses
and operations, and financial condition, DII is more similar to the Tier II than
the Tier I companies and Flextronics is more similar to the Tier I than the Tier
II companies. In this regard, for each of DII, Flextronics, and the Tier I and
Tier II companies, Salomon Smith Barney derived and compared common (or
ordinary) share price-to-earnings per common (or ordinary) share (EPS) multiples
over the period from January 1, 1997 through November 19, 1999. In these
comparisons, Salomon Smith Barney used forward twelve-month earnings, as
estimated by First Call Corporation. Salomon Smith Barney noted that from
November 19, 1998 through November 19, 1999, Flextronics' share price-to-EPS
multiples were higher than that of DII and the average of the Tier II companies,
and consistent with the average of the Tier I companies. Over the same period,
DII's average share price-to-EPS multiples were consistent with those of the
Tier II companies.
For DII and each of the Tier I and Tier II companies, Salomon Smith Barney
derived and compared, among other things:
- the ratio of each company's closing share price on November 19, 1999 to
its (1) estimated EPS for 1999, and (2) estimated EPS for 2000, in each
case based on mean calendarized estimates as of November 19, 1999; and
- the ratio of each company's firm value as of November 19, 1999 to its (1)
revenue for the last twelve-month period for which financial results were
available, (2) earnings before taking into account interest expense,
taxes, depreciation and amortization (EBITDA) for the last twelve-month
period for which financial results were available, and (3) earnings
before taking into account interest expense and taxes (EBIT) for the last
twelve-month period for which financial results were available.
In these analyses, Salomon Smith Barney included Flextronics as a Tier I
company. For DII, Salomon Smith Barney performed the calculations described
above based on both (1) the closing price of DII common stock as of November 19,
1999 ($51.81) and (2) the implied price per share of DII common stock in the
merger ($65.41) based upon the closing price of Flextronics ordinary
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<PAGE> 63
shares as of November 19, 1999 ($81.25) and the exchange ratio. Firm value was
calculated as the sum of the value of:
- all shares of common stock, or all ordinary shares, assuming the exercise
of all in-the-money options, warrants and convertible securities, less
the proceeds from such exercise; plus
- non-convertible indebtedness; plus
- non-convertible preferred stock; plus
- minority interests; plus
- out-of-the-money convertible securities; minus
- investments in unconsolidated affiliates and cash.
The following table sets forth the results of these analyses.
<TABLE>
<CAPTION>
COMPARABLE COMPANIES AT
NOVEMBER 19, 1999
CLOSING PRICE DII AT DII AT
------------------------ CLOSING IMPLIED
RANGE MEDIAN PRICE MERGER PRICE
-------------- ------- -------------- --------------
<S> <C> <C> <C> <C>
RATIO OF PRICE TO:
(a) Estimated EPS for 1999.............. 29.8x 37.6x
(i) Tier I............................ 32.3x - 70.0x 51.4x
(ii) Tier II.......................... 19.1x - 46.7x 26.7x
(iii) Printed Circuit Board........... 23.6x - 24.3x 23.9x
(b) Estimated EPS for 2000.............. 22.2x 28.1x
(i) Tier I............................ 25.9x - 48.7x 37.8x
(ii) Tier II.......................... 13.7x - 34.4x 18.9x
(iii) Printed Circuit Board........... 14.8x - 16.6x 15.7x
RATIO OF FIRM VALUE TO:
(a) Revenue for last twelve-month
period................................ 1.9x 2.3x
(i) Tier I............................ 0.8x - 5.2x 2.5x
(ii) Tier II.......................... 0.8x - 2.1x 1.4x
(iii) Printed Circuit Board........... 0.9x - 1.0x 0.9x
(b) EBITDA for last twelve-month
period................................ 18.6x 23.3x
(i) Tier I............................ 20.4x - 38.3x 29.2x
(ii) Tier II.......................... 13.7x - 22.7x 21.4x
(iii) Printed Circuit Board........... 7.8x - 10.5x 9.1x
(c) EBIT for last twelve-month period... 27.8x 34.8x
(i) Tier I............................ 22.5x - 62.7x 45.0x
(ii) Tier II.......................... 16.4x - 29.5x 29.2x
(iii) Printed Circuit Board........... 18.7x - 37.0x 27.9x
</TABLE>
Salomon Smith Barney noted in particular that using the implied price per
share of DII common stock in the merger based upon the closing price of
Flextronics ordinary shares as of November 19, 1999 and the exchange ratio, the
multiples derived for DII were (1) above the median for the Tier II comparable
companies in all cases; (2) within, but towards the higher end, of the ranges
for the Tier II comparable companies with respect to the ratios of share price
to estimated EPS for 1999 and 2000; and (3) above the higher end of the ranges
for the Tier II comparable companies with respect to the ratios of firm value to
revenue, EBITDA and EBIT for the last twelve-month period for which financial
results were available.
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<PAGE> 64
Precedent Transaction Analysis. Salomon Smith Barney reviewed publicly
available information for nine completed merger or acquisition transactions in
the contract electronics manufacturing sector announced since March 3, 1998, in
which two publicly traded companies were involved. The precedent transactions
considered by Salomon Smith Barney were the following (in each case, the
acquiror's name is listed first and the acquired company's name is listed
second):
- Solectron Corporation/SMART Modular Technologies, Inc.;
- Tyco International Ltd./AFC Cable Systems, Inc.;
- Saturn Electronics and Engineering/Smartflex Systems, Inc.;
- ACT Manufacturing, Inc./CMC Industries, Inc.;
- Plexus Corp./SeaMED Corporation;
- Celestica, Inc./International Manufacturing Services, Inc.;
- Sanmina Corporation/Altron Incorporated;
- Tyco International Ltd./Sigma Circuits, Inc.; and
- Hadco Corporation/Continental Circuits Corp.
For each precedent transaction, Salomon Smith Barney derived the following:
- the ratio of the firm value of the acquired company based on the
consideration paid in the transaction to (1) the revenue of the acquired
company for the last twelve-month period prior to the announcement of the
transaction for which financial results were available; (2) EBITDA of the
acquired company for the last twelve-month period prior to the
announcement of the transaction for which financial results were
available, and (3) EBIT of the acquired company for the last twelve-month
period prior to the announcement of the transaction for which financial
results were available;
- the ratio of the share price of the acquired company, based on the
transaction price, to the EPS of the acquired company for the last
twelve-month period prior to the announcement of the transaction for
which financial results were available; and
- the premium paid in the transaction to the firm value of the acquired
company (1) one day prior to the announcement of the transaction, and (2)
four weeks prior to the announcement of the transaction.
With respect to certain financial information for the companies involved in
the precedent transactions, Salomon Smith Barney relied on information available
in public documents, equity research reports published by certain investment
banks and First Call Corporation estimates.
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<PAGE> 65
The following table sets forth the results of these analyses:
<TABLE>
<CAPTION>
COMPARABLE COMPANIES DII AT
----------------------------- IMPLIED
RANGE MEAN MEDIAN MERGER PRICE
-------------- ---- ------ --------------
<S> <C> <C> <C> <C>
RATIO OF FIRM VALUE TO:
(a) Acquired company's revenue for last
twelve-month period prior to
announcement.................................. 0.3x - 1.9x 1.0x 0.9x 2.3x
(b) Acquired company's EBITDA for last
twelve-month period prior to
announcement.................................. 5.3x - 21.6x 11.9x 9.8x 23.3x
(c) Acquired company's EBIT for last
twelve-month
period prior to announcement.............. 9.0x - 37.0x 18.2x 14.4x 34.8x
RATIO OF SHARE PRICE TO:
Acquired company's EPS for last twelve-month
period prior to announcement.................. 15.2x - 303.9x 59.0x 29.2x 43.5x
PREMIUM OF TRANSACTION PRICE TO ACQUIRED
COMPANY'S FIRM VALUE:
(a) one day prior to announcement............. 10.1% - 108.7% 45.2% 36.6% 26.2%
(b) four weeks prior to announcement.......... 16.1% - 205.5% 70.1% 65.9% 86.2%
</TABLE>
Salomon Smith Barney noted in particular that using the implied price per
share of DII common stock in the merger based upon the closing price of
Flextronics ordinary shares as of November 19, 1999 and the exchange ratio, the
multiple derived for DII was above the median multiple derived for the precedent
transactions in each case. Salomon Smith Barney also noted that although the
premium represented by the implied price in the merger to DII's firm value one
day prior to announcement of the transaction (26.2%) was below the median for
the precedent transactions (36.6%), the premium represented by the implied price
in the merger to DII's firm value four weeks prior to announcement of the
transaction (86.2%) was above the median for the precedent transactions (65.9%).
Business Segment Build-up Valuation. Salomon Smith Barney derived a range
of values for each of DII's business segments based on management's forecast of
the pre-tax contribution to earnings expected to be produced by such segment in
2000, First Call Corporation estimates for EPS in 2000 and EPS multiples for
such segment derived from the share price and earnings estimates of certain
publicly traded companies that operate in such segment. For the Dovatron segment
(including the semiconductor business), Salomon Smith Barney used a range of
16.0x to 24.0x estimated EPS, and for the Multek segment, Salomon Smith Barney
used a range of 15.0x to 17.0x estimated EPS. Salomon Smith Barney then
aggregated the ranges for each segment to derive a composite implied equity
valuation range for DII. Based on this analysis, Salomon Smith Barney derived an
equity valuation range of $22.35 to $33.53 per share of common stock for DII's
Dovatron segment (including the semiconductor business), $13.99 to $15.86 per
share of common stock for DII's Multek segment, and $36.35 to $49.39 per share
of common stock for the entire company.
Salomon Smith Barney noted that the implied price per share of DII common
stock in the merger based upon the closing price of Flextronics ordinary shares
as of November 19, 1999 and the exchange ratio, was above the higher end of the
per share range of implied equity value for DII using the business segment
build-up valuation analysis.
Accretion/Dilution Analysis. Salomon Smith Barney performed an analysis of
the impact of the merger on the future EPS of Flextronics. Salomon Smith Barney
made pro forma adjustments to estimated combined operating earnings of the
merged entity assuming that the merger would be considered a pooling of
interests for financial reporting purposes and using share prices as of November
19, 1999. Salomon Smith Barney also adjusted estimates for DII so that they
would be
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consistent with Flextronics' March 31 fiscal year end. Future EPS for DII and
Flextronics, each on a stand-alone basis, were based on First Call Corporation
estimates. In performing this analysis, Salomon Smith Barney did not take into
account any anticipated cost savings, revenue enhancements or other potential
effects of the merger.
The following table shows the accretion or dilution to the estimated EPS of
Flextronics expected to result from the merger.
<TABLE>
<CAPTION>
FLEXTRONICS DII STAND- COMBINED ENTITY ACCRETION TO
STAND-ALONE ALONE PRO FORMA FLEXTRONICS
----------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Estimated Fiscal 2000 EPS...... $1.74 $1.93 $1.95 12.4%
Estimated Fiscal 2001 EPS...... $2.30 $2.51 $2.57 11.7%
</TABLE>
Implied Potential Stock Price. Salomon Smith Barney derived the implied
value of a Flextronics ordinary share on a pro forma basis for the merger using
estimated EPS for the combined company for each of fiscal 2000 ($1.95) and
fiscal 2001 ($2.57) based on First Call Corporation estimates and certain pro
forma adjustments. For fiscal 2000, Salomon Smith Barney used a range of share
price-to-EPS multiples based on estimates of fiscal 1999 EPS published by First
Call Corporation. The range used for fiscal 2000 was 29.8x (the DII share
price-to-EPS multiple for estimated earnings in fiscal 1999 based on First Call
Corporation estimates) to 59.0x. For fiscal 2001, Salomon Smith Barney used a
range of share price-to-EPS multiples based on estimates of fiscal 2000 earnings
published by First Call Corporation. The range used for fiscal 2001 was 22.2x
(the DII share price-to-EPS multiple for estimated earnings in fiscal 2000 based
upon First Call Corporation estimates) to 45.0x. Salomon Smith Barney derived
the following results:
<TABLE>
<CAPTION>
PRICE/ FISCAL 1999
EPS RATIO 29.8X 35.0X 50.8X 51.4X 59.0X
- -------------------------------------------- ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
FISCAL 2000 IMPLIED FLEXTRONICS ORDINARY
SHARE PRICE............................... $58.07 $68.25 $99.02 $100.26 $115.05
</TABLE>
<TABLE>
<CAPTION>
PRICE/ FISCAL 2000
EPS RATIO 22.2X 30.0X 37.6X 37.8X 45.0X
- -------------------------------------------- ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
FISCAL 2001 IMPLIED FLEXTRONICS ORDINARY
SHARE PRICE............................... $57.15 $77.10 $96.67 $ 97.05 $115.65
</TABLE>
Salomon Smith Barney noted that using First Call Corporation estimates and
the closing price per Flextronics ordinary shares as of November 19, 1999, the
implied share price-to-EPS multiple for Flextronics based on estimated EPS for
fiscal 2000 was 50.8x and for fiscal 2001 was 37.6x. Using estimated pro forma
EPS for the combined company, this implied an equity value per share for the
combined company of $99.02 based on estimated EPS for fiscal 2000 and $96.67
based on estimated EPS for fiscal 2001. Salomon Smith Barney noted that using
First Call Corporation estimates and the closing prices per share as of November
19, 1999, the median share price-to-EPS multiple for the Tier I companies,
including Flextronics, based on estimated EPS for fiscal 2000 was 51.4x and for
fiscal 2001 was 37.8x. Using estimated pro forma EPS for the combined company,
this implied an equity value per share for the combined company of $100.26 based
on estimated EPS for fiscal 2000 and $97.05 based on estimated EPS for fiscal
2001.
Contribution Analysis. Salomon Smith Barney analyzed the relative
contribution of each of DII and Flextronics to the pro forma merged entity with
respect to certain market and financial data. In performing this analysis,
Salomon Smith Barney did not take into account any anticipated cost savings,
revenue enhancements or other potential effects of the merger. Based on each
company's relative contribution in each category, Salomon Smith Barney also
derived an implied exchange ratio for that category. Salomon Smith Barney
compared each derived percentage contribution to the pro forma 34.2% ownership
stake holders of DII common stock would have in the merged entity based
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on the exchange ratio and share prices as of November 19, 1999. Salomon Smith
Barney also compared each implied exchange ratio to the exchange ratio of 0.805.
The following table sets forth the results of Salomon Smith Barney's
contribution analysis.
<TABLE>
<CAPTION>
IMPLIED
DII FLEXTRONICS EXCHANGE RATIO
---- ----------- --------------
<S> <C> <C> <C>
Revenues for last twelve-month period................. 32.3% 67.7% 0.685x
EBITDA for last twelve-month period................... 40.5% 59.5% 0.986x
EBIT for last twelve-month period..................... 43.1% 56.9% 1.098x
Net Income for last twelve-month period............... 37.4% 62.6% 0.915x
Total Assets.......................................... 34.3% 65.7% 0.753x
Book Equity........................................... 36.2% 63.8% 0.867x
Firm Value............................................ 30.5% 69.5% 0.628x
</TABLE>
The preceding discussion is a summary of the material financial analyses
furnished by Salomon Smith Barney to the DII board of directors but it does not
purport to be a complete description of the analyses performed by Salomon Smith
Barney or of its presentations to the DII board of directors. The preparation of
financial analyses and fairness opinions is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. Salomon Smith Barney made no attempt to assign specific
weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of all the analyses
and factors considered and determined to give its fairness opinion as described
above. Accordingly, Salomon Smith Barney believes that its analyses, and the
summary set forth above, must be considered as a whole, and that selecting
portions of the analyses and of the factors considered by Salomon Smith Barney,
without considering all of the analyses and factors, could create a misleading
or incomplete view of the processes underlying the analyses conducted by Salomon
Smith Barney and its opinion.
With regard to the comparable companies analyses summarized above, Salomon
Smith Barney selected comparable public companies on the basis of various
factors, including the size and similarity of the line of business; however, no
company utilized as a comparison in these analyses, and no transaction utilized
as a comparison in the comparable transaction analyses summarized above, is
identical to DII or Flextronics or the merger. As a result, these analyses are
not purely mathematical, but also take into account differences in financial and
operating characteristics of the subject companies and other factors that could
affect the transaction or public trading value of the subject companies and
transactions to which DII and Flextronics and the merger are being compared.
In its analyses, Salomon Smith Barney made numerous assumptions with
respect to DII, Flextronics, industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of DII and Flextronics. Any estimates contained in Salomon Smith
Barney's analyses are not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than those suggested by these analyses. Estimates of values of companies do not
purport to be appraisals or necessarily to reflect the prices at which companies
may actually be sold. Because these estimates are inherently subject to
uncertainty, none of DII, Flextronics, the DII board of directors, Salomon Smith
Barney or any other person assumes responsibility if future results or actual
values differ materially from the estimates. Salomon Smith Barney's analyses
were prepared solely as part of Salomon Smith Barney's analysis of the fairness
of the exchange ratio in the merger and were provided to the DII board of
directors in that connection. The opinion of Salomon Smith Barney was only one
of the factors taken into consideration by the DII board of directors in making
its
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determination to approve the merger agreement and the merger. See "Approval of
the Merger and Related Transactions -- DII's Reasons for the Merger" on page 44.
Salomon Smith Barney is an internationally recognized investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. DII selected Salomon Smith
Barney to act as its financial advisor on the basis of Salomon Smith Barney's
international reputation and Salomon Smith Barney's familiarity with DII.
Salomon Smith Barney and its predecessors and affiliates have previously
provided and currently are providing investment banking services to DII
unrelated to the merger, for which Salomon Smith Barney has received and will
receive customary compensation. In the ordinary course of its business, Salomon
Smith Barney and its affiliates may actively trade or hold the securities of
both DII and Flextronics for its own account and for the account of customers
and, accordingly, may at any time hold a long or short position in these
securities. Salomon Smith Barney and its affiliates, including Citigroup Inc.
and its affiliates, may maintain relationships with DII and Flextronics and
their respective affiliates.
Pursuant to Salomon Smith Barney's engagement letter, DII agreed to pay
Salomon Smith Barney the following fees for its services rendered in connection
with the merger:
- $100,000, that became payable upon execution of the engagement letter,
plus
- $2,000,000, that became payable upon delivery of Salomon Smith Barney's
fairness opinion, plus
- 0.425% of the aggregate value of the transaction (less any amounts
described in the above clauses), that will become payable upon completion
of the merger. If the merger were completed on February 25, 2000, based
on the Flextronics closing price of $61.3125, this would amount to an
aggregate of approximately $15.4 million.
DII has also agreed to reimburse Salomon Smith Barney for its reasonable
travel and other out-of-pocket expenses incurred in connection with its
engagement, including the reasonable fees and disbursements of its counsel, and
to indemnify Salomon Smith Barney against specific liabilities and expenses
relating to or arising out of its engagement, including liabilities under the
federal securities laws.
BROADVIEW INTERNATIONAL LLC
Pursuant to a letter agreement dated October 18, 1999, Broadview was
engaged to act as financial advisor to the DII board and to render an opinion to
the DII board regarding the fairness of the exchange ratio, from a financial
point of view, to DII stockholders. The DII board selected Broadview to act as
financial advisor based on Broadview's reputation and experience in the
information technology, communications and media sectors and the electronics
manufacturing services industry in particular. At the meeting of the DII board
on November 20, 1999, Broadview rendered its oral opinion that, as of November
20, 1999, based upon and subject to the various factors and assumptions, the
exchange ratio was fair, from a financial point of view, to DII stockholders.
The DII board received written confirmation of Broadview's opinion on November
23, 1999.
BROADVIEW'S OPINION, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY BROADVIEW, IS ATTACHED AS
APPENDIX F TO THIS DOCUMENT. DII STOCKHOLDERS ARE URGED TO, AND SHOULD, READ
BROADVIEW'S OPINION CAREFULLY AND IN ITS ENTIRETY. BROADVIEW'S OPINION IS
DIRECTED TO THE DII BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO
FROM A FINANCIAL POINT OF VIEW TO THE STOCKHOLDERS OF DII AS OF THE DATE OF THE
OPINION. BROADVIEW'S OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND
DOES NOT CONSTITUTE A
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RECOMMENDATION TO ANY HOLDER OF DII COMMON STOCK AS TO HOW TO VOTE AT THE DII
SPECIAL MEETING. THE SUMMARY OF BROADVIEW'S OPINION SET FORTH IN THIS DOCUMENT,
ALTHOUGH MATERIALLY COMPLETE, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE OPINION.
In connection with rendering its opinion, Broadview, among other things:
- reviewed the terms of the merger agreement;
- reviewed publicly available financial statements and other information of
DII and Flextronics, respectively;
- reviewed financial projections for DII prepared and provided to Broadview
by DII management;
- participated in discussions with DII's and Flextronics' management
concerning the operations, business strategy, financial performance and
prospects for DII and Flextronics, respectively;
- discussed the strategic rationale for the merger with DII's and
Flextronics' management, respectively;
- reviewed the reported closing prices and trading activity for DII common
stock and Flextronics ordinary shares;
- compared aspects of the financial performance of DII and Flextronics with
other comparable public companies;
- analyzed available information, both public and private, concerning other
comparable mergers and acquisitions;
- reviewed recent equity research analyst reports covering DII and
Flextronics;
- analyzed the anticipated effect of the merger on the future financial
performance of Flextronics;
- participated in discussions related to the merger among DII, Flextronics
and their respective advisors; and
- conducted other financial studies, analyses and investigations as
Broadview deemed appropriate for purposes of its opinion.
In rendering its opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information, including without limitation the representations and warranties
contained in the merger agreement, that was publicly available or furnished to
Broadview by DII or Flextronics. With respect to the financial projections
examined by Broadview, Broadview assumed that they were reasonably prepared and
reflected the best available estimates and good faith judgments of the
management of DII as to the future performance of DII. For purposes of its
opinion, Broadview assumed that, as of the date of its opinion, neither DII nor
Flextronics was currently involved in any material transaction other than the
merger, other publicly announced transactions or other preliminary discussions
confidentially disclosed to Broadview, and those activities undertaken in the
ordinary course of conducting their respective businesses.
Broadview did not make or obtain an independent appraisal or valuation of
any of DII's assets. Broadview's opinion is necessarily based upon market,
economic, financial and other conditions as they existed and could be evaluated
as of November 20, 1999, and any change since such date may impact Broadview's
opinion. Broadview's opinion did not express any opinion as to the price at
which Flextronics ordinary shares will trade at any time.
The following is a brief summary of some of the sources of information and
valuation methodologies employed by Broadview in rendering its opinion. These
analyses were presented to the
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DII board at its meeting on November 20, 1999. This summary includes the
financial analyses used by Broadview and deemed to be material, but does not
purport to be a complete description of analyses performed by Broadview in
arriving at its opinion. This summary of financial analyses includes information
presented in tabular format. In order fully to understand the financial analyses
used by Broadview, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses.
DII STOCK PERFORMANCE ANALYSIS. Broadview compared the recent stock
performance of DII with that of the following indices:
- An index compiled by Broadview which is comprised of public companies
Broadview deemed comparable to DII's systems assembly business (the "DII
Comparable Index for System Assembly Companies"). Broadview selected
companies competing in the systems assembly industry with revenues of
greater than $500.0 million for the last twelve months. This index
consisted of the following companies:
- Sanmina Corp.;
- Jabil Circuit, Inc.;
- Solectron Corp.;
- C-MAC Industries, Inc.;
- Flextronics International Ltd.;
- Celestica, Inc.;
- SCI Systems, Inc.;
- Benchmark Electronics, Inc.; and
- ACT Manufacturing, Inc.
- An index compiled by Broadview which is comprised of public companies
Broadview deemed comparable to DII's printed circuit board business (the
"DII Comparable Index for Printed Circuit Board Companies"). Broadview
selected companies competing in the printed circuit board industry with
revenues of greater than $100.0 million for the last twelve months. This
index consists of the following companies:
- Hadco Corp.; and
- Merix Corp.
- S&P 500.
PUBLIC COMPANY COMPARABLES ANALYSIS. Broadview considered ratios of share
price and market capitalization, adjusted for cash and debt when necessary, to
selected historical and projected operating results in order to derive multiples
placed on a company in a particular market segment. In order to perform this
analysis, Broadview compared financial information of DII with publicly
available information for the companies comprising the two DII comparable
indexes. For this analysis, as well as other analyses, Broadview examined
publicly available information, as well as a range of estimates based on
securities research analyst reports and financial projections prepared by DII
management.
The following table presents, as of November 20, 1999, the median multiples
and the range of multiples for the DII Comparable Index for Systems Assembly
Companies of Total Market
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<PAGE> 71
Capitalization (defined as equity market capitalization plus total debt minus
cash and cash equivalents) divided by selected operating metrics:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
--------------- ------------------
<S> <C> <C>
Total Market Capitalization to Last Twelve
Months Revenue................................ 1.69x 0.74x - 4.78x
Total Market Capitalization to Last Twelve
Months Earnings Before Interest, Taxes,
Depreciation, and Amortization................ 25.34x 9.43x - 35.52x
Total Market Capitalization to Last Twelve
Months Earnings Before Interest and Taxes..... 31.54x 16.55x - 64.71x
Total Market Capitalization to Projected
Calendar Year 2000 Revenue.................... 1.06x 0.29x - 2.76x
Total Market Capitalization to Projected
Calendar Year 2000 Earnings Before Interest
and Taxes..................................... 22.97x 9.55x - 30.75x
</TABLE>
The following table presents, as of November 20, 1999, the median multiples
and the range of multiples for the DII Comparable Index for Printed Circuit
Board Companies of Total Market Capitalization (defined as equity market
capitalization plus total debt minus cash and cash equivalents) divided by
selected operating metrics:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
--------------- ------------------
<S> <C> <C>
Total Market Capitalization to Last Twelve
Months Revenue................................ 0.92x 0.83x - 1.01x
Total Market Capitalization to Last Twelve
Months Earnings Before Interest, Taxes,
Depreciation, and Amortization................ 8.44x 7.51x - 9.38x
Total Market Capitalization to Last Twelve
Months Earnings Before Interest and Taxes..... 22.62x 18.29x - 26.95x
Total Market Capitalization to Projected
Calendar Year 2000 Revenue.................... 0.77x 0.69x - 0.85x
Total Market Capitalization to Projected
Calendar Year 2000 Earnings Before Interest
and Taxes..................................... 9.74x 9.21x - 10.27x
</TABLE>
The following table presents, as of November 20, 1999, the median implied
value and the range of implied values of DII's stock, calculated by using the
multiples of both indexes, considered together, shown above and the appropriate
DII operating metric:
<TABLE>
<CAPTION>
MEDIAN IMPLIED VALUE RANGE OF IMPLIED VALUES
-------------------- -----------------------
<S> <C> <C>
Total Market Capitalization to Last
Twelve Months Revenue................. $42.07 $20.05 - $111.87
Total Market Capitalization to Last
Twelve Months Earnings Before
Interest, Taxes, Depreciation, and
Amortization.......................... $46.25 $21.60 - $ 62.52
Total Market Capitalization to Last
Twelve Months Earnings Before Interest
and Taxes............................. $49.02 $30.34 - $ 85.28
Total Market Capitalization to Projected
Calendar Year 2000 Revenue............ $50.85 $17.23 - $124.94
Total Market Capitalization to Projected
Calendar Year 2000 Earnings Before
Interest and Taxes.................... $54.38 $27.99 - $ 70.00
</TABLE>
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<PAGE> 72
No company used in the public company comparables analysis as a comparison
is identical to DII. In evaluating the comparables, Broadview made numerous
assumptions with respect to systems assembly and printed circuit board industry
performance and general economic conditions, many of which are beyond the
control of DII. Mathematical analysis, such as determining the median, average
or range, is not in itself a meaningful method of using comparable company data.
TRANSACTION COMPARABLES ANALYSIS. Broadview considered ratios of equity
purchase price, adjusted for the seller's cash and debt when appropriate, to
selected historical operating results in order to indicate multiples strategic
and financial acquirers have been willing to pay for companies in a particular
market segment. In order to perform this analysis, Broadview reviewed a number
of transactions that they considered similar to the merger. Broadview selected
these transactions by choosing recent transactions involving sellers in the
systems assembly industry with revenues greater than $50.0 million in the last
reported twelve months before their acquisition as well as recent transactions
involving sellers in the printed circuit board industry with revenues greater
than $50.0 million in the last reported twelve months before their acquisition.
For this analysis, as well as other analyses, Broadview examined publicly
available information, as well as information from Broadview's proprietary
database of published and confidential merger and acquisition transactions in
the information technology, communications and media industries.
The systems assembly transactions consisted of the acquisitions of:
- SMART Modular Technologies, Inc. by Solectron Corp.;
- SeaMED Corp. by Plexus Corp.;
- Confidential by Confidential;
- Smartflex Systems, Inc. by Saturn Electronics and Engineering;
- Rubicon Group plc by Applied Power, Inc.;
- Kyrel EMS Oyj by Flextronics International Ltd.;
- International Manufacturing Services, Inc. by Celestica, Inc.;
- AVEX Electronics (JM Huber) by Benchmark Electronics, Inc.; and
- CMC Industries, Inc. by ACT Manufacturing, Inc.
The following table presents, as of November 20, 1999, the median multiple
and the range of multiples of adjusted price (defined as equity price plus total
debt minus cash and cash equivalents) divided by each of (1) the seller's
revenue, (2) earnings before interest, taxes, depreciation, and amortization,
and (3) earnings before interest and taxes, in each case in the last reported
twelve months prior to acquisition for the transactions listed above:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
--------------- ------------------
<S> <C> <C>
Adjusted Price to Last Reported Twelve Months
Revenue..................................... 0.75x 0.30x - 1.68x
Adjusted Price to Last Reported Twelve Months
Earnings Before Interest, Taxes,
Depreciation, and Amortization.............. 8.19x 7.11x - 21.84x
Adjusted Price to Last Reported Twelve Months
Earnings Before Interest and Taxes.......... 10.96x 8.73x - 22.68x
</TABLE>
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<PAGE> 73
The printed circuit board transactions consisted of the acquisitions of:
- Continental Circuits Corp. by Hadco Corp.;
- Altron, Inc. by Sanmina Corp.;
- Praegitzer Industries, Inc. by Tyco International Ltd.; and
- Sigma Circuits, Inc. by Tyco International Ltd.
The following table presents, as of November 20, 1999, the median multiple
and the range of multiples of adjusted price (defined as equity price plus total
debt minus cash and cash equivalents) divided by each of (1) the seller's
revenue, (2) earnings before interest, taxes, depreciation and amortization, and
(3) earnings before interest and taxes, in each case in the last reported twelve
months prior to acquisition for the transactions listed above:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
--------------- ------------------
<S> <C> <C>
Adjusted Price to Last Reported Twelve Months
Revenue..................................... 0.86x 0.75x - 1.36x
Adjusted Price to Last Reported Twelve Months
Earnings Before Interest, Taxes,
Depreciation, and Amortization.............. 7.79x 5.75x - 17.35x
Adjusted Price to Last Reported Twelve Months
Earnings Before Interest and Taxes.......... 10.52x 8.20x - 14.76x
</TABLE>
The following table presents, as of November 20, 1999, the median implied
value and the range of implied values of DII's stock, calculated by using the
multiples of both indexes, considered together, shown above and the appropriate
DII operating metric for the trailing twelve months ended September 30, 1999:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
--------------- ------------------
<S> <C> <C>
Adjusted Price to Last Reported Twelve Months
Revenue..................................... $20.43 $ 9.40 - $45.45
Adjusted Price to Last Reported Twelve Months
Earnings Before Interest, Taxes,
Depreciation, and Amortization.............. $20.22 $15.63 - $54.31
Adjusted Price to Last Reported Twelve Months
Earnings Before Interest and Taxes.......... $17.45 $13.06 - $32.87
</TABLE>
No transaction used as a comparable in the transaction comparables analysis
is identical to the merger. In evaluating the comparables, Broadview made
numerous assumptions with respect to systems assembly and printed circuit board
industry performance and general economic conditions, many of which are beyond
the control of DII or Flextronics. Mathematical analysis, such as determining
the average, median or range, is not in itself a meaningful method of using
comparable transaction data.
TRANSACTION PREMIUMS PAID ANALYSIS. Broadview considered the premiums paid
above a seller's share price in order to determine the additional value
strategic and financial acquirers, when compared to public shareholders, are
willing to pay for control of companies in a particular market segment. In order
to perform this analysis, Broadview reviewed a number of transactions involving
publicly-held hardware companies and supporting products and services vendors.
Broadview selected these transactions from its proprietary database by choosing
recent transactions with an equity
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<PAGE> 74
purchase price between $500.0 million and $5.0 billion. These transactions
consisted of the acquisitions of:
- Oak Industries, Inc. by Corning, Inc.;
- Marshall Industries by Avnet Inc.;
- FORE Systems, Inc. by GEC plc;
- DSC Communications Corp. by Alcatel Alsthom SA;
- SMART Modular Technologies, Inc. by Solectron Corp.;
- Optical Coating Laboratory, Inc. by JDS Uniphase Corp.;
- Xylan Corp. by Alcatel Alsthom SA;
- Coherent Communications Systems Corp. by Tellabs, Inc.;
- Berg Electronics Corp. by Framatone Group;
- DSP Communications Inc. by Intel Corp.;
- JDS Fitel, Inc. by Uniphase Corp.;
- Dialogic Corp. by Intel Corp.;
- RELTEC Corp. by General Electric Co.;
- Stratus Computer, Inc. by Ascend Communications, Inc.;
- Sequent Computer Systems, Inc. by IBM Corp.;
- Sundstrand Corp. by United Technologies Corp.;
- Yurie Systems, Inc. by Lucent Technologies Inc.;
- Raychem Corp. by Tyco International Ltd.;
- Fluke Corp. by Danaher Corp.;
- Level One Communications, Inc. by Intel Corp.;
- Unitrode Corp. by Texas Instruments Inc.;
- Excel Switching Corp. by Lucent Technologies, Inc.;
- AFC Cable Systems Inc. by Tyco International Ltd.; and
- Data General Corp. by EMC Corp.
The following table presents, as of November 20, 1999, the median premium
and the range of premiums for these transactions calculated by dividing:
- the offer price per share minus the closing share price of the seller's
common stock twenty trading days or one trading day prior to the public
announcement of the transaction, by
- the closing share price of the seller's common stock twenty trading days
or one trading day prior to the public announcement of the transaction:
<TABLE>
<CAPTION>
MEDIAN PREMIUM RANGE OF PREMIUMS
-------------- -----------------
<S> <C> <C>
Premium Paid to Seller's Share Price Twenty
Trading Days Prior to Announcement............ 59.7% 12.6% - 159.2%
Premium Paid to Seller's Share Price One Trading
Day Prior to Announcement..................... 37.7% 2.0% - 93.8%
</TABLE>
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<PAGE> 75
The following table presents the median implied value and the range of
implied values of DII's stock, calculated by using the premiums shown above and
DII's share price twenty trading days and one trading day prior to November 22,
1999:
<TABLE>
<CAPTION>
MEDIAN RANGE OF IMPLIED
IMPLIED VALUE VALUES
-------------- ----------------
<S> <C> <C>
Premium Paid to Seller's Share Price Twenty Trading
Days Prior to Announcement....................... $59.40 $41.89 - $ 96.40
Premium Paid to Seller's Share Price One Trading
Day Prior to Announcement........................ $71.32 $52.83 - $100.41
</TABLE>
No transaction used as a comparable in the transaction premiums paid
analysis is identical to the merger. In evaluating the comparables, Broadview
made numerous assumptions with respect to systems assembly and printed circuit
board industry performance and general economic conditions, many of which are
beyond the control of DII or Flextronics. Mathematical analysis, such as
determining the average, median or range is not in itself a meaningful method of
using comparable transaction data.
TRANSACTION PREMIUMS PAID FOR "MERGER OF EQUALS" ANALYSIS. Broadview
considered the premiums paid above a seller's share price in order to determine
the additional value strategic and financial acquirers, when compared to public
shareholders, are willing to pay for companies in a particular market segment.
In order to perform this analysis, Broadview reviewed a number of transactions
involving publicly-held companies. Broadview selected these transactions from
its proprietary database by choosing recent transactions involving information
technology, communications, and media companies with an equity purchase price
greater than $500.0 million and in which shareholders of the selling company
retained a 30%-70% interest in the combined entity following the acquisition.
These transactions consisted of the acquisitions of:
- Excite, Inc. by AtHome Corp.;
- Medical Manager Corp. by Synetic, Inc.;
- JDS Fitel, Inc. by Uniphase Corp.;
- AirTouch Communications, Inc. by Vodaphone Group plc;
- LCI International, Inc. by Qwest Communications Corp.;
- 360 Communications Co. by ALLTEL Corp.;
- IXC Communications, Inc. by Cincinnati Bell, Inc.;
- Ameritech Corp. by SBC Communications, Inc.;
- EarthLink Network, Inc. by MindSpring Enterprises, Inc.;
- Metro Networks, Inc. by Westwood One, Inc.;
- GTE Corp. by Bell Atlantic Corp.; and
- Hyperion Software Corp. by Arbor Software Corp.
The following table presents, as of November 20, 1999, the median premium
and the range of premiums for these transactions calculated by dividing:
- the offer price per share minus the closing share price of the seller's
common stock twenty trading days or one trading day prior to the public
announcement of the transaction, by
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<PAGE> 76
- the closing share price of the seller's common stock twenty trading days
or one trading day prior to the public announcement of the transaction:
<TABLE>
<CAPTION>
RANGE OF
MEDIAN PREMIUM PREMIUMS
-------------- --------------
<S> <C> <C>
Premium Paid to Seller's Share Price Twenty
Trading Days Prior to Announcement........... 31.1% (5.6%) - 111.8%
Premium Paid to Seller's Share Price One
Trading Day Prior to Announcement............ 19.2% (5.4%) - 76.9%
</TABLE>
The following table presents the median implied value and the range of
implied values of DII's stock, calculated by using the premiums shown above and
DII's share price twenty trading days and one trading day prior to November 22,
1999:
<TABLE>
<CAPTION>
MEDIAN RANGE OF
IMPLIED VALUE IMPLIED VALUES
------------- --------------
<S> <C> <C>
Premium Paid to Seller's Share Price Twenty
Trading Days Prior to Announcement.............. $48.76 $35.12 - $78.75
Premium Paid to Seller's Share Price One Trading
Day Prior to Announcement....................... $61.76 $49.01 - $91.63
</TABLE>
No transaction used as a comparable in the transaction premiums paid
analysis is identical to the merger. In evaluating the comparables, Broadview
made numerous assumptions with respect to systems assembly and printed circuit
board industry performance and general economic conditions, many of which are
beyond the control of DII or Flextronics. Mathematical analysis, such as
determining the average, median or range is not in itself a meaningful method of
using comparable transaction data.
POTENTIAL SHARE PRICE ANALYSIS. Broadview examined a range on November 20,
1999 of potential future share prices of DII common stock on a stand-alone basis
using a range of projections for DII's earnings per share for the twelve months
ending December 31, 2000. The implied share price ranged from $37.09 to $130.50.
Broadview also examined a range on November 20, 1999 of potential future share
prices of Flextronics ordinary shares on a pro forma basis, assuming
consummation of the merger using a range of projections for pro forma earnings
per share for the twelve months ending December 31, 2000. The implied share
price ranged from $45.02 to $236.25. Additionally, Broadview applied the
exchange ratio of 0.8050 to this range to generate the implied value to DII
stockholders, resulting in a range of $36.24 to $190.18
HISTORICAL IMPLIED EXCHANGE RATIO ANALYSIS. Broadview reviewed the ratios
of the closing prices of DII common stock divided by the corresponding prices of
Flextronics ordinary shares over the period from November 20, 1998 to November
19, 1999 in contrast with the exchange ratio defined in the merger agreement.
Based on this analysis, the historical exchange ratio has ranged from 0.4589 to
0.8259 with an average of 0.6252.
RELATIVE CONTRIBUTION ANALYSIS. Broadview examined the relative
contribution of DII and Flextronics to the pro forma combined entity for a
number of historical and projected operating metrics from equity analyst
research reports and capital structure items and calculated an implied exchange
ratio based on the current diluted shares outstanding for the two companies.
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<PAGE> 77
The following reflect the relative contribution of DII and Flextronics and
the implied exchange ratio for each operating metric and capital structure item:
<TABLE>
<CAPTION>
IMPLIED
EXCHANGE
FLEXTRONICS DII RATIO
----------- ---- ----------------
<S> <C> <C> <C>
Last Twelve Months Revenue................... 69.7% 30.3% 0.6728
Last Twelve Months Earnings Before Interest,
Taxes, Depreciation, and Amortization...... 59.8% 40.2% 1.0425
Last Twelve Months Earnings Before Interest
and Taxes.................................. 58.2% 41.8% 1.1105
Last Twelve Months Net Income................ 60.7% 39.3% 1.0013
Projected March 31, 2001 Revenue............. 66.5% 33.5% 0.7802
Projected March 31, 2001 Earnings Before
Interest and Taxes......................... 54.7% 45.3% 1.2840
Projected March 31, 2001 Net Income.......... 57.7% 42.3% 1.1333
Stock Price as of 11/18/99................... -- -- 0.6377
Book Value................................... 63.8% 36.2% 0.8766
Equity Value................................. -- -- --
Net Debt..................................... -- -- --
Total Market Capitalization.................. 69.3% 30.7% 0.6865
Diluted Shares Outstanding................... 66.3% 33.7% 0.8050
</TABLE>
FLEXTRONICS SHARE PERFORMANCE ANALYSIS. Broadview compared the recent stock
performance of Flextronics with that of the following indices:
- An index compiled by Broadview which is comprised of public companies
Broadview deemed comparable to Flextronics. Broadview selected companies
competing in the systems assembly industry with revenue for the last
twelve months greater than $1.0 billion (the "Flextronics Comparable
Index"). This index consists of the following companies:
- Sanmina Corp.;
- Jabil Circuit, Inc.;
- Solectron Corp.;
- The DII Group, Inc.;
- Celestica, Inc.; and
- SCI Systems, Inc.
- S&P 500.
EVALUATION OF FLEXTRONICS EQUITY. Broadview compared financial information
of Flextronics with publicly available information for companies in the
Flextronics Comparable Index. For this analysis, as well as other analyses,
Broadview examined publicly available information, as well as a range of
estimates based on securities research analyst reports.
PRO FORMA COMBINATION ANALYSIS. Broadview calculated the pro forma impact
of the merger on the combined entity's projected earnings per share for the
calendar year ending March 31, 2001 taking into consideration various financial
effects which will result from consummation of the merger. This analysis relies
upon financial and operating assumptions provided by equity research analysts
and publicly available data about Flextronics and DII. Broadview assumed that
the merger would be treated as a pooling transaction and that no opportunities
for cost savings or revenue enhancements exist. Based on this analysis, the pro
forma pooling model indicates that the merger would result in
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<PAGE> 78
earnings per share accretion for shareholders of the combined entity of $0.36
excluding acquisition expenses, for the fiscal year ending March 31, 2001.
In connection with the review of the merger by the DII board, Broadview
performed a variety of financial and comparative analyses. The summary set forth
above does not purport to be a complete description of the analyses performed by
Broadview in connection with the merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Broadview considered the results of all of its analyses as a
whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Broadview believes that selecting any portion of
its analyses, without considering all analyses, would create an incomplete view
of the process underlying its opinion.
In performing its analyses, Broadview made numerous assumptions with
respect to industry performance and general business and economic conditions and
other matters, many of which are beyond the control of DII or Flextronics. The
analyses performed by Broadview are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by the analyses. The exchange ratio pursuant to the merger agreement
and other terms of the merger agreement were determined through arm's length
negotiations between DII and Flextronics, and were approved by DII's board.
Broadview provided advice to DII's board during the negotiations; however,
Broadview did not recommend any specific consideration to DII's board or that
any specific consideration constituted the only appropriate consideration for
the merger. In arriving at its opinion, Broadview considered only the potential
transaction with Flextronics and did not evaluate any other potential
acquisitions, business combinations or other extraordinary transactions
involving DII, although in the course of its engagement, Broadview did provide
advice to DII in connection with potential business combinations with parties
other than Flextronics. In addition, Broadview's opinion and presentation to
DII's board was one of many factors taken into consideration by DII's board in
making its decision to approve the merger. Consequently, the Broadview analyses
as described above should not be viewed as determinative of the opinion of DII's
board with respect to the value of DII or of whether DII's board would have been
willing to agree to a different consideration.
Pursuant to a letter agreement dated as of October 18, 1999, Broadview was
engaged to act as financial advisor to DII's board and to render an opinion to
the DII board regarding the fairness of the exchange ratio, from a financial
point of view, to DII shareholders in the merger. Upon consummation of the
merger, DII will be obligated to pay Broadview a transaction fee, dependent upon
Flextronics' closing price prior to the transaction, of 0.425% of the aggregate
value of the transaction, which would amount to an aggregate of approximately
$15.4 million if the merger were completed on February 25, 2000 based on the
Flextronics closing price of $61.3125. DII is obligated to pay Broadview a
one-time commitment fee of $100,000 and a fairness opinion fee of $2,000,000.
The one-time commitment fee and the fairness opinion fee will be credited
against the transaction fee payable by DII upon completion of the merger. In
addition, DII has agreed to reimburse Broadview for its reasonable expenses,
including fees and expenses of its counsel, and to indemnify Broadview and its
affiliates against liabilities and expenses related to their engagement,
including liabilities under the federal securities laws. Broadview has
previously provided investment banking services to DII unrelated to the merger
for which Broadview has received customary compensation.
The terms of the fee arrangement with Broadview, which DII and Broadview
believe are customary in transactions of this nature, were negotiated at arm's
length between DII and Broadview, and the DII board was aware of the nature of
the fee arrangement, including the fact that a significant portion of the fees
payable to Broadview is contingent upon completion of the merger.
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<PAGE> 79
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
When considering the recommendations of Flextronics' and DII's boards of
directors, you should be aware that the directors and executive officers of
Flextronics and DII have interests in the merger and related arrangements that
are different from the interests of Flextronics shareholders and DII
stockholders generally. As a result, these directors and officers could be more
likely to vote to approve and to recommend the merger agreement and the merger
than if they did not hold these interests. These interests include:
- Michael E. Marks, the Chief Executive Officer and Chairman of the board
of directors of Flextronics, will be the Chief Executive Officer and
Chairman of the board of directors of the combined company after the
merger;
- Ronald R. Budacz, the Chief Executive Officer and Chairman of the board
of directors of DII, will become the Deputy Chairman of the board of
directors of the combined company after the merger;
- Chuen Fah Alain Ahkong, Patrick Foley, Hui Shing Leong, Michael J. Moritz
and Richard L. Sharp, who are currently directors of Flextronics, will be
directors of the combined company;
- several other executive officers of Flextronics and DII will become
executive officers of the combined company after the merger;
- each of Ronald R. Budacz, C. Y. Cheong, Micheal Corkery, Mark D. Herbst,
Dermott O'Flanagan, Carl A. Plichta, Steven C. Schlepp, Thomas J. Smach,
Ronald R. Snyder and Carl R. Vertuca, Jr., executive officers of DII, is
entitled to receive benefits under severance agreements with DII if the
executive's employment is terminated within eighteen months of the
merger, either by the company without cause or by the executive for good
reason. It is likely that the changes contemplated by the merger will
constitute good reason under the severance agreements of several
executive officers of DII, including Mr. Budacz. The executives are
subject to non-compete agreements for a period of one year following
termination, or five years in the case of Mr. Budacz and three years in
the case of Mr. Vertuca. The benefits under the severance agreements
include:
- aggregate cash payments of $21.0 million for Mr. Budacz and an aggregate
of approximately $22.0 million for all of DII's executive officers other
than Mr. Budacz,
- continuation of health benefits until age 65, and
- additional payments to the executive equal to any excise taxes payable
by the executive, with additional payments on an after tax basis equal
to the executive's tax liability resulting from these payments;
- forgiveness of indebtedness, together with additional payments for taxes,
of an aggregate of $1,165,528 for all executive officers of DII,
including $322,873 for Mr. Budacz, relating to loans made to DII's
executive officers in January 1996 and April 1997 to enable the
executives to satisfy their tax obligations in connection with the
vesting of their performance shares in 1996 and 1997;
- at the effective time of the merger, each outstanding option to purchase
DII common stock, including any stock option held by any executive
officer of DII, will be assumed by Flextronics and will become an option
to acquire common stock of the combined company after the merger, with
the number of shares subject to the option and the option exercise price
to be adjusted according to the 1.61 exchange ratio;
- executive officers of DII have options and performance shares, the
vesting of which will accelerate in connection with the merger; and
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<PAGE> 80
- Flextronic's and DII's directors and executive officers have customary
rights to indemnification against specified liabilities.
CLOSING AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to closing the
merger are satisfied or waived, including approval and adoption of the merger
agreement and approval of the merger by the DII stockholders and approval of the
proposal to issue Flextronics ordinary shares in the merger by the Flextronics
shareholders. The merger will become effective upon the filing of a certificate
of merger with the State of Delaware.
STRUCTURE OF THE MERGER
Slalom, a newly-formed and wholly owned subsidiary of Flextronics, will be
merged with and into DII. As a result of the merger, the separate corporate
existence of Slalom will cease and DII will survive the merger as a wholly owned
subsidiary of Flextronics.
CONVERSION OF DII COMMON STOCK
When the merger becomes effective, each outstanding share of DII common
stock, other than shares held by DII and its subsidiaries, will be converted
into the right to receive 1.61 fully paid and nonassessable Flextronics ordinary
shares with a par value of S$0.01 per share. The number of Flextronics ordinary
shares issuable in the merger will be proportionately adjusted for any stock
split, stock dividend or similar event with respect to DII common stock or
Flextronics ordinary shares effected between the date of the merger agreement
and the closing of the merger. Flextronics will not issue any fractional
Flextronics ordinary shares in connection with the merger. Instead, DII
stockholders will receive cash, without interest, for any fraction of a
Flextronics ordinary share. This cash amount will equal this fraction multiplied
by the last sale price of one Flextronics ordinary share on the last trading day
before the effective time of the merger, as reported on the Nasdaq Stock Market.
For example, if you own 50 shares of DII common stock, you will receive 80
Flextronics ordinary shares and cash for the additional 0.5 Flextronics ordinary
share.
EXCHANGE OF DII STOCK CERTIFICATES FOR SHARE CERTIFICATES IN THE COMBINED
COMPANY
When the merger is completed, Flextronics' exchange agent will mail to DII
stockholders a letter of transmittal and instructions for use in surrendering
DII stock certificates in exchange for Flextronics share certificates. The
Flextronics share certificates will evidence ownership in the combined company
after the merger. When you deliver your DII stock certificates to the exchange
agent along with an executed letter of transmittal and any other required
documents, your DII stock certificates will be canceled and you will receive
Flextronics share certificates representing the number of whole Flextronics
ordinary shares to which you are entitled under the merger agreement. You will
receive payment in cash, without interest, in lieu of any fractional Flextronics
ordinary shares which would have been otherwise issuable to you in the merger.
You should not submit your DII stock certificates for exchange unless and until
you receive the transmittal instructions and a form of letter of transmittal
from the exchange agent.
DII stockholders are not entitled to receive any dividends or other
distributions on Flextronics ordinary shares until the merger is completed and
they have surrendered their DII stock certificates in exchange for Flextronics
share certificates. Subject to the effect of applicable laws, promptly following
surrender of DII stock certificates and the issuance of the corresponding
Flextronics share certificates, DII stockholders will be paid the amount of
withheld dividends or other distributions, without interest. At the appropriate
payment date, DII stockholders will also receive the amount of dividends or
other distributions, without interest, which have a record date after the date
of the
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closing of the merger and a payment date after the date they exchange their DII
stock certificates for Flextronics share certificates.
Flextronics will issue DII stockholders a Flextronics share certificate or
a check instead of a fractional share in the name in which the surrendered DII
stock certificate is registered. If you wish to have your certificate issued in
another name, you must present the exchange agent with all documents required to
show and effect the unrecorded transfer of ownership and show that any
applicable stock transfer taxes have been paid.
ABSENCE OF APPRAISAL RIGHTS
Under Section 262 of the Delaware General Corporation Law, stockholders are
not entitled to appraisal rights if the stock subject to the merger transaction
and the consideration to be received in the merger consists of stock designated
as a national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. Because Nasdaq is designated as
such a system and Flextronics ordinary shares and DII common stock are quoted on
Nasdaq, DII stockholders are not entitled to appraisal rights with respect to
the merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER; OTHER
UNITED STATES TAX AND SINGAPORE ESTATE TAX MATTERS
The following general discussion summarizes the material United States
federal income tax consequences of the merger. The following also summarizes
other United States tax considerations and Singapore estate tax considerations
of owning Flextronics ordinary shares. This discussion is based on the Internal
Revenue Code, the related regulations promulgated under the Internal Revenue
Code, existing administrative interpretations and court decisions, all of which
are subject to change, possibly with retroactive effect. This discussion assumes
that you hold your shares of DII common stock as capital assets within the
meaning of Section 1221 of the Internal Revenue Code. This discussion does not
address all aspects of United States federal income taxation or Singapore or
foreign tax consequences that may be important to you in light of your
particular circumstances or your particular tax status, including the following:
- stockholders of DII who are not citizens or residents of the United
States, or who are foreign corporations, partnerships, estates or trusts;
- financial institutions;
- tax-exempt organizations;
- pension funds;
- insurance companies;
- dealers in securities;
- stockholders of DII who will own 5% or more of either the total voting
power or the total value of Flextronics ordinary shares after the merger,
taking into account ownership under applicable attribution rules, which
stockholders must enter into, and comply with the terms of, a gain
recognition agreement under Treasury Regulation Section 1.367(a)-8 in
order to be eligible for the tax treatment described in "Tax implications
to DII stockholders" described below;
- stockholders who acquired their shares of DII common stock through the
exercise of options or similar derivative securities or otherwise as
compensation; and
- stockholders who hold their shares of DII common stock as part of a
straddle or conversion transaction.
Our obligation to complete the merger is conditioned on the delivery of an
opinion to Flextronics from Arthur Andersen LLP and to DII from Curtis,
Mallet-Prevost, Colt & Mosle LLP that the merger will be treated as a
reorganization for federal income tax purposes. In giving their opinions,
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Arthur Andersen LLP and Curtis, Mallet-Prevost, Colt & Mosle LLP will rely upon
certain factual representations made by Flextronics and DII.
Arthur Andersen LLP has advised Flextronics and Curtis, Mallet-Prevost,
Colt & Mosle LLP has advised DII that, assuming the accuracy of the requested
factual representations, the merger will be treated as a reorganization for
federal income tax purposes with the consequences described below in "Tax
implications to DII stockholders" and "Tax implications to Flextronics and DII."
These opinions will not bind the IRS and will not preclude the IRS from adopting
a position contrary to that expressed in the opinions, and no assurance can be
given that contrary positions will not be successfully asserted by the IRS or
adopted by a court if the issues are litigated. Neither Flextronics nor DII
intends to obtain a ruling from the IRS with respect to the tax consequences of
the merger.
Tax implications to DII stockholders. Based on the conclusion that the
merger will be treated as a reorganization, the material United States federal
income tax consequences of the merger to the DII stockholders, other than those
special status stockholders described above, will be as follows:
- except as discussed below with respect to the receipt of cash for
fractional shares, current stockholders of DII will not recognize gain or
loss for United States federal income tax purposes on the exchange of DII
common stock solely for Flextronics ordinary shares in the merger;
- the aggregate tax basis of the Flextronics ordinary shares received as a
result of the merger will be the same as the aggregate tax basis in the
DII common stock surrendered in the merger, reduced by the tax basis, if
any, allocated to the fractional Flextronics ordinary share interests
deemed to be received and redeemed for cash;
- the holding period of the Flextronics ordinary shares, including any
fractional share interest deemed received, received as a result of the
exchange will include the period during which the DII common stock
exchanged in the merger was held; and
- the payment of cash in lieu of fractional share interests of Flextronics
ordinary shares will be treated for United States federal income tax
purposes as if each fractional share were distributed as part of the
merger and then redeemed by Flextronics. DII stockholders will recognize
gain or loss for United States federal income tax purposes with respect
to the cash they receive instead of a fractional share interest in
Flextronics ordinary shares, provided the deemed redemption is not
essentially equivalent to a dividend, as defined in Section 302 of the
Code. The gain or loss will be measured by the difference between the
amount of cash they receive and the portion of the tax basis of their
shares of DII common stock allocable to the shares of DII common stock
exchanged for the fractional share interest. This gain or loss will be
capital gain or loss and will be a long-term capital gain or loss if the
shares of DII common stock have been held for more than one year at the
time the merger is completed.
Tax implications to Flextronics and DII. Based on the conclusion that the
merger will be treated as a reorganization, Flextronics, including its merger
subsidiary, and DII will not recognize gain or loss for United States federal
income tax purposes as a result of the merger.
United States tax considerations of ownership of Flextronics ordinary
shares by United States citizens or residents. Distributions made to holders of
Flextronics ordinary shares will be treated as dividends and taxable as ordinary
income to the extent that the distributions are made out of Flextronics' current
or accumulated earnings and profits as determined under United States federal
income tax principles. Such income will be foreign source dividend income and
will not be eligible for the dividends-received deduction allowed to United
States corporations with respect to stock of other United States corporations.
Amounts taxable as dividends generally will be treated as foreign source
"passive" income, or in the case of certain holders, foreign source "financial
services" income, for foreign tax credit purposes. However, if 50% or more of
the voting power or value of Flextronics ordinary shares is owned, directly or
indirectly, by United States persons, dividends generally will be treated for
foreign tax credit
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purposes as United States source income to the extent attributable to United
States source earnings and profits. Furthermore, dividends from Flextronics will
be treated as U.S. source income (in proportion to its earnings derived from the
conduct of a U.S. business) if 25% or more of Flextronics' gross income during a
three-year testing period is derived in connection with the conduct of a U.S.
trade or business. Flextronics to date has not declared any cash dividends and
has no current plans to do so in the foreseeable future. See "Description of
Capital Shares of Flextronics -- Dividends" on page 111.
Gain or loss realized by a holder of Flextronics ordinary shares will be
subject to United States federal income taxation as capital gain or loss in an
amount equal to the difference between the holder's tax basis in the stock and
the amount realized on the disposition. Gain or loss will be long term capital
gain or loss if the holding period relating to the Flextronics ordinary shares
is more than one year. Any gain or loss so realized will generally be United
States source.
Holders may be subject to information reporting with respect to payments of
dividends on and the proceeds of the disposition of Flextronics ordinary shares.
Holders who are subject to information reporting and do not provide appropriate
information when requested may be subject to backup withholding at a 31% rate.
The amount of any backup withholding from a payment to a holder will be
allowable as a refund or credit against the holder's United States federal
income tax liability, provided that the required information or appropriate
claim for refund is furnished to the Internal Revenue Service.
Singapore estate tax implications. In the case of an individual who is not
domiciled in Singapore, a Singapore estate tax is imposed on the value of all
movable and immovable properties situated in Singapore. Our ordinary shares are
considered to be situated in Singapore. Thus, an individual shareholder who is
not domiciled in Singapore at the time of his or her death will be subject to
Singapore estate tax on the value of any such shares held by the individual upon
the individual's death. Such a shareholder will be required to pay Singapore
estate tax to the extent that the value of the shares (or in aggregate with any
other assets subject to Singapore estate tax) exceeds S$600,000. Any excess will
be taxed at a rate equal to 5% on the first S$12,000,000 of the individual's
Singapore chargeable assets and thereafter at a rate equal to 10%. An individual
shareholder who is a U.S. citizen or resident (for U.S. estate tax purposes)
also will have the value of the shares included in the individual's gross estate
for U.S. estate tax purposes. An individual shareholder generally will be
entitled to a tax credit against the shareholder's U.S. estate tax to the extent
the individual shareholder actually pays Singapore estate tax on the value of
the shares; however, the tax credit is generally limited to the percentage of
the U.S. estate tax attributable to the inclusion of the value of the shares
included in the shareholder's gross estate for U.S. estate tax purposes,
adjusted further by a pro rata apportionment of available exemptions.
The foregoing discussion is intended only to provide you with a general
summary, and it is not intended to be a complete analysis or description of all
potential United States federal income tax or Singapore estate tax consequences
or any other consequences of the merger. In addition, this discussion does not
address tax consequences which may vary with, or are contingent on, your
individual circumstances. Moreover, this discussion does not address any
non-income tax or any foreign (other than Singapore), state or local tax
consequences of the merger. Accordingly, you are strongly urged to consult with
your tax advisor to determine the particular United States federal, state, local
or foreign income or other tax consequences to you of the merger.
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger as a pooling of interests for financial
reporting and accounting purposes in accordance with generally accepted
accounting principles. After the merger, the results of operations of DII will
be included in the consolidated financial statements of Flextronics on a
retroactive basis for all periods presented.
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REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act, which prevents some transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and the appropriate waiting period is terminated or expires. We have filed the
required information and materials with the Department of Justice and the
Federal Trade Commission and the applicable waiting period has expired. The
requirements of the Hart-Scott-Rodino Antitrust Improvements Act will be
satisfied if the merger is completed within one year from the termination of the
waiting period.
The merger is subject to similar filing requirements in various countries
in which Flextronics and DII operate. In Germany, the Act Against Restraints on
Competition requires that we furnish information and materials to the German
Federal Cartel Office and that the appropriate waiting period expires prior to
the completion of the merger. Under the Brazilian Law 8884 of June 11, 1994, we
must submit information and materials for review to the Economic Protection
Administration Counsel prior to completion or within fifteen days following some
acts relating to the merger. Similarly, the Federal Law on Economic Competition
in Mexico requires that we furnish information and materials to the Federal
Competition Commission and that the applicable waiting period expires prior to
the completion of the merger. Finally, under the Mergers and Takeovers (Control)
Acts, we must submit information and materials to the Irish Minister for
Enterprise, Trade and Employment and observe the appropriate waiting period
prior to completion of the merger. We have filed or we plan to file the required
information and materials with each of these authorities. It is possible that we
will not have received all necessary approvals or the required waiting period
may not have expired with respect to these filings. As a result, the completion
of the merger could be delayed past April 3, 2000.
At any time before or after the closing of the merger, the Antitrust
Division of the Department of Justice or the Federal Trade Commission could
challenge the merger and take action under the antitrust laws. Other persons, as
well as any state, could take action under antitrust laws, including seeking to
enjoin the merger, at any time before or after the completion of the merger,
notwithstanding the termination of the applicable waiting period. Additionally,
a foreign regulatory agency or government, including but not limited to those in
which a filing has been made, could challenge or refuse to grant approval to the
merger under its applicable antitrust or competition laws. A challenge to the
merger could be made and if a challenge is made we may not prevail.
Neither of us is aware of any other material governmental or regulatory
approval required for closing the merger, other than compliance with the
applicable corporate laws of Delaware.
RESTRICTIONS ON SALES OF FLEXTRONICS ORDINARY SHARES BY AFFILIATES OF DII AND
FLEXTRONICS
The Flextronics ordinary shares to be issued in the merger will be
registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except for Flextronics ordinary shares issued to any
person who is an affiliate of either of us. Persons who may be deemed to be
affiliates include individuals or entities that control, are controlled by, or
are under common control of, either of us and may include some of our officers
and directors, as well as our principal shareholders. Affiliates may not sell
their Flextronics ordinary shares acquired in the merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act.
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Affiliates of Flextronics have agreed not to sell any Flextronics ordinary
shares and affiliates of DII have agreed not to sell any shares of DII common
stock or any Flextronics ordinary shares acquired in connection with the merger
until the day that the combined company publicly announces financial results
covering at least thirty days of combined operations after the merger.
LISTING ON THE NASDAQ NATIONAL MARKET OF FLEXTRONICS ORDINARY SHARES TO BE
ISSUED IN THE MERGER
It is a condition to the closing of the merger that the Flextronics
ordinary shares to be issued in the merger must be approved for quotation on the
Nasdaq National Market, subject to official notice of issuance. The ordinary
shares of the combined company will trade on the Nasdaq National Market under
the symbol "FLEX."
DELISTING AND DEREGISTRATION OF DII COMMON STOCK AFTER THE MERGER
If the merger is completed, DII common stock will be delisted from the
Nasdaq National Market and will be deregistered under the Exchange Act.
DII STOCKHOLDER RIGHTS AFTER THE MERGER
The stockholders of DII will become shareholders of the combined company,
and their rights as shareholders will be governed by Flextronics' memorandum and
articles of association and the laws of Singapore. See "Comparison of Rights of
Holders of Flextronics Ordinary Shares and Holders of DII Common Stock" on page
114.
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TERMS OF THE MERGER AGREEMENT
The following discussion summarizes the material provisions of the merger
agreement. The following is not, however, a complete statement of all the
provisions of the merger agreement. For a complete presentation of this
information, you are urged to read the more detailed terms and conditions
contained in the merger agreement, a copy of which is attached to this document
as Annex A and is incorporated into this document by reference.
REPRESENTATIONS AND WARRANTIES
We each have made substantially similar representations and warranties in
the merger agreement regarding aspects of our respective businesses, financial
condition, structure and other facts pertinent to the merger, including
representations and warranties by each company as to:
- its corporate organization, good standing and qualification to do
business;
- its subsidiaries and ownership interests in other entities;
- delivery of current copies of its charter, bylaws and minute books;
- authority to enter into the merger agreement;
- required consents and approvals;
- regulatory approvals required to complete the merger;
- its capitalization;
- the effect of the merger on its outstanding obligations;
- its filings and reports with the Securities and Exchange Commission;
- its audited and interim financial statements;
- regarding Flextronics, changes in its financial condition and business
since March 31, 1999, and regarding DII, changes in its financial
condition and business since January 3, 1999;
- its filing of required tax returns, payments of its taxes and the status
of any audits;
- title to the properties it owns and validity of its leases;
- the condition of its property, plant and equipment;
- its intellectual property and the non-infringement of the intellectual
property of others;
- its Year 2000 compliance;
- its compliance with applicable laws;
- existing or threatened lawsuits to which it is a party;
- its employee benefit plans;
- its compliance with environmental laws, its hazardous materials
activities and its environmental liabilities;
- its insurance;
- its customers, suppliers, warranties and product returns;
- its inventory;
- information supplied by it in this document and the related registration
statement filed by Flextronics;
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- approval by its board;
- brokers' and finders' fees that it owes in connection with the merger;
- identification of its affiliates; and
- the absence of actions that would preclude Flextronics from accounting
for the merger as a pooling of interests.
DII also made representations and warranties to Flextronics regarding the
following:
- its authority to enter into the stock option agreement;
- its compliance with employment laws;
- its labor relations;
- the compliance of its employees with respect to trade secrets agreements;
- its agreements, contracts and commitments;
- payments required to be made by it to officers and directors as a result
of the merger;
- transactions with officers and directors;
- the fairness opinions received from its financial advisors;
- its accounts receivable; and
- the absence of existing discussions with respect to other acquisition
proposals.
The representations and warranties in the merger agreement are complicated
and are not easily summarized. We urge you to read carefully the articles of the
merger agreement entitled "Representations and Warranties of the Company" and
"Representations and Warranties of Parent and Merger Sub."
CONDUCT OF BUSINESS BEFORE THE CLOSING OF THE MERGER
Flextronics and DII each have agreed that until the closing of the merger,
each party and its subsidiaries will carry on its business in the usual and
ordinary course and will use its commercially reasonable efforts consistent with
past practices and policies to:
- preserve intact its present business organization;
- keep available the services of its present officers and key employees;
and
- preserve its relationships with customers, suppliers, licensors,
licensees and others with which it has business dealings.
We each also agreed that until the closing of the merger or unless the
other company consents in writing, each of us and our subsidiaries will conduct
our business in compliance with specific restrictions relating to the following:
- waiving restrictions on, accelerating or modifying the terms of or
payment for options granted under its plans;
- granting any severance or termination pay to any officer or employee or
adopting any new severance plan;
- issuing dividends or making other distributions;
- issuing or acquiring its securities;
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- modifying its charter and bylaws;
- agreeing to merge with or acquire the assets of other entities;
- revaluing assets or changing accounting practices;
- taking actions that would prevent Flextronics from accounting for the
merger as a pooling of interests; and
- taking actions that would make any of its representations and warranties
in the merger agreement untrue or incorrect or prevent it from performing
its covenants under the merger agreement.
DII also agreed that until the closing of the merger or unless Flextronics
consents in writing, it will conduct its business in compliance with specific
restrictions relating to the following:
- transferring or licensing its intellectual property;
- disposing of its assets;
- incurring indebtedness;
- entering into collective bargaining agreements;
- paying any special bonus, increasing salaries or benefits, granting
additional severance or termination pay, entering into severance or
employment agreements or establishing or amending any employee benefit
plans other than in the ordinary course of business;
- making payments outside the ordinary course of business in excess of
$5,000,000 in the aggregate;
- entering into, modifying or terminating material contracts;
- granting any exclusive marketing or other rights with respect to any of
its technology or products;
- initiating or settling material litigation or arbitration proceedings;
and
- amending its shareholder rights plan.
The agreements related to the conduct of our businesses in the merger
agreement are complicated and not easily summarized. We urge you to read
carefully the article of the merger agreement entitled "Conduct Prior to the
Effective Time."
NO OTHER NEGOTIATIONS
Until the merger is completed or the merger agreement is terminated, DII
has agreed not to take any of the following actions directly or indirectly:
- solicit, initiate, encourage or induce any acquisition proposal, as
defined below;
- propose, enter into or participate in any discussions or negotiations
regarding any acquisition proposal;
- furnish any non-public information to any person with respect to any
acquisition proposal;
- take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to any
acquisition proposal;
- engage in discussions with any person with respect to any acquisition
proposal;
- approve, endorse or recommend any acquisition proposal; or
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- enter into any letter of intent or similar document or any contract,
agreement or commitment relating to any acquisition transaction.
However, if DII receives an unsolicited, written, bona fide acquisition
proposal prior to its stockholders' meeting that its board reasonably concludes
may constitute a superior offer, as defined below, it may furnish non-public
information regarding it and may enter into discussions with the person or group
who has made the acquisition proposal if:
- DII has not violated any of the non-solicitation and other provisions set
forth in the prior paragraph;
- DII's board of directors concludes in good faith that this action is
required for the board of directors to meet its fiduciary obligations to
DII's stockholders under applicable law;
- prior to furnishing non-public information to, or entering into any
discussions with, a party making the acquisition proposal, DII gives
Flextronics written notice of the acquisition proposal, including the
identity of the party making the acquisition proposal and the material
terms of the acquisition proposal, and DII has received an executed
confidentiality agreement from the party making the acquisition proposal
that is at least as restrictive as the one between Flextronics and DII;
- DII gives Flextronics at least three business days' advance notice of its
intent to furnish non-public information to or enter into discussions
with the party making the acquisition proposal; and
- DII discloses the non-public information to Flextronics at the same time
that it furnishes this information to the party making the acquisition
proposal.
DII is obligated to inform Flextronics promptly as to any acquisition
proposal, any request for non-public information which DII reasonably believes
would lead to an acquisition proposal or any inquiry which DII reasonably
believes would lead to an acquisition proposal, the identity of the party making
the acquisition proposal, request or inquiry, and the material terms of the
acquisition proposal, request or inquiry. DII has also agreed to keep
Flextronics informed as to the status of the acquisition proposal, request or
inquiry.
An acquisition proposal is any inquiry, offer or proposal relating to any
acquisition transaction, other than an offer or proposal from Flextronics.
An acquisition transaction is any transaction involving any of the
following:
- the acquisition or purchase from DII of more than a 15% interest in the
total outstanding voting securities of DII or any of its subsidiaries;
- any tender offer or exchange offer that, if completed, would result in
any person or group beneficially owning 15% or more of the total
outstanding voting securities of DII or any of its subsidiaries;
- any merger, consolidation, business combination or similar transaction
involving DII that, if completed, would result in the stockholders of DII
prior to the transaction owning less than 85% of the equity interests in
the surviving entity after the transaction;
- any sale, lease, exchange, transfer, license, acquisition or disposition
of more than 15% of the assets of DII; or
- any liquidation or dissolution of DII.
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A superior offer is a bona fide written offer made by a third party to
complete any of the following transactions:
- a merger or consolidation involving DII pursuant to which the
stockholders of DII immediately before the transaction hold less than 50%
of the equity interests in the surviving entity of the transaction; or
- the acquisition by any person or group, directly or indirectly, of
ownership of 100% of the then outstanding shares of capital stock of DII,
including by way of a tender offer or an exchange offer or a two-step
transaction involving a tender offer followed with reasonable promptness
by a cash-out merger involving DII,
on terms that the board of directors of DII determines, in its reasonable good
faith judgment, based on the written advice of its financial advisor, to be more
favorable to DII stockholders than the terms of the merger. However, an offer is
not a superior offer if any financing required to complete the transaction
contemplated by the offer is not committed, or if the offer is subject to any
material contingency as to the availability of financing unless in the
reasonable judgment of DII's board it is unlikely that the contingency will not
be satisfied.
RIGHT OF THE DII BOARD TO WITHDRAW ITS RECOMMENDATION
Under the merger agreement, the DII board may withdraw or change its
recommendation in favor of the merger only if the following conditions are
satisfied:
- a superior offer is made to DII and is not withdrawn;
- DII provides written notice to Flextronics of the superior offer,
specifying the material terms and conditions of the superior offer and
the identity of the party making the superior offer;
- Flextronics does not, within five business days after receiving this
written notice, make an offer that the DII board determines in its good
faith judgment, based on the written advice of its financial advisor, to
be at least as favorable to DII stockholders as the superior offer;
- DII's board concludes in good faith, after consultation with its outside
counsel, that the withdrawal or change of its recommendation is required
for the board to comply with its fiduciary obligations to DII
stockholders under applicable law; and
- DII has not violated the non-solicitation and other provisions in the
merger agreement.
However, even if the DII board withdraws or changes its recommendation, DII
is obligated to hold a stockholders' meeting to vote on the merger proposal.
PUBLIC DISCLOSURE
Each of us will consult with the other and, to the extent practicable,
agree before issuing any press release or making any public statement with
respect to the merger, the merger agreement, or any acquisition proposal.
DII'S EMPLOYEE BENEFIT PLANS
Individuals who are employed by DII when the merger is completed will
become employees of the combined company, although the combined company may
terminate the employment of these employees at any time. Flextronics and DII
will work together to agree upon mutually acceptable employee benefit and
compensation arrangements so as to provide for a period of at least one year
benefits to DII employees no less favorable in the aggregate than those provided
to similarly situated employees of Flextronics or that are generally equivalent
to the benefits provided under the DII employee plans in existence immediately
prior to the effective time of the merger. Flextronics will
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grant credit to each DII employee for all service with DII prior to the merger
as if the service had been with Flextronics for eligibility and vesting purposes
for all employee benefit plans, policies, programs and arrangements of
Flextronics and for purposes of satisfying any pre-existing condition, exclusion
or actively-at-work requirement.
TREATMENT OF DII STOCK OPTIONS, PERFORMANCE SHARES AND PURCHASE RIGHTS
Upon closing the merger, each outstanding option to purchase DII common
stock will be assumed by Flextronics and converted, in accordance with its
terms, into an option to purchase the number of Flextronics ordinary shares
equal to 1.61 multiplied by the number of shares of DII common stock which could
have been obtained before the merger upon the exercise of each option, rounded
down to the nearest whole share. The exercise price will be equal to the
exercise price per share of DII common stock subject to the option before
conversion divided by 1.61, rounded up to the nearest whole cent. In general,
the other terms of each option will continue to apply in accordance with its
terms, including any provisions providing for acceleration of vesting, except
that terms and conditions may be altered to comply with Singapore legal
requirements. Each performance share that vests at the effective time of the
merger will be converted into the right to receive 1.61 Flextronics ordinary
shares.
Upon the closing of the merger, each outstanding purchase right with
respect to DII's employee stock purchase plan will be assumed by Flextronics and
converted into the right to purchase Flextronics ordinary shares. The purchase
price will be equal to the lesser of:
- 85% of the fair market value of DII's common stock on the offering date,
as defined in the DII employee stock purchase plan, divided by the
exchange ratio of 1.61; and
- 85% of the last sale price of Flextronics ordinary shares on the last day
of the offering that was open at the effective time of the merger,
rounded up to the nearest whole cent.
Flextronics will file a registration statement on Form S-8 for the
Flextronics ordinary shares issuable with respect to assumed options and assumed
purchase rights by Flextronics and will maintain the effectiveness of that
registration statement for as long as any of the options or purchase rights
remain outstanding.
CONDITIONS TO CLOSING THE MERGER
Our respective obligations to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following conditions before closing the
merger:
- the merger agreement must be approved and adopted and the merger must be
approved by the holders of a majority of the outstanding shares of DII
stock;
- the proposal to issue shares of Flextronics ordinary shares in the merger
must be approved by the requisite majority of the shareholders of
Flextronics under applicable Nasdaq rules, Singapore law and its articles
of association;
- no governmental entity shall have enacted or issued any law, regulation
or order which has the effect of making the merger illegal, otherwise
prohibiting the closing of the merger or restricting Flextronics' conduct
or operation of the business of DII after the merger in a manner that
could reasonably be expected to have a material adverse effect on the
combined company after the merger;
- all applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the European Community Merger Regulation
must have expired or been terminated and all material foreign antitrust
approvals must have been obtained;
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- Flextronics and DII must each receive from their respective tax advisors
an opinion to the effect that the merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; and
- the Flextronics ordinary shares to be issued in the merger must be
authorized for quotation on the Nasdaq National Market, subject to notice
of issuance.
DII's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before closing the merger:
- Flextronics' and Slalom's representations and warranties must be true and
correct in all material respects:
- as of November 22, 1999, and
- on the date the merger is to be completed, except for breaches,
inaccuracies and omissions of representations and warranties which have
neither had nor reasonably would be expected to have a material adverse
effect on Flextronics;
- Flextronics and Slalom must have performed or complied in all material
respects with all of their agreements and covenants required by the
merger agreement to be performed or complied with by them at or before
closing the merger;
- no material adverse effect with respect to Flextronics, taken as a whole
with its subsidiaries, shall have occurred since November 22, 1999 and be
continuing; and
- DII must have received a letter from Deloitte & Touche LLP to the effect
that no conditions exist relating to DII that preclude Flextronics from
accounting for the merger as a pooling of interests, and Flextronics must
have received a letter from Arthur Andersen LLP to the effect that
Flextronics may account for the merger as a pooling of interests.
Flextronics' obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before closing the merger:
- DII's representations and warranties must be true and correct in all
material respects:
- as of November 22, 1999, and
- on the date the merger is to be completed, except for breaches,
inaccuracies and omissions of the representations and warranties that:
(1) relate to the absence of changes in DII's financial condition,
properties, assets, liabilities, business, results of operation or
prospects, which must be true and correct in all material respects as of
January 31, 2000, (2) have neither had nor reasonably would be expected
to have a material adverse effect on DII, or (3) which directly result
from actions taken with the prior consent, or at the direction, of
Flextronics;
- DII must have performed or complied in all material respects with all of
the agreements and covenants required by the merger agreement to be
performed or complied with by DII at or before closing the merger;
- no material adverse effect with respect to DII, taken as a whole with its
subsidiaries, shall have occurred since November 22, 1999 and prior to
January 31, 2000; and
- DII must have received a letter from Deloitte & Touche LLP to the effect
that no conditions exist relating to DII that preclude Flextronics from
accounting for the merger as a pooling of
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interests, and Flextronics must have received a letter from Arthur
Andersen LLP to the effect that Flextronics may account for the merger as
a pooling of interests.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to closing the
merger, whether before or after approval and adoption of the merger agreement
and the merger by DII stockholders or approval of the proposal to issue
Flextronics ordinary shares in the merger by Flextronics shareholders, as noted
below:
- by mutual consent of Flextronics and DII;
- by either of us, if the merger is not completed by May 22, 2000 or, if
extended by written notice because a specified condition has not been
satisfied, August 22, 2000, except that the right to terminate the merger
agreement under this provision is not available to any party whose action
or failure to act has been a principal cause of or resulted in the
failure of the merger to occur on or by May 22, 2000 or August 22, 2000,
as applicable, and this action or failure to act constitutes a breach of
the merger agreement;
- by either of us, if there is any order of a governmental authority
permanently enjoining, restraining or prohibiting the merger which is
final and nonappealable;
- by either of us, if the merger and merger agreement fail to receive the
affirmative vote of the holders of at least a majority of the shares of
DII common stock outstanding as of the record date, except that the right
to terminate the merger agreement under this provision is not available
to DII where the failure to obtain DII stockholder approval was caused by
an action or failure to act by DII which constitutes a material breach of
the merger agreement, or a breach of any voting agreement by any DII
director or executive officer;
- by either of us, if the proposal to issue Flextronics ordinary shares in
the merger fails to receive the affirmative vote of the holders of at
least a majority of the Flextronics ordinary shares present and voting in
person or by proxy, attorney or representative at the extraordinary
general meeting, except that the right to terminate the merger agreement
under this provision is not available to Flextronics if the failure to
obtain Flextronics shareholder approval was caused by an action or
failure to act by Flextronics which constitutes a material breach of the
merger agreement, or a breach of any voting agreement by any Flextronics
director or executive officer;
- by Flextronics, at any time prior to the adoption and approval of the
merger agreement and the merger by the required vote of DII stockholders,
if a trigger event, as described below, occurs; and
- by either of us, upon a breach of any representation, warranty, covenant
or agreement on the part of the other company in the merger agreement, or
if any of the other company's representations or warranties are or become
untrue, as a result of which the corresponding condition to closing the
merger would not be met. However, if the breach or inaccuracy is curable
by the other company through the exercise of its reasonable efforts, then
one company may not terminate the merger agreement until a period of
thirty days after delivery of written notice of the breach or inaccuracy
as long as the other company continues to exercise reasonable efforts to
cure its breach.
A trigger event has occurred if:
- DII's board of directors withdraws or amends or modifies in a manner
adverse to Flextronics its unanimous recommendation in favor of the
approval of the merger proposal to be voted on by DII stockholders;
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- DII's board of directors fails to reaffirm its unanimous recommendation
in favor of approval of the merger proposal to be voted on by DII
stockholders within ten days after Flextronics requests in writing that
this recommendation be reaffirmed at any time after the public
announcement of an acquisition proposal;
- DII's board of directors approves or publicly recommends any acquisition
proposal, or DII enters into a letter of intent or agreement accepting an
acquisition proposal;
- a tender or exchange offer relating to the securities of DII is commenced
by a person or entity unaffiliated with Flextronics, and DII does not
send to its security holders within ten business days after the tender or
exchange offer is first commenced a statement disclosing that DII
recommends rejection of the tender or exchange offer; or
- DII fails to hold the stockholders' meeting called for by this document
by May 22, 2000.
TERMINATION FEE
DII may be obligated to pay Flextronics a termination fee equal to 3% of
the equity value, as defined below, of DII if the merger agreement is terminated
under the circumstances outlined below:
- Flextronics terminates the merger agreement at any time prior to approval
of the merger proposal by DII stockholders because a trigger event has
occurred; or
- either of us terminates the merger agreement because the required
approval of the merger proposal by DII stockholders was not obtained or
the merger was not completed by May 22, 2000, provided that DII will be
required to pay the termination fee only if:
- before the merger agreement is terminated, a third party publicly
announces an acquisition proposal,
- the failure to complete the merger by May 22, 2000 is principally due to
action or failure to act by DII which constitutes a breach of the merger
agreement, and
- within twelve months after the merger agreement is terminated, an
acquisition, as defined below, is completed or DII enters into an
agreement providing for an acquisition.
Equity value means:
- the sum of all shares of DII common stock outstanding on the date of
termination and all shares of DII common stock issuable upon the exercise
of options that are outstanding on the date of termination, multiplied by
- the average closing price of DII common stock on the Nasdaq National
Market over the five trading days prior to the termination date.
An acquisition is any of the following:
- a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving DII pursuant to
which DII stockholders immediately before the transaction hold less than
50% of the aggregate equity interests in the surviving entity of the
transaction;
- a sale or other disposition by DII of assets representing more than 50%
of the aggregate fair market value of DII's business immediately prior to
the sale; or
- the acquisition by any person or group, including by way of a tender
offer, an exchange offer or issuance by DII, directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing more than 50% of the voting power of the outstanding shares
of capital stock of DII.
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AMENDMENT, EXTENSION AND WAIVER OF THE MERGER AGREEMENT
We may amend the merger agreement before closing the merger by execution of
a written instrument signed by each of us, provided that we comply with
applicable state law in amending the agreement. Either of us may:
- extend the other's time for the performance of any of the obligations or
other acts under the merger agreement;
- waive any inaccuracies in the other's representations and warranties; and
- waive compliance by the other with any of the agreements or conditions
contained in the merger agreement.
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RELATED AGREEMENTS
The following discussion summarizes the material provisions of the stock
option agreement and the voting agreements. The following is not, however, a
complete statement of all the provisions of these agreements. Detailed terms and
conditions are contained in the stock option agreement, the Flextronics voting
agreement and the DII voting agreement, copies of which are attached to this
document as Annexes B, C and D. For a complete presentation of this information,
you are urged to read the more detailed information set forth in the annexes.
THE STOCK OPTION AGREEMENT
Under the stock option agreement, DII granted Flextronics for no
consideration an option to buy up to a number of shares of DII common stock
equal to 19.9% of the outstanding shares of DII common stock as of the date of
exercise of the option at an exercise price of $65.406 per share. Based on the
number of shares of DII common stock outstanding on February 11, 2000, the
option would be exercisable for approximately 7,319,402 shares of DII common
stock.
Flextronics required DII to grant the stock option as a prerequisite to
entering into the merger agreement. The stock option agreement is attached to
this document as Annex B. We urge you to read the stock option agreement in its
entirety.
The stock option agreement is intended to increase the likelihood that the
merger will be completed. Aspects of the stock option agreement may have the
effect of discouraging persons who might now or at any time be interested in
acquiring all or a significant interest in DII before the closing of the merger.
The number of shares issuable upon exercise of the option and the exercise price
of the option are subject to adjustment under specified circumstances to prevent
dilution.
The stock option agreement is not currently exercisable. Flextronics may
exercise the option in whole or in part and from time to time only if one or
more of the following occurs:
- DII's board of directors withdraws or amends or modifies in a manner
adverse to Flextronics its unanimous recommendation in favor of the
approval of the merger proposal to be voted on by DII stockholders;
- DII's board of directors fails to reaffirm its unanimous recommendation
in favor of the approval of the merger agreement and approval of the
merger within ten business days of a written request from Flextronics
following the public announcement of any offer or proposal relating to
any transaction or series of related transactions involving:
- any acquisition or purchase from DII by any person or group of more than
a 15% interest in the total outstanding voting securities of DII or any
of its subsidiaries,
- any tender offer or exchange offer that would result in any person or
group beneficially owning 15% or more of the total outstanding voting
securities of DII or any of its subsidiaries,
- any merger, consolidation, business combination or similar transaction
involving DII pursuant to which DII stockholders immediately preceding
the transaction would hold less than 85% of the equity interests in the
surviving entity,
- any sale, lease, exchange, transfer, license, acquisition or disposition
of more than 15% of the assets of DII, or
- any liquidation or dissolution of DII;
- DII's board of directors approves or publicly recommends any offer or
proposal relating to any transaction or series of related transactions of
the type described above;
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- DII enters into any agreement or commitment accepting any offer or
proposal relating to any transaction or series of related transactions of
the type described above;
- any party unaffiliated with Flextronics commences a tender or exchange
offer relating to DII's securities and DII does not send a notice to its
stockholders in accordance with Rule 14e-2 under the Securities Exchange
Act within ten business days after the tender or exchange offer is
published stating that it recommends rejection of the tender or exchange
offer;
- any person or group, other than Flextronics, acquires beneficial
ownership of 25% of more of the total outstanding voting securities of
DII or any of its subsidiaries; or
- any person or entity, other than Flextronics, commences a proxy
solicitation to alter the composition of DII's board.
In addition, the option becomes exercisable by Flextronics if there is a
public announcement, prior to the date the merger agreement is terminated, of
any offer or proposal other than by Flextronics relating to any transaction or
series of related transactions involving:
- any purchase from DII or acquisition by any person or group of more than
a 10% interest in the total outstanding voting securities of DII or any
of its subsidiaries;
- any tender offer or exchange offer that would result in any person or
group beneficially owning 10% or more of the total outstanding voting
securities of DII or any of its subsidiaries;
- any merger, consolidation, business combination or similar transaction
involving DII;
- any sale, lease, exchange, transfer, license, acquisition or disposition
of more than 10% of the assets of DII, other than sales of inventory in
the ordinary course of business; or
- any liquidation or dissolution of DII,
and the occurrence of one or more of the following on or after the date of the
above announcement:
- the required vote of DII stockholders in favor of adoption and approval
of the merger agreement and approval of the merger is not obtained at the
DII stockholders' meeting,
- a tender offer or exchange offer for 15% or more of the outstanding
shares of DII common stock is commenced other than by Flextronics or an
affiliate of Flextronics,
- DII fails to call and hold the DII stockholders' meeting by May 22, 2000,
or
- DII fails to hold the DII stockholders' meeting within 45 days after the
declaration of effectiveness of the registration statement.
The option will terminate upon the earliest of any of the following:
- the closing of the merger;
- fourteen months after the termination of the merger agreement because of
a time delay, a failure to obtain the required vote of DII stockholders,
the occurrence of a trigger event or an uncurable breach of any
representation, warranty, covenant or agreement by DII;
- the termination of the merger agreement upon mutual consent, a government
entity issues an order prohibiting the merger or the failure to obtain
the required vote of Flextronics shareholders;
- the termination of the merger agreement in other circumstances; or
- fourteen months after the option first becomes exercisable.
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If Flextronics receives net proceeds from the sale of the option or option
shares which, combined with any termination fee payable under the merger
agreement, exceed 3.5% of the equity value of DII, Flextronics is obligated to
pay the excess to DII.
The stock option agreement grants registration rights to Flextronics with
respect to the shares of DII common stock represented by the stock option
agreement. Under the stock option agreement, DII agrees to indemnify Flextronics
against specified liabilities and expenses, including liabilities under the
Securities Act.
THE VOTING AGREEMENTS
Flextronics directors Chuen Fah Alain Ahkong, Patrick Foley, Michael E.
Marks, Michael J. Moritz, Richard L. Sharp and Tsui Sung Lam, and Flextronics
executive officers Robert R. B. Dykes, Michael McNamara and Humphrey Porter,
entered into voting agreements with DII. The voting agreements require these
Flextronics directors and executive officers to vote all the Flextronics
ordinary shares they own in favor of the merger-related proposal. These
Flextronics directors and executive officers together held approximately 4.4% of
the outstanding Flextronics ordinary shares as of the record date.
DII directors Ronald R. Budacz, Constantine S. Macricostas and Alexander W.
Young and DII executive officers Dermott O'Flanagan, Carl A. Plichta, Steven C.
Schlepp, Thomas J. Smach, Ronald R. Snyder and Carl R. Vertuca, Jr. entered into
voting agreements with Flextronics. The voting agreements require these DII
directors and executive officers to vote all the shares of DII common stock that
they own in favor of the merger proposal. These DII directors and executive
officers together held approximately 2.2% of the outstanding DII common stock as
of the record date.
Under the voting agreements, these persons agreed:
- in the case of DII stockholders, to vote all shares of DII common stock
that they beneficially own in favor of the merger, the execution and
delivery by DII of the merger agreement and all actions in furtherance of
the merger; and
- in the case of Flextronics shareholders, to vote all Flextronics ordinary
shares that they beneficially own in favor of the merger, the execution
and delivery by Flextronics of the merger agreement and all actions in
furtherance of the merger.
Concurrently with the execution of the voting agreement, each person also
delivered an irrevocable proxy to the other company and some of its officers
granting them the right to vote the shares covered by the voting agreement in
favor of the matters referenced above.
None of the persons who entered into a voting agreement were paid
additional consideration in connection with the voting agreements. The voting
agreements will terminate upon the earlier to occur of the effective time of the
merger or the valid termination of the merger agreement under the merger
agreement.
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MARKET PRICE AND DIVIDEND DATA
Flextronics ordinary shares and DII common stock are traded on the Nasdaq
National Market under the symbols "FLEX" and "DIIG," respectively. The following
tables set forth, for the periods indicated, the range of high and low per share
sales prices for Flextronics ordinary shares and DII common stock as reported on
Nasdaq.
<TABLE>
<CAPTION>
FLEXTRONICS
ORDINARY SHARES*
----------------
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1998
First quarter............................................. $ 6.75 $ 4.38
Second quarter............................................ 11.91 6.59
Third quarter............................................. 12.03 8.13
Fourth quarter............................................ 11.97 7.44
FISCAL YEAR 1999
First quarter............................................. 12.78 9.09
Second quarter............................................ 11.75 5.66
Third quarter............................................. 21.41 7.28
Fourth quarter............................................ 25.50 16.56
FISCAL YEAR 2000
First quarter............................................. 29.13 21.13
Second quarter............................................ 33.81 22.06
Third quarter............................................. 46.19 29.00
Fourth quarter (through February 25, 2000)................ 66.63 40.38
</TABLE>
- -------------------------
* All Flextronics share prices have been adjusted to give effect to two-for-one
stock splits by means of bonus issues, the Singapore equivalent of a stock
dividend, paid on January 11, 1999 and December 22, 1999.
<TABLE>
<CAPTION>
DII
COMMON STOCK*
-----------------
HIGH LOW
------- ------
<S> <C> <C>
FISCAL YEAR 1998
First quarter............................................. $ 29.63 $20.25
Second quarter............................................ 23.63 14.56
Third quarter............................................. 18.38 12.75
Fourth quarter............................................ 22.88 10.06
FISCAL YEAR 1999
First quarter............................................. 29.75 22.00
Second quarter............................................ 37.31 25.50
Third quarter............................................. 44.56 33.63
Fourth quarter............................................ 71.31 35.00
FISCAL YEAR 2000
First quarter (through February 25, 2000)................. 106.00 62.88
</TABLE>
- -------------------------
* All DII share prices have been adjusted to give effect to a two-for-one stock
split by means of a stock dividend paid on September 2, 1997.
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The following table sets forth the closing per share sales price of
Flextronics ordinary shares and DII common stock, as reported on Nasdaq, and the
estimated equivalent per share price, as explained below, of DII common stock on
November 19, 1999, the last trading day before the public announcement of the
proposed merger, and on February 25, 2000, the most recent practicable date
before the mailing of this document:
<TABLE>
<CAPTION>
ESTIMATED
FLEXTRONICS DII EQUIVALENT DII
ORDINARY SHARES COMMON STOCK PER SHARE PRICE
--------------- ------------ ---------------
<S> <C> <C> <C>
November 19, 1999................. $ 40.625 $51.8125 $65.4063
February 25, 2000................. $ 61.3125 $97.25 $98.7131
</TABLE>
The estimated equivalent per share price of a share of DII common stock
equals the exchange ratio of 1.61 multiplied by the price of a Flextronics
ordinary share. You may use this calculation to estimate what your shares of DII
common stock may be worth if the merger is completed. If the merger had occurred
on February 25, 2000, you would have received Flextronics ordinary shares worth
$98.7131 for each share of DII common stock you owned. The actual equivalent per
share price that you will receive for a share of DII common stock if the merger
closes may be different from this price because the per share price of
Flextronics ordinary shares on the Nasdaq National Market fluctuates
continuously.
Neither Flextronics nor DII has ever declared or paid cash dividends on its
ordinary shares or common stock, respectively. The policies of Flextronics and
DII are to retain earnings for use in their respective businesses. Following the
merger, Flextronics ordinary shares will continue to be listed on the Nasdaq
National Market, and there will be no further market for the DII common stock.
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BENEFITS OF THE MERGER TO DII
DIRECTORS AND EXECUTIVE OFFICERS
When considering the recommendation of DII's board of directors to approve
the merger, DII stockholders should be aware that the directors and executive
officers of DII have interests in the merger that are different from, or in
addition to, the interests of DII stockholders generally. These include the
following:
POSITIONS WITH FLEXTRONICS
Ronald R. Budacz, the Chairman of the board of directors and Chief
Executive Officer of DII, or his nominee, will serve as Deputy Chairman of the
board of directors of Flextronics. Several other executive officers of DII are
expected to become officers of Flextronics after the merger.
ACCELERATED VESTING OF OPTIONS AND PERFORMANCE SHARES
At the effective time of the merger, each outstanding option to purchase
DII common stock, including any stock option held by any executive officer of
DII, will be assumed by Flextronics and will become an option to acquire
ordinary shares of Flextronics after the merger, with the number of shares
subject to the option and the option exercise price to be adjusted according to
the 1.61 exchange ratio.
Executive officers of DII, who include Ronald R. Budacz, C.Y. Cheong,
Micheal Corkery, Mark D. Herbst, Dermott O'Flanagan, Carl A. Plichta, Steven C.
Schlepp, Thomas J. Smach, Ronald R. Snyder and Carl R. Vertuca, Jr., have
options, the vesting of which will accelerate as a result of the merger. The
number of shares of DII common stock subject to unvested options held by
executive officers that will vest as a result of the merger was 712,664 as of
February 15, 2000, including 187,143 unvested options held by Mr. Budacz and
31,051 unvested options held by Mr. Vertuca. In addition, the terms of these
options provide that all options will remain exercisable for the term of the
options regardless of the termination of the officer's employment.
Executive officers of DII also have performance shares, the vesting of
which will accelerate as a result of the merger. The number of performance
shares held by executive officers that will vest as a result of the merger was
293,000 as of February 15, 2000, including 94,500 performance shares held by Mr.
Budacz and 25,000 performance shares held by Mr. Vertuca.
FORGIVENESS OF INDEBTEDNESS
DII advanced loans to its executive officers in January 1996 and April 1997
to enable its executive officers to satisfy their tax obligations in connection
with the vesting of their performance shares in 1996 and 1997. Pursuant to
employment agreements in effect with the executive officers of DII, the
executive officers' loans, together with interest accruing thereon, were being
forgiven ratably over a four-year period beginning on January 1, 1997. The
employment agreements also provide for additional payments to the executives on
an after-tax basis equal to the executives' tax liability resulting from the
forgiveness of indebtedness. The loans were scheduled to be fully forgiven as of
January 1, 2001. Pursuant to the employment agreements, the outstanding loans
will be forgiven as a result of the merger. The aggregate amount to be forgiven,
together with the additional payments for taxes, will amount to $1,165,528 for
all the executive officers of DII, including $322,873 for Mr. Budacz and
$220,449 for Mr. Vertuca.
SEVERANCE ARRANGEMENTS
Ten executive officers of DII are parties to severance agreements with DII.
The severance agreements provide for payments and benefits if, within eighteen
months following the merger, an
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executive officer's employment is terminated "without cause" or if an executive
officer terminates his employment for "good reason." It is likely that the
changes contemplated by the merger will constitute good reason under the
severance agreements of several executive officers of DII, including Mr. Budacz.
However, if an executive terminates his employment for "good reason" prior to
the six month anniversary of the merger, he will not be entitled to receive
these severance benefits. DII has agreed to pay the DII executives an interim
bonus for the interim period ending on the date of the merger, subject to
Flextronics' approval, and an additional bonus to those executives who remain
employed through the six-month period following the merger. The severance
agreements provide that the amount of any payments shall be reduced by the
amounts of any bonuses.
In the case of Mr. Budacz's severance agreement, in the event of
termination as described above and in consideration of Mr. Budacz's agreement to
provide consulting services for a period of five years following termination and
Mr. Budacz's agreement not to compete with the company for a period of five
years following termination for any reason, Mr. Budacz would receive a payment
of $18.0 million upon termination and additional monthly payments aggregating
$3.0 million over a five-year period. In addition, Mr. Budacz would be entitled
to continuation of health and medical benefits until age 65, with additional
payments on an after-tax basis equal to his tax liability resulting from the
continuation of health and medical benefits. The health and medical benefits
will be reduced to the extent that Mr. Budacz receives comparable benefits from
another employer. The foregoing payment includes a pro rata bonus for the period
of Mr. Budacz's employment during the year of termination, calculated on the
basis of the highest annual bonus previously received by Mr. Budacz.
With respect to all executive officers of DII, other than Mr. Budacz, the
benefits consist of a lump sum cash payment and the continuation of health and
medical benefits until age 65, with additional payments on an after-tax basis
equal to the executives' tax liability resulting from the continuation of health
and medical benefits. The health and medical benefits will be reduced to the
extent that an executive receives comparable benefits from another employer. The
lump sum payment includes a pro rata bonus for the period of an executive's
employment during the year of termination, calculated on the basis of the
highest annual bonus previously received by the executive. The severance
agreements for all executive officers, other than Mr. Budacz and Mr. Vertuca,
also provide that the executive will not compete with the company for a period
of one year following termination of employment for any reason. Mr. Vertuca's
agreement provides for a non-compete period of three years. The aggregate lump
sum cash payments which could become payable under the severance agreements for
all of DII's executive officers, other than Mr. Budacz, amount to approximately
$22.0 million.
Portions of the amounts payable to the executives under the severance
agreements, as well as the value attributable to the accelerated vesting of the
executives' options and performance shares and the forgiveness of indebtedness,
are potentially subject to a 20% excise tax. The excise tax would be computed
after a number of adjustments are made. The severance agreements provide that
the company will make additional payments to the executives equal to any excise
taxes payable by the executives, with additional payments on an after-tax basis
equal to the executives' tax liability resulting from these payments.
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INDEMNIFICATION AND INSURANCE
Under DII's charter and bylaws, the directors and executive officers of DII
have rights to exculpation and indemnification with respect to actions taken by
these persons prior to the effective time of the merger. Flextronics has agreed
in the merger agreement to maintain these provisions for the benefit of the DII
directors and executive officers for a period of six years following the merger.
In addition, Flextronics has agreed to maintain directors' and officers'
liability insurance for a period of six years following the merger with terms
comparable to those currently in place for the benefit of the DII directors and
executive officers. However, Flextronics is only obligated to maintain insurance
coverage which is available for an annual premium not greater than 200% of DII's
current annual premium.
As a result of the foregoing, the directors and executive officers of DII
may have personal interests in the merger which are not identical to the
interests of the other stockholders of DII.
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<PAGE> 104
EXECUTIVE OFFICERS OF FLEXTRONICS
The following sets forth information with regard to executive officers of
Flextronics.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael E. Marks................... 49 Chairman and Chief Executive Officer
Robert R.B. Dykes.................. 50 President, Systems Group and Chief Financial Officer
Ash Bhardwaj....................... 35 President, Asia Pacific Operations
Michael McNamara................... 43 President, Americas Operations
Ronny Nilsson...................... 51 President, Western European Operations
Humphrey Porter.................... 52 President, Central/Eastern European Operations
</TABLE>
Michael E. Marks -- Mr. Marks has been Flextronics' Chief Executive Officer
since January 1994 and has been Chairman of the board of directors since July
1993. He has been a director of Flextronics since December 1991. From November
1990 to December 1993, Mr. Marks was President and Chief Executive Officer of
Metcal, Inc., a precision heating instrument company. Mr. Marks received a B.A.
and an M.A. from Oberlin College and an M.B.A. from Harvard Business School.
Robert R.B. Dykes -- Mr. Dykes has served as Flextronics' Chief Financial
Officer since February 1997 and has served as its President, Systems Group since
April 1999. He served as Flextronics' Senior Vice President of Finance and
Administration from February 1997 to April 1999 and as a director of Flextronics
from January 1994 until September 1997. Mr. Dykes was Executive Vice President,
Worldwide Operations and Chief Financial Officer of Symantec Corporation, an
application and system software products company, from 1988 to February 1997.
Mr. Dykes received a Bachelor of Commerce and Administration degree from
Victoria University in Wellington, New Zealand. Mr. Dykes serves on the board of
directors of Symantec Corporation.
Ash Bhardwaj -- Mr. Bhardwaj joined Flextronics in 1988 and has served as
President, Asia Pacific Operations since April 1999. Previously, he served as
Vice President for the China region for Flextronics from April 1997 to March
1999, with responsibility for all of Flextronics' operations in China. Prior to
that, Mr. Bhardwaj oversaw the implementation of Flextronics' manufacturing
operation in Xixiang, People's Republic of China and was general manager for the
Flextronics plant in Shekou, China. Mr. Bhardwaj has a degree in electrical
engineering from Thapar Institute of Engineering and Technology in India and
earned an M.B.A. from the Southeastern Louisiana University.
Michael McNamara -- Mr. McNamara has served as President, Americas
Operations since April 1994. From May 1993 to March 1994, he was President and
Chief Executive Officer of Relevant Industries, Inc., which was acquired by
Flextronics in March 1994. From May 1992 to May 1993, he was Vice President,
Manufacturing Operations at Anthem Electronics, an electronics distributor. From
April 1987 to May 1992, he was a Principal of Pittiglo, Rabin, Todd & McGrath,
an operations consulting firm. Mr. McNamara received a B.S. from the University
of Cincinnati and an M.B.A. from Santa Clara University.
Ronny Nilsson -- Mr. Nilsson has served as Flextronics' President, Western
European Operations since April 1997. From May 1995 to April 1997, he was Vice
President and General Manager, Supply and Distribution and Vice President,
Procurement, of Ericsson Business Networks where he was responsible for
facilities in Australia, Austria, China, Mexico, the Netherlands and Sweden.
From January 1991 to May 1995, he was director of Production at the EVOX+RIFA
Group, a manufacturer of components, and Vice President of RIFA AB where he was
responsible for factories in Finland, Indonesia, Singapore and Sweden. Mr.
Nilsson received a certificate in Mechanical Engineering from the Lars
KaggSchool in Kalmar, Sweden and certificates from the Swedish Management
Institute and the Ericsson Management Program.
95
<PAGE> 105
Humphrey Porter -- Mr. Porter has served as President, Central/Eastern
European Operations since October 1997. From July 1994 to October 1997, he was
President and Chief Executive Officer of Neutronics Electronics Industries
Holding AG, which was acquired by Flextronics in October 1997. Prior to joining
Neutronics, Mr. Porter worked for over 27 years for the Philips organization.
Between 1989 and 1994, he was Industrial Director for Philips Audio Austria and
between 1984 and 1989, he was Managing Director of the Philips Audio factory in
Penang, Malaysia. Prior to this, Mr. Porter held various management and
technical staff positions in Holland, Hong Kong, the United Kingdom and the
United States. Mr. Porter has a B.Sc. in production engineering from Trent
University in Nottingham, England.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued by Flextronics for services rendered during fiscal 1999, 1998 and
1997 by the Chief Executive Officer and each of the four other most highly
compensated executive officers whose total salary and bonus for fiscal 1999
exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------- ------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------- ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks............ 1999 $400,000 $339,315 $ 9,617(1) 1,600,000 $ 7,701(4)
Chairman of the Board 1998 $375,000 $168,750 $205,167(2) 400,000 $ 8,351(5)
and Chief Executive 1997 $300,000 $ 80,400 $234,052(3) 1,000,000 $ 8,351(6)
Officer
Michael McNamara............ 1999 $325,000 $177,416 $ 22,611(7) 892,000 $ 5,000(10)
President, Americas 1998 $250,000 $ 75,000 $ 14,576(8) 175,864 $ 3,940(10)
Operations 1997 $199,999 $ 30,642 $ 5,337(9) 86,000 $ 3,958(10)
Ronny Nilsson............... 1999 $315,000 $148,859 $ 18,096(11) 160,000 $43,497(14)
President, Western 1998 $268,681 $ 88,251 $564,564(12) 440,000(13) $44,501(14)
European Operations
Robert R.B. Dykes........... 1999 $300,000 $166,008 $ 25,337(16) 220,000 $ 5,000(18)
President, Systems Group 1998 $250,000 $ 75,000 10,675(17) 550,000 $ 3,750(18)
and Chief Financial 1997 $ 31,250(15) -- -- 12,000 --
Officer
Humphrey Porter............. 1999 $250,000 $149,000 $ 21,000(19) 440,000 $30,000(20)
President, Central/Eastern 1998 $152,000 $104,000 $ 21,000(19) 160,000 $18,000(20)
European Operations 1997 $128,000 $ 20,000 $ 21,000(19) -- $15,000(20)
</TABLE>
- -------------------------
(1) Represents payment for a company vehicle.
(2) Includes a vehicle allowance of $7,533, forgiveness of a promissory note
due to a subsidiary of Flextronics of $100,000 and forgiveness of interest
payment of $97,634 on the promissory note.
(3) Includes a vehicle allowance of $7,712, forgiveness of a promissory note
due to a subsidiary of Flextronics of $200,000 and forgiveness of interest
payment of $26,340 on the promissory note.
96
<PAGE> 106
(4) Includes company contributions to Flextronics' 401(k) plan of $5,000 and
life and disability insurance premium payments of $2,701.
(5) Includes company contributions to Flextronics' 401(k) plan of $4,750 and
life and disability insurance premium payments of $3,601.
(6) Includes company contributions to Flextronics' 401(k) plan of $4,750 and
life and disability insurance premium payments of $3,601.
(7) Represents payment for a company vehicle.
(8) Includes a vehicle allowance of $7,200 and forgiveness of interest payment
of $7,376 due on a promissory note payable to a subsidiary of Flextronics.
(9) Represents forgiveness of interest payment due on a promissory note payable
to a subsidiary of Flextronics.
(10) Represents company contributions to Flextronics' 401(k) plan.
(11) Includes a vehicle allowance of $10,404 and an apartment allowance of
$7,692.
(12) Includes payment of $413,505 pursuant to a services agreement dated April
30, 1997 between Flextronics and Mr. Nilsson and a payment of $132,322 to
pay taxes due on the payments to Mr. Nilsson under the services agreement.
Also includes a vehicle allowance of $10,853 and a housing allowance of
$7,884.
(13) Includes 110,000 shares subject to previously-granted options that were
repriced in June 1997.
(14) Represents company contributions to a pension retirement fund.
(15) Mr. Dykes became an employee of Flextronics in February 1997 and the amount
indicated represents salary paid to Mr. Dykes during fiscal 1997.
(16) Represents payment for a company vehicle.
(17) Represents payment for a company vehicle.
(18) Represents company contributions to Flextronics' 401(k) plan.
(19) Includes a vehicle allowance of $7,000 and a housing allowance of $14,000.
(20) Represents company contributions to a pension retirement fund.
97
<PAGE> 107
OPTION GRANT TABLE
The following table sets forth information regarding option grants during
fiscal 1999 to each of the Named Executive Officers. All options were granted
pursuant to Flextronics' 1993 Share Option Plan, other than the grant to Mr.
Marks, which was granted outside of any option plan. In accordance with the
rules of the Securities and Exchange Commission, the table sets forth the
hypothetical gains or "option spreads" that would exist for the options at the
end of their respective five-year terms. These gains are based on assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
option was granted to the end of the option term.
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------------
NAME GRANTED(1) IN 1999 SHARE(2) DATE 5% 10%
---- ---------- ---------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks............... 1,600,000 23.3% $12.00 10/27/03 $5,304,576 $11,721,792
Michael McNamara............... 292,000 4.3% $ 9.47 06/02/03 $ 763,981 $ 1,688,207
Michael McNamara............... 600,000 8.8% $12.00 10/27/03 $1,989,216 $ 4,395,672
Ronny Nilsson(4)............... 40,000 0.6% $ 9.47 06/02/03 $ 104,655 $ 231,261
Ronny Nilsson(4)............... 120,000 1.8% $12.00 10/27/03 $ 397,843 $ 879,134
Robert R.B. Dykes.............. 20,000 0.3% $ 9.47 06/02/03 $ 52,327 $ 115,631
Robert R.B. Dykes.............. 200,000 2.9% $12.00 10/27/03 $ 663,072 $ 1,465,224
Humphrey Porter................ 200,000 2.9% $ 9.47 06/02/03 $ 523,274 $ 1,156,306
Humphrey Porter................ 240,000 3.5% $12.00 10/27/03 $ 795,686 $ 1,758,269
</TABLE>
- -------------------------
(1) The options shown in the table were granted at fair market value, are
incentive stock options (to the extent permitted under the Internal Revenue
Code), other than the option to Mr. Marks, which is a non-qualified stock
option, and will expire five years from the date of grant, subject to
earlier termination upon termination of the optionee's employment. The
options become exercisable over a four-year period, with 25% of the shares
vesting on the first anniversary of the date of grant and 1/36 of the shares
vesting for each full calendar month that an optionee renders services to
Flextronics thereafter. Each option fully accelerates in the event that, in
the eighteen-month period following a merger or acquisition of Flextronics,
the optionee's employment with Flextronics is terminated or his duties are
substantially reduced or changed. Each option includes a limited stock
appreciation right pursuant to which the option will automatically be
canceled upon the occurrence of a hostile tender offer, in return for a cash
distribution from Flextronics based on the tender offer price per share.
(2) The exercise price of the option may be paid in cash or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of share price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent Flextronics'
estimate or projection of future ordinary share prices.
(4) All of the options shown in the table for Mr. Nilsson are immediately
exercisable.
98
<PAGE> 108
YEAR-END OPTION TABLE
The following table sets forth information concerning the exercise of
options by each of the Named Executive Officers during fiscal 1999, including
the aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of March 31, 1999. Also reported are values of "in-the-money"
options that represent the positive spread between the respective exercise
prices of outstanding stock options and $25.50 per share, which was the closing
price of Flextronics ordinary shares as reported on the Nasdaq National Market
on March 31, 1999, the last day of trading for fiscal 1999.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
SHARES OPTIONS AT FISCAL YEAR-END YEAR-END(2)
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE(1) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ----------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks............ 640,000 $4,136,651 755,834 2,304,166 $14,679,309 $34,798,141
Michael McNamara............ 120,000 $1,910,100 180,366 1,031,498 $ 3,591,023 $15,515,924
Ronny Nilsson............... 80,000 $ 895,000 520,000 -- $ 9,348,750 --
Robert R.B. Dykes........... 120,000 $2,079,900 276,626 529,374 $ 5,497,074 $ 9,111,426
Humphrey Porter............. -- -- 50,000 550,000 $ 875,000 $ 8,371,250
</TABLE>
- -------------------------
(1) "Value Realized" represents the fair market value of Flextronics ordinary
shares underlying the option on the date of exercise less the aggregate
exercise price of the option.
(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on the
positive spread between the respective exercise prices of outstanding
options and the closing price of Flextronics ordinary shares on March 31,
1999, the last day of trading for fiscal 1999.
EMPLOYMENT AGREEMENTS
In connection with the acquisition of two manufacturing facilities from
Ericsson Business Networks AB located in Karlskrona, Sweden, Flextronics and Mr.
Ronny Nilsson entered into an employment and noncompetition agreement and a
services agreement, both dated as of April 30, 1997. Pursuant to the employment
agreement, Mr. Nilsson:
- was appointed as Flextronics' Senior Vice President, Europe for a
four-year period;
- receives an annual salary of $250,000; and
- is entitled to a bonus of up to 45% of his annual salary upon the
successful completion of performance criteria.
Pursuant to the services agreement, Mr. Nilsson is to perform management
consultation and guidance services to Flextronics in consideration for:
- an aggregate of $775,000 which was paid between March 31, 1997 and April
15, 1998; and
- the issuance by Flextronics to Mr. Nilsson of an interest-free loan in
the amount of 400,000 kronor ($415,000 as of April 15, 1997, the date of
the issuance of the loan) which was repaid by Mr. Nilsson in two
installments of $210,000 and $205,000 on September 15, 1997 and April 15,
1998, respectively.
99
<PAGE> 109
In connection with Mr. Nilsson's repayment of the interest-free loan,
Flextronics on April 15, 1998 paid to Mr. Nilsson as compensation an amount
equal to the two installments paid by Mr. Nilsson.
CERTAIN TRANSACTIONS
On April 16, 1995, Flextronics' U.S. subsidiary, Flextronics International
USA, Inc. ("Flextronics USA"), loaned $500,000 to Mr. Michael Marks. Mr. Marks
executed a promissory note in favor of Flextronics USA, which matures on April
16, 2000. During fiscal 1997, Flextronics USA forgave a total of $200,000 of
outstanding principal amount and $26,340 in accrued interest. During fiscal
1998, Flextronics USA forgave a total of $100,000 of outstanding principal
amount and $97,634 in accrued interest. The remaining outstanding balance of the
loan as of March 31, 1999 was $217,000, representing $200,000 in principal and
$17,000 in accrued interest, and bears interest at a rate of 7.21%.
On October 22, 1996, Flextronics USA loaned $136,000 to Mr. Michael
McNamara. Mr. McNamara executed a promissory note in favor of Flextronics USA
which bears interest at a rate of 7% and matures on October 22, 2001. The
remaining outstanding balance of the loan as of March 31, 1999 was $160,000,
representing $136,000 in principal and $24,000 in accrued interest.
On November 6, 1997, Flextronics USA loaned $1.5 million to Mr. Marks. Mr.
Marks executed a promissory note in favor of Flextronics USA, which bears
interest at a rate of 7.259% and matures on November 6, 2002. This loan is
secured by assets owned by Mr. Marks. The remaining outstanding principal
balance of the loan as of March 31, 1999 was $1.5 million and all accrued
interest was paid up to March 31, 1999.
On November 25, 1998, Flextronics USA loaned $130,000 to Mr. McNamara. Mr.
McNamara executed a promissory note in favor of Flextronics USA, which bears
interest at a rate of 7.25% and matures on November 25, 2003. The remaining
outstanding balance of the loan as of March 31, 1999 was $133,000, representing
$130,000 in principal and $3,000 in accrued interest.
On January 15, 1999, Flextronics USA loaned $200,000 to Mr. Robert Dykes.
Mr. Dykes executed a promissory note in favor of Flextronics USA, which bears
interest at a rate of 7.25% and matures on January 15, 2004. The remaining
outstanding balance of the loan as of March 31, 1999 was $203,000, representing
$200,000 in principal and $3,000 in accrued interest.
On February 4, 1999, Flextronics loaned $410,000 to Mr. Ronny Nilsson. Mr.
Nilsson executed a promissory note in favor of Flextronics and the note matures
on March 31, 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee during fiscal 1999 were Richard
L. Sharp and Michael J. Moritz. No officers of Flextronics serve on the
compensation committee. No interlocking relationships exist between Flextronics'
board of directors or compensation committee and the board of directors or
compensation committee of any other company.
100
<PAGE> 110
FLEXTRONICS INTERNATIONAL LTD.
UNAUDITED PRO FORMA
CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited condensed combined consolidated pro forma financial
statements give effect to the merger, pursuant to which DII will become a wholly
owned subsidiary of Flextronics, which is expected to be accounted for as a
pooling of interests. The unaudited pro forma condensed combined consolidated
balance sheet presents the combined financial position of Flextronics and DII as
of December 31, 1999. This pro forma information is based upon the historical
balance sheet data of Flextronics as of December 31, 1999 and DII as of January
2, 2000. The unaudited pro forma condensed combined consolidated statements of
operations give effect to the merger of Flextronics and DII by combining the
results of operations of Flextronics for the fiscal years ended March 31, 1999,
1998 and 1997 and for the nine-month periods ended December 31, 1999 and 1998
with the results of operations of DII for the fiscal years ended January 3,
1999, December 28, 1997 and December 29, 1996 and for the nine-month periods
ended October 3, 1999 and September 27, 1998, respectively.
The unaudited condensed combined consolidated pro forma financial
statements are based on the estimates and assumptions set forth in the notes to
these financial statements, which are preliminary, and have been made solely for
purposes of developing this pro forma information. The unaudited condensed
combined consolidated pro forma financial statements are not necessarily an
indication of the results that would have been achieved had this transaction
been consummated as of the dates indicated or that may be achieved in the
future.
These unaudited condensed combined consolidated pro forma financial
statements should be read in conjunction with the historical financial
statements and related notes of Flextronics and DII, which are incorporated into
this document by reference.
101
<PAGE> 111
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------ ---------------------------
FLEXTRONICS DII ADJUSTMENTS COMBINED
------------------ --------------- ----------- ----------
AS OF AS OF
DECEMBER 31, 1999 JANUARY 2, 2000
------------------ ---------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.................. $ 472,380 $ 103,736 $(259,000)(3B) $ 317,116
Accounts receivable, net................... 462,572 212,483 -- 675,055
Inventories................................ 469,791 134,407 -- 604,198
Deferred income taxes and other current
assets................................... 174,916 25,157 -- 200,073
---------- ---------- --------- ----------
Total current assets................ 1,579,659 475,783 (259,000) 1,796,442
---------- ---------- --------- ----------
Property and equipment, net.................. 550,671 438,891 (5,000)(3A) 984,562
Other non-current assets..................... 122,661 193,453 (6,750)(3A) 309,364
---------- ---------- --------- ----------
Total assets........................ $2,252,991 $1,108,127 $(270,750) $3,090,368
========== ========== ========= ==========
Current Liabilities:
Bank borrowings and current portion of
long-term debt............................. $ 159,153 $ 25,442 $ (18,000)(3B) $ 166,595
Capital lease obligations.................... 18,278 475 -- 18,753
Accounts payable and accrued liabilities..... 610,050 275,432 41,000(3A) 926,482
Other current liabilities.................... 125,610 4,691 -- 130,301
---------- ---------- --------- ----------
Total current liabilities........... 913,091 306,040 23,000 1,242,131
---------- ---------- --------- ----------
Long-term debt, net of current portion....... 183,260 241,000 (241,000)(3B) 183,260
Capital lease obligations, net of current
portion.................................... 49,969 682 -- 50,651
Other long-term liabilities.................. 11,299 11,009 -- 22,308
Minority interest............................ 4,998 -- -- 4,998
---------- ---------- --------- ----------
Total long-term
liabilities....................... 249,526 252,691 (241,000) 261,217
---------- ---------- --------- ----------
Shareholders' Equity:
Ordinary shares/common
stock...................................... 711 383 (27)(3C) 1,067
Additional paid-in capital................... 887,846 405,889 27(3C) 1,293,762
Retained earnings............................ 153,126 151,453 (57,834)(3A) 246,745
Accumulated other comprehensive loss......... 48,691 (3,245) -- 45,446
Deferred compensation........................ -- (5,084) 5,084(3A) --
---------- ---------- --------- ----------
Total shareholders'
equity............................ 1,090,374 549,396 (52,750) 1,587,020
---------- ---------- --------- ----------
Total liabilities and
shareholders' equity.............. $2,252,991 $1,108,127 $(270,750) $3,090,368
========== ========== ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements.
102
<PAGE> 112
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR NINE MONTHS ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
FLEXTRONICS DII
---------------- -----------
NINE MONTHS NINE MONTHS
ENDED ENDED PRO FORMA
DECEMBER 31, OCTOBER 3, ---------------------------
1999 1999 ADJUSTMENTS COMBINED
---------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales......................... $2,661,578 $892,650 $(2,064)(3D) $3,552,164
Cost of sales..................... 2,469,479 764,485 (2,064)(3D) 3,231,900
---------- -------- ------- ----------
Gross profit...................... 192,099 128,165 -- 320,264
Selling, general and
administrative expenses......... 85,653 63,864 -- 149,517
Goodwill and intangible assets
amortization.................... 4,344 3,876 -- 8,220
---------- -------- ------- ----------
Income from operations............ 102,102 60,425 -- 162,527
Merger-related expenses........... (2,455) -- -- (2,455)
Interest and other expense, net... (16,632) (21,274) -- (37,906)
---------- -------- ------- ----------
Income before income taxes........ 83,015 39,151 -- 122,166
Provision for income taxes........ 10,473 1,677 -- 12,150
---------- -------- ------- ----------
Net income........................ $ 72,542 $ 37,474 $ -- $ 110,016
========== ======== ======= ==========
Earnings per share:
Basic........................... $ 0.70 $ 1.30 $ 0.73
========== ======== ==========
Diluted......................... $ 0.64 $ 1.23 $ 0.68
========== ======== ==========
Shares used in computing per share
amounts:
Basic........................... 103,927 28,813 150,316
Diluted......................... 112,654 30,904 162,409
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements.
103
<PAGE> 113
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR NINE MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
FLEXTRONICS DII
------------ -------------
NINE MONTHS NINE MONTHS
ENDED ENDED PRO FORMA
DECEMBER 31, SEPTEMBER 27, --------------------------
1998 1998 ADJUSTMENTS COMBINED
------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales............................. $1,448,557 $663,229 $ (992)(3D) $2,110,794
Cost of sales......................... 1,329,240 564,623 (992)(3D) 1,892,871
Unusual charges....................... -- 49,314 -- 49,314
---------- -------- ------- ----------
Gross profit.......................... 119,317 49,292 -- 168,609
Selling, general and administrative
expenses............................ 52,742 59,066 -- 111,808
Goodwill and intangible assets
amortization........................ 2,667 3,383 -- 6,050
Unusual charges....................... -- 1,844 -- 1,844
---------- -------- ------- ----------
Income (loss) from operations......... 63,908 (15,001) -- 48,907
Interest and other expense, net....... (17,953) (11,909) -- (29,862)
---------- -------- ------- ----------
Income (loss) before income taxes..... 45,955 (26,910) -- 19,045
Provision (benefit) for income
taxes............................... 5,381 (7,522) -- (2,141)
---------- -------- ------- ----------
Net income (loss)..................... $ 40,574 $(19,388) $ -- $ 21,186
========== ======== ======= ==========
Earnings (loss) per share:
Basic............................... $ 0.46 $ (0.78) $ 0.17
========== ======== ==========
Diluted............................. $ 0.44 $ (0.78) $ 0.16
========== ======== ==========
Shares used in computing per share
amounts:
Basic............................... 87,898 25,004 128,154
Diluted............................. 92,142 25,004 132,398
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements.
104
<PAGE> 114
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR FISCAL YEAR ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
FLEXTRONICS DII
----------------- -----------------
FISCAL YEAR FISCAL YEAR
ENDED ENDED PRO FORMA
MARCH 31, JANUARY 3, --------------------------
1999 1999 ADJUSTMENTS COMBINED
----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales.................... $2,043,374 $925,543 $(1,245)(3D) $2,967,672
Cost of sales................ 1,878,360 786,611 (1,245)(3D) 2,663,726
Unusual charges.............. -- 70,340 -- 70,340
---------- -------- ------- ----------
Gross profit................. 165,014 68,592 -- 233,606
Selling, general and
administrative expenses.... 75,109 81,160 -- 156,269
Goodwill and intangible
assets amortization........ 3,664 4,661 -- 8,325
Provision for excess
facilities and unusual
charges.................... 3,361 2,454 -- 5,815
Acquired in-process research
and development............ 2,000 -- -- 2,000
---------- -------- ------- ----------
Income(loss) from
operations................. 80,880 (19,683) -- 61,197
Interest and other expense,
net........................ (20,832) (18,849) -- (39,681)
---------- -------- ------- ----------
Income(loss) before income
taxes...................... 60,048 (38,532) -- 21,516
Provision (benefit) for
income taxes............... 7,632 (21,500) -- (13,868)
---------- -------- ------- ----------
Net income(loss)............. $ 52,416 $(17,032) $ -- $ 35,384
========== ======== ======= ==========
Earnings (loss) per share:
Basic...................... $ 0.58 $ (0.68) $ 0.27
========== ======== ==========
Diluted.................... $ 0.55 $ (0.68) $ 0.27
========== ======== ==========
Shares used in computing per
share amounts:
Basic...................... 90,782 24,888 130,852
Diluted.................... 95,970 24,888 144,788
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements.
105
<PAGE> 115
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR FISCAL YEAR ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
FLEXTRONICS DII
----------------- -----------------
FISCAL YEAR FISCAL YEAR
ENDED ENDED PRO FORMA
MARCH 31, DECEMBER 28, --------------------------
1998 1997 ADJUSTMENTS COMBINED
----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales.................... $1,191,194 $779,603 $(1,255)(3D) $1,969,542
Cost of sales................ 1,081,189 647,663 (1,255)(3D) 1,727,597
---------- -------- ------- ----------
Gross profit................. 110,005 131,940 -- 241,945
Selling, general and
administrative expenses.... 57,217 68,783 -- 126,000
Goodwill and intangible
assets amortization........ 3,663 3,968 -- 7,631
Provision for excess
facilities................. 8,869 -- -- 8,869
---------- -------- ------- ----------
Income from operations....... 40,256 59,189 -- 99,445
Merger-related expenses...... (7,415) -- -- (7,415)
Interest and other expense,
net........................ (12,272) (9,524) -- (21,796)
---------- -------- ------- ----------
Income before income taxes... 20,569 49,665 -- 70,234
Provision for income taxes... 2,318 14,345 -- 16,663
---------- -------- ------- ----------
Net income................... $ 18,251 $ 35,320 $ -- $ 53,571
========== ======== ======= ==========
Earnings per share:
Basic...................... $ 0.24 $ 1.43 $ 0.46
========== ======== ==========
Diluted.................... $ 0.23 $ 1.26 $ 0.44
========== ======== ==========
Shares used in computing per
share amounts:
Basic...................... 76,696 24,719 116,494
Diluted.................... 80,032 30,702 129,462
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements.
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<PAGE> 116
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR FISCAL YEAR ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
FLEXTRONICS DII
----------------- -----------------
FISCAL YEAR FISCAL YEAR
ENDED ENDED PRO FORMA
MARCH 31, DECEMBER 29, ---------------------------
1997 1996 ADJUSTMENTS COMBINED
----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales....................... $820,742 $458,893 $(3,485)(3D) $1,276,150
Cost of sales................... 747,491 370,610 (3,485)(3D) 1,114,616
Unusual charges................. -- 11,883 -- 11,883
-------- -------- ------- ----------
Gross profit.................... 73,251 76,400 -- 149,651
Selling, general and
administrative expenses....... 39,711 48,540 -- 88,251
Goodwill and intangible assets
amortization.................. 2,651 3,118 -- 5,769
Provision for excess
facilities.................... 5,868 -- -- 5,868
-------- -------- ------- ----------
Income from operations.......... 25,021 24,742 -- 49,763
Merger-related expenses......... -- (4,649) -- (4,649)
Interest and other expense,
net........................... (7,648) (4,420) -- (12,068)
-------- -------- ------- ----------
Income before income taxes...... 17,373 15,673 -- 33,046
Provision for income taxes...... 3,175 5,638 -- 8,813
-------- -------- ------- ----------
Net income...................... $ 14,198 $ 10,035 $ -- $ 24,233
======== ======== ======= ==========
Earnings per share:
Basic......................... $ 0.20 $ 0.42 $ 0.22
======== ======== ==========
Diluted....................... $ 0.19 $ 0.40 $ 0.21
======== ======== ==========
Shares used in computing per
share amounts:
Basic......................... 70,460 23,678 108,582
Diluted....................... 72,956 25,074 113,325
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements.
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<PAGE> 117
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined consolidated balance sheet
combines the balance sheet of DII as of January 2, 2000 and the balance sheet of
Flextronics as of December 31, 1999. The unaudited pro forma condensed combined
consolidated statements of operations combine the historical statements of
operations of DII for the fiscal years ended January 3, 1999, December 28, 1997
and December 29, 1996 with the historical statements of operations of
Flextronics for the fiscal years ended March 31, 1999, 1998 and 1997 to reflect
results based on the pooling-of-interests method of accounting. The pro forma
condensed combined consolidated interim financial statements combine the
historical statements of operations for the nine months ended December 31, 1999
and December 31, 1998 for Flextronics with the nine months ended October 3, 1999
and September 27, 1998 for DII. DII's operations for the three months ended
January 2, 2000 and the three months ended January 3, 1999 have been excluded
from the pro forma condensed combined consolidated interim statements of
operations. DII's net sales for the three months ended January 2, 2000 and
January 3, 1999 were $447.3 million and $262.3 million, respectively. DII's net
income for the three months ended January 2, 2000 and January 3, 1999 were $20.9
million and $2.4 million, respectively. No adjustments were necessary to conform
the accounting policies of the companies.
NOTE 2. PRO FORMA COMBINED NET INCOME (LOSS) PER SHARE
The pro forma combined net income (loss) per share is based on the combined
weighted average number of Flextronics ordinary shares and dilutive common and
equivalent shares of Flextronics and DII based upon the exchange ratio of 1.61
Flextronics ordinary shares for each share of DII common stock.
NOTE 3. PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the pro forma
combined financial statements of Flextronics and DII to reflect the estimated
effects of the merger.
(A) To record estimated expenses resulting from the merger of Flextronics
and DII. It is anticipated that the combined company will incur charges to
operations related to the proposed merger of approximately $57.8 million. These
charges include the following:
<TABLE>
<S> <C>
Investment banking and financial advisory fees.............. $34,000,000
Acceleration of vesting of DII's performance shares......... 5,084,000
Costs associated with the repurchase of DII's senior
subordinated notes........................................ 1,500,000
Write-off of deferred debt issuance costs of DII............ 6,750,000
Costs associated with closing of duplicate facilities....... 10,000,000
Legal, accounting, printing and miscellaneous............... 6,000,000
Estimated income tax benefit................................ (5,500,000)
-----------
$57,834,000
===========
</TABLE>
The estimated merger expenses are reflected in the unaudited pro forma
combined consolidated balance sheet, but are not reflected in the unaudited pro
forma combined consolidated statements of operations. These expenses will be
charged to the statement of operations as incurred. The estimated costs
associated with the repurchase of DII's senior subordinated notes consist of the
payment of approximately $1.5 million premium on retirement of the notes. The
estimated tax benefit related to these expenses is approximately $5.5 million
and reflects the benefit on only those costs expected to be tax deductible. In
addition to these merger expenses, Flextronics expects to incur costs related to
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<PAGE> 118
termination of executives of DII. The aggregate payments for all executives
totals approximately $43.0 million. The actual amounts paid will depend on which
individuals are terminated and is not currently determinable. See "Benefits of
the Merger to DII Directors and Executive Officers -- Severance Arrangements" on
page 92 for a description of the severance arrangements.
(B) To reflect the repayment of DII's senior subordinated notes of $150.0
million, term debt of $84.0 million and line-of-credit borrowings of $25.0
million.
(C) To reflect the exchange of DII outstanding common stock for Flextronics
ordinary shares at an exchange ratio of 1.61 ordinary shares for each
outstanding share of DII common stock.
(D) To eliminate the sales from DII to Flextronics. No adjustments have
been made to eliminate accounts payable, accounts receivable and profit because
these amounts did not have a material impact on the pro forma combined
consolidated financial statements.
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<PAGE> 119
DESCRIPTION OF CAPITAL SHARES OF FLEXTRONICS
The following statements are brief summaries of the capital structure of
Flextronics and of important rights and privileges of shareholders conferred by
the laws of Singapore and Flextronics' articles of association. These statements
summarize the material provisions of the laws of Singapore and the articles but
are qualified by reference to the articles, a copy of which has been filed as an
exhibit to the registration statement of which this document forms a part, and
which is available at Flextronics' San Jose, California office. A copy of the
articles is also available for inspection at the registered office of
Flextronics in Singapore.
ORDINARY SHARES
The authorized capital of Flextronics consists of 250,000,000 ordinary
shares, par value S$0.01. There is a provision in the articles to enable
Flextronics in specified circumstances to issue shares with preferential,
deferred or other special rights or restrictions as the directors may determine.
The directors may issue shares at a premium and a sum equal to the aggregate
amount or value of the premium will be transferred, subject to exceptions, to a
share premium account.
All shares presently issued are fully paid and existing shareholders are
not subject to any calls on shares. All shares are in registered form.
Flextronics can purchase its own shares under limited circumstances. Flextronics
cannot, except in the circumstances permitted by the Singapore Companies Act,
grant any financial assistance for the acquisition or proposed acquisition of
its own shares.
NEW SHARES
New shares may be issued only with the prior approval of Flextronics
shareholders in a general meeting. General approval may be sought from
Flextronics shareholders in a general meeting for the issue of shares. Approval,
if granted, will lapse at the earlier to occur of:
- the conclusion of the next annual general meeting, and
- the expiration of the period within which the next annual general meeting
is required by law to be held.
The shareholders have provided general authority to issue any remaining
unissued shares prior to the next annual general meeting. Unless otherwise
determined by Flextronics shareholders in a general meeting, any new shares must
be offered before they are issued to existing shareholders in proportion, as
nearly as may be, to the number of shares then held by them. Subject to this and
the provisions of the Companies Act, all new shares are under the control of the
directors who may allot and issue new shares with the rights and restrictions as
they may think fit and as are set out in Flextronics' articles.
SHAREHOLDERS
Only persons who are registered in the books of Flextronics are recognized
as shareholders and absolute owners of the shares. On February 1, 2000 there
were 458 holders of ordinary shares. Flextronics may on giving not less than
fourteen days' notice close the register of members for any time or times, but
the register may not be closed for more than thirty days in any calendar year.
Closure is normally made for the purpose of determining shareholders'
entitlement to receive dividends and other distributions and would, in the usual
case, not exceed ten days.
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<PAGE> 120
TRANSFER OF SHARES
Subject to applicable securities laws, shares are freely transferable. The
directors may decline to register any transfer of shares on which Flextronics
has a lien and, for shares not fully paid up, may refuse to register a transfer
to a transferee of whom they do not approve. Shares may be transferred by a duly
signed instrument of transfer in a form approved by the directors. The directors
may decline to register any transfer unless, among other things, it has been
duly stamped and is presented for registration together with the share
certificate and other evidence of title as they may require. Flextronics will
replace lost or destroyed certificates for shares upon notice to Flextronics and
upon, among other things, the applicant furnishing evidence and indemnity as the
directors may require.
SHAREHOLDERS' MEETINGS
Flextronics is required to hold an annual general meeting in each year. The
directors may convene an extraordinary general meeting whenever they think fit
and they must do so upon the written request of shareholders representing not
less than one-tenth of the total voting rights of all shareholders. In addition,
two or more shareholders holding not less than one-tenth of the issued share
capital of Flextronics may call a meeting of its shareholders.
Unless otherwise required by law or by the articles, voting at general
meetings is by ordinary resolution, requiring the affirmative vote of a simple
majority of the votes cast at a meeting of which at least fourteen days' written
notice is given. An ordinary resolution suffices, for example, for appointments
of directors. A special resolution, requiring an affirmative vote of a majority
of not less than 75% of the shareholders present and voting at a general meeting
of which not less than 21 days' written notice specifying the intention to
propose the resolution as a special resolution has been duly given, is necessary
for certain matters under Singapore law, such as an alteration of the articles.
VOTING RIGHTS
Voting at any meeting of shareholders is by a show of hands unless a poll
is duly demanded before or on the declaration of the result of the show of
hands. If voting is by a show of hands, every shareholder who is present in
person or by proxy, attorney or representative at the meeting has one vote. On a
poll every shareholder who is present in person or by proxy has one vote for
every share held by him. A poll may be demanded by:
- the chairman of the meeting if he is entitled to vote at the meeting;
- not less than three members present in person or by proxy and entitled to
vote;
- shareholders present in person or by proxy, attorney or representative
and representing not less than one-tenth of the total voting rights of
all shareholders having the right to attend and vote at the meeting; or
- shareholders present in person or by proxy, attorney or representative
holding shares conferring a right to vote at the meeting being shares on
which an aggregate sum has been paid up equal to not less than one-tenth
of the total sum paid up on all the shares conferring that right.
DIVIDENDS
In a general meeting, Flextronics shareholders may by ordinary resolution
declare dividends, but no dividend will be payable in excess of the amount
recommended by the directors. The directors may also declare an interim
dividend. No dividend may be paid except out of the profits of Flextronics.
Except as otherwise provided in rights specified in the terms of issue of any
shares (no such shares currently being in issue), all dividends are paid pro
rata among the shareholders.
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<PAGE> 121
Flextronics to date has not declared any cash dividends on its shares and has no
current plans to pay cash dividends in the foreseeable future.
BONUS AND RIGHTS ISSUES
In a general meeting, Flextronics shareholders may, upon the recommendation
of the directors, capitalize any reserves or profits, including profits or
monies carried and standing to any reserve or to the share premium account, and
distribute them as bonus shares credited as paid-up to the shareholders in
proportion to their shareholdings. A bonus issue is the Singapore equivalent of
a stock dividend. The directors may also issue to shareholders rights to take up
additional shares, in proportion to their shareholdings. These rights are
subject to any conditions attached to the issue and the regulations of the stock
exchange on which the shares are listed.
TAKEOVERS
The Companies Act and the Singapore Code on Takeovers and Mergers regulate
the acquisition of shares of public companies and contain provisions that may
delay, deter or prevent a future takeover or change in control of the company.
Any person acquiring an interest, either on his own or together with parties
acting in concert with him, in 25% or more of the voting shares in Flextronics
is obliged to extend a takeover offer for the remaining voting shares, in
accordance with the provisions of the code.
"Parties acting in concert" include:
- a company and its related and associated companies;
- a company and its directors, including their relatives;
- a company and its pension funds;
- a person and any investment company, unit trust or other fund whose
investment the person manages on a discretionary basis; and
- a financial advisor and its client for shares held by the financial
advisor and shares in the client held by funds managed by the financial
advisor on a discretionary basis.
An offer for consideration other than cash must be accompanied by a cash
alternative at not less than the highest price paid by the offeror or parties
acting in concert with him within the preceding twelve months. A mandatory
takeover offer is also required to be made if a person holding, either on his
own or together with parties acting in concert with him, between 25% and 50% of
the voting shares acquires additional voting shares representing more than 3% of
the voting shares in any twelve-month period.
LIQUIDATION OR OTHER RETURN OF CAPITAL
On a winding-up or other return of capital, subject to any special rights
attaching to any other class of shares, holders of ordinary shares will be
entitled to participate in any surplus assets in proportion to their
shareholdings.
INDEMNITY
As permitted by the laws of Singapore, the articles provide that, subject
to the Companies Act, Flextronics' directors and officers will be indemnified by
Flextronics against any liability incurred by them in defending any proceedings,
whether civil or criminal:
- which relate to anything done or omitted to have been done as an officer,
director or employee of Flextronics and in which judgment is given in
their favor or in which they are acquitted; or
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<PAGE> 122
- in connection with any application under any statute for relief from
liability for indemnification where relief is granted by the court.
Directors and officers may not be indemnified by Flextronics against any
liability which by law would otherwise attach to them relating to any
negligence, default, breach of duty or breach of trust of which they may be
guilty in relation to Flextronics.
LIMITATIONS ON RIGHTS TO HOLD OR VOTE ORDINARY SHARES
Except as discussed in "-- Takeovers," there are no limitations imposed by
the laws of Singapore or by the articles on the right of non-resident
shareholders to hold or vote ordinary shares.
TRANSFER AGENT
Flextronics' transfer agent is Boston EquiServe L.P., 150 Royall Street,
M/S 45-01-07, Canton, Massachusetts 02021.
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<PAGE> 123
COMPARISON OF RIGHTS OF HOLDERS OF FLEXTRONICS ORDINARY SHARES
AND HOLDERS OF DII COMMON STOCK
Upon consummation of the merger, the former stockholders of DII, a Delaware
corporation, will become shareholders of Flextronics, a Singapore company. The
rights of the former DII stockholders will be governed by applicable Singapore
law and by the articles of association of Flextronics. Set forth below is a
summary of the principal differences between applicable Delaware law and
Singapore law, on the one hand, and between the Flextronics articles and the DII
certificate of incorporation and the DII bylaws, on the other, which could
materially affect the rights of the DII stockholders who become Flextronics
shareholders.
NUMBER AND QUALIFICATION OF DIRECTORS
Under Delaware law, the number of directors of a corporation may be fixed
in the certificate of incorporation or bylaws of a corporation, or the
certificate or bylaws may establish a range for the number of directors, with
the board of directors given authority to fix the exact number of directors
within the range. The DII bylaws provide that the number of DII directors shall
be established from time to time by resolution of the DII board of directors,
provided that the authorized number shall not be fewer than three nor more than
thirteen. DII's board of directors currently has seven members.
Under Singapore law, a company is required to have a minimum of two
directors, one of whom must be ordinarily resident in Singapore. In practice, a
Singapore citizen, a Singapore permanent resident or an expatriate holding a
valid employment pass issued by the Singapore immigration authorities is
considered ordinarily resident. Under the Flextronics articles, the number of
directors shall not be less than two nor, unless otherwise determined by the
shareholders, more than eleven. Flextronics' board of directors currently has
seven members.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year. This method of electing
directors typically makes changes in the composition of the board of directors,
and thus a potential change in the control of the corporation, a lengthier and
more difficult process. Under Delaware law, all directors of a corporation
generally are elected annually; however, a corporation may designate a
classified board in its initial certificate or bylaws or by adopting amendments
to its certificate and/or bylaws, which amendments must be approved by the
corporation's stockholders. Neither the DII certificate nor its bylaws provides
for a classified board.
Under the Flextronics articles, at each annual general meeting, one-third
of the directors or, if their number is not a multiple of three, the number
nearest to but not less than one-third, will be required to retire by rotation
but will be eligible for re-election. The directors required to retire in each
year are those who have been in office longest since their last re-election or
appointment. As between persons who became or were last re-elected directors on
the same day, those required to retire are, unless they otherwise agree among
themselves, determined by lot. However, no director holding office as managing
or joint managing director shall be subject to retirement by rotation or be
taken into account in determining the number of directors to retire. In
addition, any person appointed as a director by the board of directors shall
hold office only until the next annual general meeting and shall then be
eligible for re-election, but shall not be taken into account in determining the
number of directors who are to retire by rotation at such meeting.
No person other than a director retiring at the meeting shall, unless
recommended by the directors for election, be eligible for appointment as a
director at any general meeting unless not less than ten clear days before the
meeting there shall have been left at the registered office of Flextronics
notice in writing signed by a registered shareholder duly qualified to attend
and vote at the meeting of
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<PAGE> 124
his intention to propose a person for election and also notice in writing duly
signed by the nominee giving his consent to the nomination, provided that in the
case of a person recommended by the directors for election seven clear days'
notice only shall be necessary and notice of each and every candidate for
election shall be served on all registered shareholders at least seven clear
days prior to the meeting at which the election is to take place.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
Delaware law provides that the stockholders of a corporation may take
action by written consent without a meeting, unless the corporation's
certificate of incorporation provides otherwise. DII's certificate provides that
stockholder action may be taken only at an annual or special meeting of the
stockholders and cannot be taken by written consent in lieu of a meeting.
Under the Flextronics articles, shareholders may, subject to the provisions
of the Companies Act, take action by unanimous written consent.
SPECIAL OR EXTRAORDINARY GENERAL MEETINGS
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by such additional persons as may be authorized by the
certificate or the bylaws. The DII certificate and bylaws provide that special
meetings of the stockholders may be called only pursuant to a resolution adopted
by a majority of the board of directors or the executive committee.
Under the Flextronics articles, the directors may convene an extraordinary
general meeting of the shareholders whenever they think fit and must do so upon
the written request of shareholders representing not less than one-tenth of the
total voting power of Flextronics. In addition, two or more shareholders holding
not less than one-tenth of the issued share capital of a company may call a
meeting of a company.
REMOVAL OF DIRECTORS
Under Delaware law, with limited exceptions, any director or the entire
board of directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote. However, the DII
certificate and bylaws provide that directors may be removed for cause only by
the affirmative vote of the holders of at least 80% of the outstanding shares of
capital stock entitled to vote in the election of directors, voting together as
a single class.
Under the Flextronics articles, the Flextronics shareholders may, in
accordance with the provisions of the Companies Act and by ordinary resolution
of which special notice has been given, remove any director before the
expiration of his period of office.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, unless otherwise provided in the corporation's
certificate of incorporation, any vacancy on the board of directors may be
filled by the board or any newly created directorship may be filled by the
stockholders or by a majority of the directors in office, even if less than a
quorum, or by a sole remaining director. The DII certificate provides that a
vacancy on the board of directors may be filled only by a majority vote of
directors then in office, even if less than a quorum.
Flextronics shareholders may in any general meeting appoint another person
in place of a director removed from office. Any director so appointed shall be
treated for the purpose of determining the time at which he or any other
director is to retire by rotation as if he had become a director on the day on
which the director in whose place he is appointed was last elected a director.
If the shareholders do not appoint another person, the vacancy may be filled by
the directors as a casual vacancy. In addition, under the Flextronics articles,
the directors have power to appoint any
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<PAGE> 125
person to be a director to fill a casual vacancy or as an additional director,
provided the total number of directors does not exceed the maximum fixed by the
articles.
LOANS TO OFFICERS AND EMPLOYEES
Under Delaware law, a corporation may lend money to, or guarantee any
obligation of, any officer or other employee of the corporation or a subsidiary,
including any officer or employee who is also a director of the corporation or
subsidiary, if the loan or guarantee, in the best judgment of the directors, may
reasonably be expected to benefit the corporation.
Under Singapore law, a company, other than an exempt private company,
generally is prohibited from making loans to directors of the company or of a
related corporation, or entering into any guarantee or providing any security in
connection with a loan made to a director by any other person except for:
- a loan made to provide a director with funds to meet his expenditures for
the purposes of the company, or to enable him to perform his duties
properly as an officer of the company;
- a loan made to a director who is a full-time employee of the company or
of a related corporation to meet expenditure incurred in connection with
the acquisition of a home;
- a loan made to a director who is a full-time employee of the company or
of a related corporation, where the company has at a general meeting
approved of a scheme for the making of loans to employees and the loan is
in accordance with that scheme; or
- a loan made to a director in the ordinary course of business of a company
whose ordinary business includes the lending of money or the giving of
guarantees in connection with loans made by other persons if the
activities of the company are regulated by the laws relating to banking,
finance companies or insurance or are subject to the supervision of the
relevant authorities in Singapore,
provided that in the case of the first two clauses listed above, the prior
approval of the company given at a general meeting at which the purposes of the
expenditure and the amount of the loan or the extent of the guarantee or
security are disclosed must have been obtained, or the making of the loan or the
entering into of any guarantee or the provision of any security is given on
condition that if the approval of the company is not given as aforesaid at or
before the next following annual general meeting, the loan shall be repaid or
the liability under the guarantee or security shall be discharged, within six
months from the conclusion of that meeting.
In addition, under Singapore law, a company, other than an exempt private
company, generally is prohibited from:
- making a loan to another company; or
- entering into any guarantee or providing any security in connection with
a loan made to another company by a person other than the first-mentioned
company,
if a director or directors of the first-mentioned company is or together are
interested in shares in the other company of a nominal value equal to 20% or
more of the nominal value of its equity share capital.
INDEMNIFICATION AND LIMITATION OF LIABILITY
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any person who was or is a party or is threatened to be made a
party to any legal proceeding because that person is or was a director, officer,
employee or agent of the corporation against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection
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with a proceeding. However, in any proceeding brought by or in the right of the
corporation, such as a derivative suit, the corporation can only indemnify
against expenses and no indemnification may be made for any claim, issue or
matter for which the person has been adjudged liable unless the court determines
that the person is fairly and reasonably entitled to indemnity.
Indemnification is permitted by Delaware law only for acts taken in good
faith and reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to criminal actions or proceedings, reasonably
believed to be lawful, as determined by:
- a majority vote of the directors not parties to the proceeding;
- a committee of disinterested directors designated by a majority vote of
disinterested directors;
- independent legal counsel, if there are no disinterested directors or if
disinterested directors so direct; or
- the stockholders.
Delaware law requires indemnification when a present or former director or
officer has successfully defended the action on the merits or otherwise.
Section 145 of the Delaware General Corporation Law also provides that the
indemnification permitted by that section will not be exclusive of any other
lawful right to indemnification. Pursuant to the DII certificate of
incorporation, DII is authorized to indemnify its directors, officers, employees
and other agents to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law.
DII's certificate also includes a provision removing a director's liability
to DII or to its stockholders for monetary damages for any breach of fiduciary
duty by such director in his or her capacity as a director, except that a
director will be liable for:
- any breach of the director's duty of loyalty to DII or its stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or an unlawful stock purchase or
redemption under Section 174 of the Delaware General Corporation Law; and
- any transaction from which the director derived an improper personal
benefit.
Article 155 of the Flextronics articles provides that, subject to the
Singapore Companies Act, every director or other officer shall be entitled to be
indemnified by Flextronics against all liabilities incurred by him in the
execution and discharge of his duties or in relation thereto, including any
liability in defending any proceedings, civil or criminal, which relate to
anything done or omitted or alleged to have been done or omitted by him as an
officer or employee of Flextronics and:
- in which judgment is given in his favor, or the proceedings otherwise
disposed of without finding or admission of any material breach of duty;
- in which he is acquitted; or
- in connection with any application under any statute for relief from
liability for any act or omission in which relief is granted to him by
the court.
In addition, no director or other officer shall be liable for:
- the acts, receipts, neglects or defaults of any other director or
officer;
- joining in any receipt or other act for conformity;
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- any loss or expense happening to Flextronics, through the insufficiency
or deficiency of title to any property acquired by order of the directors
for Flextronics or for the insufficiency or deficiency of any security
upon which any of the moneys of Flextronics are invested or for any loss
or damage arising from the bankruptcy, insolvency or tortious act of any
person with whom any moneys, securities or effects are deposited; or
- any other loss or misfortune which happens in the execution of his
duties,
unless the same happens through his own negligence, willful default, breach of
duty or breach of trust.
Section 172 of the Companies Act renders void any provision for
indemnifying a company's directors or officers against liability which by law
would otherwise attach to them for any negligence, default, breach of duty or
breach of trust of which they may be guilty relating to the company. However, a
company is not prohibited from:
- purchasing and maintaining insurance against any such liability except
where the liability arises out of conduct involving dishonesty or a
wilful breach of duty; or
- indemnifying a director or officer against any liability incurred in
defending any proceedings, whether civil or criminal, in which judgment
is given in his favor or in which he is acquitted, or in connection with
any application in relation to liability in which relief is granted to
him by the court.
Flextronics has entered into indemnification agreements with its officers
and directors. These indemnification agreements provide Flextronics' officers
and directors with indemnification to the maximum extent permitted by the
Companies Act. Flextronics has also obtained a policy of directors' and
officers' liability insurance that will insure directors and officers against
the cost of defense, settlement or payment of a judgment under certain
circumstances.
INSPECTIONS OF SHAREHOLDERS LIST
Delaware law allows any stockholder of record to inspect the stockholders
list for a purpose reasonably related to the stockholder's interest as a
stockholder.
Under Singapore law, a company's register of members (shareholders) and
index is required to be open to the inspection of any member without charge and
of any other person on payment for each inspection of S$1.00 or a lower amount
as determined by the company.
DIVIDENDS, DISTRIBUTIONS AND REPURCHASE OF SHARES
Under Delaware law, a corporation generally may declare and pay dividends,
or repurchase its own shares, to the extent the corporation has "surplus" as
defined under Delaware law or, with respect to dividends in some circumstances,
to the extent the corporation has "net profits" as defined under Delaware law.
To date, DII has not paid cash dividends on its capital stock. It is the present
policy of the DII board of directors to retain earnings for use in its business
and, therefore, DII does not anticipate paying cash dividends on its common
stock in the foreseeable future.
Under the Flextronics' articles, Flextronics may in a general meeting by
ordinary resolution declare dividends, but no dividend shall be payable in
excess of the amount recommended by the directors. The directors may also
declare an interim dividend. No dividend may be paid except out of the profits
of the company. Except for the rights specified in the terms of issue of any
shares, all dividends are paid pro rata among the shareholders according to the
amount paid on the shares. In addition, under Singapore law, a company may not,
except in the circumstances permitted by the Companies Act, either purchase its
own shares or grant any financial assistance for the acquisition or proposed
acquisition of its own shares.
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To date, Flextronics has not paid cash dividends on its capital stock. It
is the present policy of the Flextronics board of directors to retain earnings
for use in its business and, therefore, Flextronics does not anticipate paying
cash dividends on its ordinary shares in the foreseeable future.
MERGERS, REORGANIZATIONS AND SALES OF SUBSTANTIALLY ALL OF A CORPORATION'S
ASSETS
Delaware law generally requires that the holders of a majority of the
outstanding stock of both acquiring and target corporations approve statutory
mergers. Delaware law contains an exception to this voting requirements for
specified "holding company" mergers in which an existing Delaware corporation is
reorganized as a holding company, with its stockholders receiving shares in the
holding company, and for mergers in which:
- no changes are made to the certificate of incorporation of the surviving
corporation;
- each share of stock of the surviving corporation outstanding immediately
prior to the effective time of the merger is to be an identical
outstanding share of the surviving corporation after the merger; and
- the shares of common stock, or securities or obligations convertible into
such stock, issued in the merger do not exceed 20% of the shares of
common stock of the surviving corporation.
Delaware law also requires that an amendment to a corporation's certificate
of incorporation, a dissolution or a sale of all or substantially all of the
assets of a corporation be approved by the holders of a majority of the
corporation's outstanding stock. Some amendments to a corporation's certificate
of incorporation also require a majority vote of each class of shares
outstanding.
The Companies Act and the Singapore Code on Takeovers and Mergers regulate
the acquisition of shares of public companies and contain provisions that may
delay, deter or prevent a future takeover or change in control of the Company.
Any person acquiring an interest, either on his own or together with parties
acting in concert with him, in 25% or more of the voting shares in Flextronics
is obliged to extend a takeover offer for the remaining voting shares, in
accordance with the provisions of the code.
"Parties acting in concert" include:
- a company and its related and associated companies;
- a company and its directors, including their relatives;
- a company and its pension funds;
- a person and any investment company, unit trust or other fund whose
investment such person manages on a discretionary basis; and
- a financial advisor and its client for shares held by the financial
advisor and shares in the client held by funds managed by the financial
advisor on a discretionary basis.
An offer for consideration other than cash must be accompanied by a cash
alternative at not less than the highest price paid by the offeror or parties
acting in concert with him within the preceding twelve months. A mandatory
takeover offer is also required to be made if a person holding, either on his
own or together with parties acting in concert with him, between 25% and 50% of
the voting shares acquires additional voting shares representing more than 3% of
the voting shares in any twelve-month period.
Under Singapore law, schemes or arrangements are binding on creditors and
members alike after the requisite approval by a majority in number of,
representing 75% in value of the shares held by, the shareholders present and
voting at the relevant meeting, and upon confirmation by the Singapore court of
law. In addition, the directors of a company shall not carry into effect any
proposals for
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disposing of the whole or substantially the whole of the company's undertaking
or property unless those proposals have been approved by the company in general
meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION OR ARTICLES OF ASSOCIATION; AMENDMENT
OF BYLAWS
Under Delaware law, a company's certificate of incorporation may be amended
only if the amendment is approved by the board and by the holders of a majority
of the corporation's outstanding stock. In addition, if a corporation has more
than one class or series of stock outstanding, amendments that would alter or
change the powers, preferences or special rights of a class or series so as to
affect them adversely require the vote of a majority of the shares of that class
or series.
The DII certificate provides that the affirmative vote of the holders of at
least 80% of the voting shares is required to alter, amend or repeal those
provisions of the certificate relating to the number, filling vacancies and
removal of directors, amending the bylaws, the prohibition on stockholder action
by written consent and the limitations on DII's ability to enter into a business
combination transaction with a related person.
Under Delaware law, bylaws may be amended by stockholders holding a
majority of the outstanding shares, or by the board, if the certificate of
incorporation confers this power on the board. The DII certificate does confer
this power on the board subject, however, to the ability of the holders of 80%
of the voting shares to alter, amend or repeal the bylaws.
Under the laws of Singapore, a special resolution, requiring an affirmative
vote of a majority of not less than 75% of the shareholders present and voting
at a general meeting of which not less than 21 days' written notice specifying
the intention to propose the resolution as a special resolution has been duly
given, is necessary to alter the articles of association of a company.
SHAREHOLDER VOTING
Delaware law provides that meetings of stockholders may proceed in the
manner prescribed in a corporation's bylaws. Unless otherwise provided in a
Delaware corporation's certificate of incorporation, each stockholder is
entitled to one vote for each share of stock held by the stockholder on each
matter on which the stockholder is entitled to vote.
Under the Flextronics articles, voting at any meeting of shareholders is by
a show of hands unless a poll is duly demanded before or on the declaration of
the result of the show of hands. If voting is by a show of hands, every
shareholder who is present in person or by proxy, attorney or representative at
the meeting has one vote. On a poll every shareholder who is present in person
or by proxy has one vote for every share held by him. A poll may be demanded by:
- the chairman of the meeting, if he is entitled to vote at the meeting,
- not less than three members present in person or by proxy and entitled to
vote,
- shareholders present in person or by proxy, attorney or representative
and representing not less than one-tenth of the total voting rights of
all shareholders having the right to attend and vote at the meeting, or
- shareholders present in person or by proxy, attorney or representative,
holding shares conferring a right to vote at the meeting being shares on
which an aggregate sum has been paid up equal to not less than one-tenth
of the total sum paid up on all the shares conferring that right.
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INTERESTED DIRECTOR TRANSACTIONS
Delaware law provides that some contracts or transactions in which one or
more of a corporation's directors has an interest are not void or voidable
solely because of that interest, provided that:
- either the stockholders or the disinterested directors approve the
contract or transaction in good faith after full disclosure of the
material facts; or
- the contract or transaction is fair to the corporation at the time it was
approved by the stockholders, the board of directors or a committee of
the board of directors.
If board approval is sought for such purposes, the contract or transaction
must be approved by a majority vote of the disinterested directors. However, an
interested director is not disqualified from voting and may be counted in
determining the presence of a quorum at a board meeting.
Under the laws of Singapore, every director of a company who is in any way,
whether directly or indirectly, interested in a contract or proposed contract
with the company shall as soon as practicable after the relevant facts have come
to his knowledge declare the nature of his interest at a meeting of the
directors of the company. Under the Flextronics articles, subject to disclosure,
a director is entitled to vote on any contract or arrangement in which he is
interested and he shall be taken into account in ascertaining whether a quorum
is present.
INTERESTED STOCKHOLDER TRANSACTIONS
DII is subject to Section 203 of the Delaware General Corporation Law which
may make it more difficult for a person who would be deemed an interested
stockholder of DII, as defined in Section 203, to effect various business
combinations with DII for a three-year period. Under Delaware law, a
corporation's certificate of incorporation or bylaws may exclude a corporation
from the restrictions imposed by Section 203. Neither DII's certificate of
incorporation nor its bylaws contains a provision excluding DII from the
restrictions imposed under Section 203.
DII's certificate of incorporation contains a provision restricting DII's
ability to consummate a business combination with a related person, which is
generally defined in the same manner as an interested stockholder in Section
203, without the affirmative vote of the holders of 80% of the outstanding
voting shares.
There is no equivalent provision under the laws of Singapore.
SHAREHOLDER DERIVATIVE SUITS
Delaware law provides that, with limited exceptions, a stockholder bringing
a derivative action on behalf of a corporation must have been a stockholder at
the time of the transaction in question.
Under the laws of Singapore, a company may sue and be sued in its own name.
Any member of a company may apply to the Singapore court of law for an order in
accordance with the provisions of the Companies Act on the ground that the
affairs of the company are being conducted or the powers of the directors are
being exercised in a manner oppressive to one or more of the members including
himself or in disregard of his or their interests as members or shareholders of
the company or that some act of the company has been done or is threatened or
that some resolution of the members or any class of members has been passed or
is proposed which unfairly discriminates against or is otherwise prejudicial to
one or more of the members including himself. If the court determines that
either of these grounds is established, the court may authorize that civil
proceedings be brought in the name of or on behalf of the company by the
applicant. A complainant may also, in some circumstances, apply to the Singapore
court of law for leave to bring an action in the name and on behalf of the
company or intervene in an action to which the company is a party for the
purpose of
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prosecuting, defending or discontinuing the action on behalf of the company. In
addition, a derivative action may be brought at common law in some situations.
APPRAISAL RIGHTS
Under Delaware law, in some mergers, stockholders are entitled to appraisal
rights pursuant to which they may receive cash in the amount of the "fair market
value" of their shares, as determined by a court, in lieu of the consideration
they would otherwise receive in the merger.
Subject to requirements regarding the consideration to be received in the
merger, appraisal rights are not available to stockholders whose shares are
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, or are held of record by more than 2,000 holders.
There is no equivalent provision under the laws of Singapore.
DISSOLUTION
Under Delaware law, the dissolution of a corporation may be authorized by a
corporation's board and by the holders of a majority of the corporation's
outstanding stock, or by all the corporation's stockholders entitled to vote on
the dissolution.
Under the laws of Singapore, a company can be dissolved if it is
liquidated, voluntarily by its shareholders or creditors, or otherwise by an
order of a court on the petition of various interested parties. A defunct
company which has ceased to carry on business may be struck off the Register of
Companies by the Registrar of Companies.
TRANSFERABILITY OF SHARES
Under Delaware law, as a general matter, and subject to securities laws and
restrictions on transfer as may be imposed by a corporation's certificate of
incorporation, bylaws or by agreement, shares and share certificates are freely
transferable, provided that the necessary steps are taken to have the transfer
properly recorded in the records of the corporation.
Under the Flextronics articles and subject to applicable securities laws,
shares are freely transferable. However, the directors may decline to register
any transfer of shares on which Flextronics has a lien and, in the case of
shares not fully paid up, may refuse to register a transfer to a transferee of
whom they do not approve. Shares may be transferred by a duly signed instrument
of transfer in a form approved by the directors. The directors may decline to
register any transfer unless, among other things, it has been duly stamped and
is presented for registration together with the share certificate and such other
evidence of title as they may require. Flextronics will replace lost or
destroyed certificates for shares upon notice to Flextronics and upon, among
other things, the applicant furnishing any evidence and indemnity as the
directors may require.
ISSUANCE OF NEW SHARES
Under Delaware law, the directors may, if all of the shares of stock
authorized by the corporation's certificate of incorporation have not been
issued, subscribed for or otherwise committed to be issued, issue or take
subscriptions for additional shares of stock up to the amount authorized in the
certificate of incorporation.
Under Singapore law and the Flextronics articles, new shares may be issued
only with the prior approval of Flextronics shareholders in a general meeting.
General approval may be sought from Flextronics shareholders in a general
meeting for the issue of shares. Approval, if granted, will lapse at the
conclusion of the next annual general meeting or the expiration of the period
within which the next annual general meeting is required by law to be held,
whichever is the earlier. Unless otherwise
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determined by shareholders in a general meeting, any new shares shall, before
they are issued, be offered to existing shareholders in proportion, as nearly as
may be, to the number of shares then held by them respectively. Subject to this
and the provisions of Singapore law, pursuant to the general authorization
granted by shareholders to the directors to issue new shares, all new shares are
under the control of the directors who may allot and issue the same with any
rights and restrictions as they may think fit and as set out in the Flextronics
articles.
PREFERRED STOCK
The DII certificate authorizes the DII board of directors to issue up to
5,000,000 shares of preferred stock without any vote or action by the holders of
DII common stock. The board of directors may issue preferred stock in one or
more series and determine the dividend rights, conversion rights, voting rights,
redemption rights, liquidation preferences, sinking fund terms, the designation
of, and the number of shares constituting each series. The preferred stock that
can be authorized by the DII board of directors could have preference over the
common stock with respect to dividends and other distributions and upon DII's
liquidation. In addition, the voting power of the outstanding common stock may
become diluted in the event that the board of directors issues preferred stock
with voting rights.
In connection with DII's shareholder rights plan, the board of directors
has designated and reserved for issuance a series of 50,000 shares of Series A
Junior Participating Preferred Stock. DII may issue these preferred shares under
certain circumstances if, as discussed below, the rights distributed to the DII
stockholders pursuant to the shareholder rights plan become exercisable. DII has
no present plans to issue, or reserve for issuance, any other series of
preferred stock.
There is a provision in the Flextronics articles to enable Flextronics in
specified circumstances to issue shares with preferential, deferred or other
special rights or restrictions as the directors may determine.
SHAREHOLDER RIGHTS PLAN
Under Delaware law, a corporation may create and issue rights entitling the
holders to purchase from the corporation shares of any class of its capital
stock, subject to any provisions in its certificate of incorporation. The price
and terms of these shares must be stated in the certificate of incorporation or
in a resolution adopted by the board of directors for the creation or issuance
of these rights.
DII adopted a shareholder rights plan on May 4, 1993. In connection with
the rights plan, the DII board declared a dividend of one preferred share
purchase right for each share of DII common stock outstanding on, or issued
after, May 21, 1993. Each right entitles the holder, under certain
circumstances, to purchase from DII one one-thousandth of a share of DII Series
A Junior Participating Preferred Stock, par value $0.01 per share, at a price of
$50 per one one-thousandth of a preferred share, subject to adjustment.
Initially, the rights are attached to outstanding certificates representing
DII common stock, and no separate certificates representing the rights are
distributed. The rights will separate from DII common stock and be represented
by separate certificates approximately ten days after someone acquires or
commences a tender offer for 20% or more of DII's outstanding common stock. The
rights will not separate from the DII common stock or become exercisable as a
result of the merger.
Each preferred share that is purchased upon exercise of a right entitles
the holder to receive a quarterly dividend payment of $10 per share or 1,000
times the cash and non-cash dividends declared per share of common stock,
whichever is greater. In addition, each preferred share will have 1,000 votes
and vote together with the DII common stock.
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If DII liquidates, the holders of the preferred shares will be entitled to
a payment of $100 per preferred share or 1,000 times the payment made per share
of common stock, whichever is greater. In the event of any merger, consolidation
or other transaction in which DII common stock is exchanged, each preferred
share will be entitled to receive 1,000 times the amount received per share of
common stock. Because of the nature of the preferred shares' dividend,
liquidation and voting rights, the value of one-one thousandth interest in a
preferred share is approximately equal to the value of one share of common
stock. Holders of rights will have no rights as stockholders of DII, including
the right to vote or receive dividends, simply by virtue of holding the rights.
If an acquiror obtains beneficial ownership of 20% or more of the
outstanding DII common stock, other than Flextronics pursuant to the merger,
then each right will entitle the holder to receive, upon payment of the $50
exercise price, that number of shares of DII common stock having a market value
of $100. Additionally, each right will also entitle the holder to receive, upon
payment of the exercise price, that number of shares of the acquiror's common
stock having a market value of twice the purchase price if any of the following
occurs, other than as a result of the merger with Flextronics:
- an acquiror obtains 20% or more shares of DII common stock;
- DII is acquired in a merger or other business combination in which DII
common stock is exchanged for securities of the acquiror; or
- more than 50% of DII's assets or earning power is sold or transferred in
one or a series of related transactions.
Any rights that are or were owned by an acquiror of more than 20% of DII's
outstanding common stock will be null and void.
Notwithstanding the above, the acquisition of 20% or more DII common stock
by any of the following persons will not trigger the separation and distribution
of the rights:
- DII;
- any subsidiary of DII;
- any employee benefit plan of DII or of any subsidiary of DII, or any
other entity established by DII or its subsidiaries to hold common stock
pursuant to the terms of an employee benefit plan;
- any person or group who acquired ownership of 20% or more of the shares
of DII common stock in a transaction approved by DII's board of
directors; or
- Flextronics.
The rights will expire on May 4, 2003 unless they are earlier redeemed by
DII. Subject to limitations, DII's board of directors may redeem the rights at a
redemption price of $0.05 per right, subject to adjustment. In addition, the
rights may be amended by DII's board of directors without the approval of the
holders of the rights. However, after the date any person acquires 20% or more
of DII common stock, the rights agreements may not be amended in any manner
which would adversely effect the interests of the holders of the rights,
excluding the interests of any acquiror.
The rights have anti-takeover effects in that they may cause substantial
dilution to a person or group that attempts to acquire DII without conditioning
the offer on a substantial number of rights being acquired. Accordingly, the
existence of the rights may deter acquirors from making takeover proposals or
tender offers. However, the rights are not intended to prevent a takeover, but
rather are designed to enhance the ability of DII's board of directors to
negotiate with an acquiror on behalf of all the stockholders. In addition, the
rights should not interfere with a proxy contest.
Flextronics does not have a shareholders' rights plan in place.
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BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS, MANAGEMENT AND DIRECTORS OF
FLEXTRONICS
The following table and the related notes set forth information with
respect to the beneficial ownership of Flextronics ordinary shares as of
February 1, 2000 by each director and executive officer of Flextronics and by
each person or group who is known to the management of Flextronics to be the
beneficial owner of more than 5% of Flextronics ordinary shares outstanding as
of February 1, 2000. This table is based upon information supplied by officers,
directors and principal shareholders and Schedules 13D and 13G filed with the
SEC. Where information regarding shareholders is based on Schedules 13D and 13G,
the number of shares owned is as of the date for which information was provided
in the schedules. Unless otherwise indicated in the footnotes to this table and
subject to community property laws where applicable and the voting agreements
entered into between the executive officers and directors of Flextronics,
Flextronics believes that each of the shareholders named in this table has sole
voting and investment power with respect to the shares indicated as beneficially
owned. Applicable percentages are based on 115,432,240 shares outstanding on
February 1, 2000, adjusted as required by rules promulgated by the SEC.
Flextronics ordinary shares subject to options that are currently exercisable or
are exercisable within 60 days of February 1, 2000 are treated as outstanding
and beneficially owned by the person holding them for the purpose of computing
the percentage ownership of that person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other shareholder.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT
------------------------------------ ---------------- -------
<S> <C> <C>
Pilgrim Baxter & Associates, Ltd.(1)........................ 9,896,000 8.6
825 Duportail Road
Wayne, Pennsylvania 19087
Marsh & McLennan Companies, Inc.(2)......................... 9,843,482 8.5
1166 Avenue of the Americas
New York, New York 10036
FMR Corp.(3)................................................ 9,132,300 7.9
82 Devonshire Street
Boston, Massachusetts 02109
Ronald Baron(4)............................................. 7,190,588 6.2
c/o Baron Capital Management, Inc.
767 Fifth Avenue, 24th Floor
New York, New York 10153
AXA Financial, Inc.(5)...................................... 6,735,830 5.8
1290 Avenue of the Americas
New York, New York 10104
Hui Shing Leong(6).......................................... 4,067,900 3.5
Richard L. Sharp(7)......................................... 3,101,976 2.7
Michael E. Marks(8)......................................... 2,367,300 2.1
Michael McNamara(9)......................................... 745,232 *
Ronny Nilsson(10)........................................... 600,000 *
Robert R. B. Dykes(11)...................................... 597,629 *
Michael J. Moritz(12)....................................... 549,530 *
Tsui Sung Lam(13)........................................... 158,243 *
Patrick Foley(14)........................................... 72,500 *
Humphrey Porter(15)......................................... 72,500 *
Chuen Fah Alain Ahkong(16).................................. 32,500 *
All directors and executive officers as a group (11
persons)(17).............................................. 12,365,310 10.7
</TABLE>
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- -------------------------
* Less than 1%.
(1) Based on information supplied by Pilgrim Baxter & Associates, Ltd. in a
Schedule 13G filed with the Securities and Exchange Commission on February
8, 1999.
(2) Based on information supplied by Marsh & McLennan Companies, Inc. ("Marsh")
in a Schedule 13G filed with the Securities and Exchange Commission on
February 17, 2000, includes 28,074 shares with respect to which The Putnam
Advisory Company, Inc. ("PAC") and Putnam Investments, Inc. ("PI") have
sole investment power. In addition, PAC beneficially owns 435,914 shares,
PI beneficially owns 9,843,482 shares, and Putnam Investment Management,
Inc. ("PIM") beneficially owns 9,407,568 shares. PI, a wholly owned
subsidiary of Marsh, wholly owns PAC and PI. PAC and PI have depository
power over these shares as investment managers.
(3) Based on information supplied by FMR Corp. in a Schedule 13G filed with the
Securities and Exchange Commission on February 14, 2000. FMR Corp. has sole
voting power with respect to 322,600 shares and sole investment power with
respect to 9,132,300 shares. Fidelity Management & Research Company, a
wholly owned subsidiary of FMR Corp., beneficially owns 8,588,600 shares.
Fidelity Management Trust Company, a wholly owned subsidiary of FMR Corp.,
is the beneficial owner of 522,100 shares. The Schedule 13G was filed
jointly by FMR Corp., Edward C. Johnson 3d, Chairman of FMR Corp., and
Abigail P. Johnson, Director of FMR Corp.
(4) Based on information supplied by Mr. Baron in a Schedule 13G filed with the
Securities and Exchange Commission on February 15, 2000, includes 91,400
shares held by the investment advisory clients of Baron Capital Management,
Inc. ("BCM"), a wholly-owned subsidiary of Baron Capital, Inc. ("BCI"), and
6,020,000 shares held by the investment advisory clients of BAMCO, Inc.
("BAMCO") and Baron Asset Fund ("BAF"). BAF is an advisory client of BAMCO.
Pursuant to discretionary agreements, BCM and BAMCO hold the power to vote
and dispose of the shares in the advisory accounts. BCI and BAMCO are
wholly-owned subsidiaries of Baron Capital Group, Inc. ("BCG"). Mr. Baron
owns a controlling interest in BCG, and may be deemed to share power to
voting and dispose of these shares.
(5) Based on information supplied by AXA Financial, Inc. in a Schedule 13G
filed with the Securities and Exchange Commission on February 14, 2000,
includes 6,389,240 shares beneficially owned by Alliance Capital Management
L.P. ("Alliance"), 104,740 shares beneficially owned by Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), 230,600 shares beneficially owned
by The Equitable Life Assurance Society of the United States ("TELAS") and
11,250 shares beneficially owned by Wood, Struthers & Winthrop Management
Corporation ("WSW"). AXA Financial, Inc. is the parent holding company of
Alliance, DLJ, TELAS and WSW. AXA beneficially owns a majority of AXA
Financial, Inc. The following entities as a group control AXA: AXA Conseil
Vie Assurance Mutuelle, AXA Assurances I.A.R.D. Mutuelle and AXA Courtage
Assurance Mutuelle.
(6) Includes 2,257,600 shares beneficially owned by Great Empire Limited Trust.
Mr. Hui, the trustee of Great Empire Limited Trust, has voting and
investment power over these shares and may be deemed to beneficially own
these shares. Mr. Hui disclaims beneficial ownership of all of these shares
except to the extent of his proportionate interest therein. Includes 72,500
shares subject to options exercisable within 60 days after February 1, 2000
held by Mr. Hui.
(7) Includes 740,000 shares beneficially owned by Bethany Limited Partnership.
Mr. Sharp, the general partner of Bethany Limited Partnership, has voting
and investment power over these shares and may be deemed to beneficially
own these shares. Mr. Sharp disclaims beneficial
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<PAGE> 136
ownership of all of these shares except to the extent of his proportionate
interest therein. Also includes 77,500 shares held by RLS Charitable
Remainder Unitrust of which Mr. Sharp is a co-trustee and 48,500 shares
subject to options exercisable within 60 days after February 1, 2000 held
by Mr. Sharp.
(8) Includes 12,000 shares held by the Justin Caine Marks Trust and 12,000
shares held by the Amy G. Marks Trust. Also includes 1,109,512 shares
subject to options exercisable within 60 days after February 1, 2000 held
by Mr. Marks.
(9) Includes 551,408 shares subject to options exercisable within 60 days after
February 1, 2000 held by Mr. McNamara.
(10) Includes 600,000 shares subject to options exercisable within 60 days after
February 1, 2000 held by Mr. Nilsson.
(11) Includes 509,709 shares subject to options exercisable within 60 days after
February 1, 2000 held by Mr. Dykes.
(12) Includes 320,668 shares held by Sequoia Capital VII, a limited partnership
and 15,600 shares held by Sequoia Technology Partners VII, a limited
partnership. The general partner of Sequoia Capital VII and Sequoia
Technology Partners VII is Sequoia Capital VII-A Management, LLC. Mr.
Moritz is a general partner of Sequoia Capital VII-A Management, LLC. Also
includes 48,500 shares subject to options exercisable within 60 days after
February 1, 2000 held by Mr. Moritz.
(13) Includes 157,067 shares subject to options exercisable within 60 days after
February 1, 2000 held by Mr. Tsui.
(14) Includes 72,500 shares subject to options exercisable within 60 days after
February 1, 2000 held by Mr. Foley.
(15) Includes 72,500 shares subject to options exercisable within 60 days after
February 1, 2000 held by Mr. Porter.
(16) Includes 32,500 shares subject to options exercisable within 60 days after
February 1, 2000 held by Mr. Ahkong.
(17) Includes 3,274,696 shares subject to options exercisable within 60 days
after February 1, 2000.
BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS, MANAGEMENT AND DIRECTORS OF DII
The following table and the related notes present information on the
beneficial ownership of shares of DII common stock, as of February 1, 2000 by
each director and executive officer of DII and by each person or group who is
known to the management of DII to be the beneficial owner of more than 5% of the
DII common stock outstanding as of February 1, 2000. This table is based upon
information supplied by officers, directors and principal stockholders and
Schedules 13D and 13G filed with the SEC. Where information regarding
stockholders is based on Schedules 13D and 13G, the number of shares owned is as
of the date for which information was provided in the schedules. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable and the voting agreements entered into between
the executive officers and directors of DII, DII believes that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned.
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<PAGE> 137
Percentages are based on 36,764,875 shares outstanding on February 1, 2000,
adjusted as required by rules promulgated by the SEC. Shares of DII common stock
subject to:
- options that are currently exercisable or are exercisable within 60 days
of February 1, 2000;
- options that accelerate in connection with the merger;
- performance shares which will vest within 60 days of February 1, 2000;
and
- performance shares that accelerate in connection with the merger,
are treated as outstanding and beneficially owned by the person holding them for
the purpose of computing the percentage ownership of that person but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------------------
NUMBER OF PERCENT OF TOTAL
NAME OF BENEFICIAL OWNER SHARES OWNED OUTSTANDING(%)
------------------------ ------------ ----------------
<S> <C> <C>
Flextronics International Ltd.(1).......................... 8,141,106 18.5
11 Ubi Road #07-01/02
Meiban Industrial Building
Singapore 408723
FMR Corp.(2)............................................... 4,228,000 11.5
82 Devonshire Street
Boston, Massachusetts 02109
Marsh & McLennan Companies, Inc.(3)........................ 2,218,125 6.0
1166 Avenue of the Americas
New York, New York 10036
Ronald R. Budacz(4)........................................ 986,477 2.6
Carl R. Vertuca, Jr.(5).................................... 322,011 *
Ronald R. Snyder(6)........................................ 323,510 *
Dermott O'Flanagan(7)...................................... 212,252 *
Steven C. Schlepp(8)....................................... 154,208 *
Constantine S. Macricostas(9).............................. 144,490 *
Alexander W. Young......................................... 10,500 *
Gerard T. Wrixon........................................... 9,000 *
Robert L. Brueck(10)....................................... 7,209 *
Johnson C. Ko.............................................. 302 *
All directors and executive officers as a group (10
persons)(11)............................................. 2,169,959 5.7
</TABLE>
- -------------------------
* Less than 1%.
(1) Represents 7,316,210 shares subject to an option held by Flextronics and
824,896 shares subject to voting agreements and irrevocable proxies, each
as described in further detail in "Related Agreements -- The Stock Option
Agreement" on page 87 and "-- The Voting Agreements" on page 89. Pursuant
to a stock option agreement dated November 22, 1999, Flextronics holds an
option to acquire up to a number of shares of DII common stock equal to
19.9% of the outstanding shares of DII common stock which, based on the
shares outstanding as of February 1, 2000, equals 7,316,210 shares. This
option is not currently exercisable, and will become exercisable only if
events specified in the option agreement occur. Also, DII directors and
officers collectively holding 824,896 shares of DII common stock as of
February 1, 2000 agreed with Flextronics to vote in favor of the merger
proposal and granted irrevocable proxies to Flextronics and to certain
officers of Flextronics with respect to this vote. This number does not
include an aggregate of 834,016 shares subject to options exercisable
within 60 days of
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<PAGE> 138
February 1, 2000, 570,356 shares subject to options that accelerate in
connection with the merger, 12,500 performance shares which will vest
within 60 days of February 1, 2000 and 220,500 performance shares that
accelerate in connection with the merger, all of which, upon exercise or
vesting, would be subject to the voting agreement and proxies. Flextronics
expressly disclaims beneficial ownership of all 8,141,106 shares of DII
common stock.
(2) Based on information supplied by FMR Corp. in a Schedule 13G filed with the
Securities and Exchange Commission on January 10, 2000. According to its
filing, FMR Corp. has sole voting power with respect to 137,000 shares and
sole investment power with respect to 4,228,000 shares. Fidelity Management
& Research Company, a wholly owned subsidiary of FMR Corp., beneficially
owns 4,041,500 shares. The Schedule 13G was filed jointly by FMR Corp.,
Edward C. Johnson 3d, Chairman of FMR Corp., and Abigail P. Johnson,
Director of FMR Corp.
(3) Based on information supplied by Marsh in a Schedule 13G filed with the
Securities and Exchange Commission on February 17, 2000, includes 409,100
with respect to which PAC and PI have sole investment power. In addition,
PAC beneficially owns 845,300 shares, PI beneficially owns 2,218,125 shares
and PIM beneficially owns 1,372,825 shares.
(4) Includes 420,001 shares which are subject to options exercisable within 60
days, 187,143 shares which are subject to options that accelerate in
connection with the merger and 94,500 performance shares that accelerate in
connection with the merger.
(5) Includes 198,052 shares which are subject to options exercisable within 60
days of February 1, 2000, 31,051 shares which are subject to options that
accelerate in connection with the merger and 25,000 performance shares that
accelerate in connection with the merger.
(6) Includes 101,171 shares which are subject to options exercisable within 60
days of February 1, 2000, 64,436 shares which are subject to options that
accelerate in connection with the merger, 12,500 performance shares which
will vest within 60 days of February 1, 2000 and 37,500 performance shares
that accelerate in connection with the merger.
(7) Includes 72,241 shares subject to options exercisable within 60 days after
February 1, 2000, 37,630 shares which are subject to options that
accelerate in connection with the merger and 25,000 performance shares that
accelerate in connection with the merger.
(8) Includes 11,000 shares subject to options exercisable within 60 days after
February 1, 2000, 40,000 shares which are subject to options that
accelerate in connection with the merger and 25,000 performance shares that
accelerate in connection with the merger.
(9) Includes 105,000 shares owned by Photronics, Inc., of which Mr. Macricostas
is Chairman of the Board. Mr. Macricostas disclaims beneficial ownership
with respect to these shares.
(10) Mr. Brueck shares voting and investment power with his wife with respect to
6,609 shares.
(11) Includes 802,465 shares subject to options exercisable within 60 days after
February 1, 2000, 360,260 shares which are subject to options that
accelerate in connection with the merger, 12,500 performance shares which
will vest within 60 days of February 1, 2000 and 207,000 performance shares
that accelerate in connection with the merger.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP will be present at the Flextronics
extraordinary general meeting to respond to appropriate questions of
shareholders and to make a statement if they so desire. Representatives of
Deloitte & Touche LLP will be present at the DII special meeting to respond to
appropriate questions of stockholders and to make a statement if they so desire.
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<PAGE> 139
LEGAL MATTERS
The validity of the Flextronics ordinary shares to be issued in the merger
has been passed upon for Flextronics by Allen & Gledhill.
EXPERTS
The audited consolidated financial statements and schedules of Flextronics
incorporated by reference in this proxy statement/prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in its reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The consolidated financial statements and related financial statement
schedules as of January 3, 1999 and December 28, 1997 and for the 53 weeks ended
January 3, 1999 and the 52 weeks ended December 28, 1997 of The DII Group, Inc.
incorporated in this proxy statement/prospectus by reference from DII's Annual
Report on Form 10-K/A for the year ended January 3, 1999 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
reports express an unqualified opinion and include an explanatory paragraph
referring to the restatement discussed in Note 15 to the consolidated financial
statements, which are incorporated by reference herein, and have been so
incorporated in reliance upon the reports of said firm given upon their
authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended April 4, 1999 and March 28, 1998, July 4, 1999 and June 28, 1998, and
October 3, 1999 and September 27, 1998, which is incorporated by reference in
this proxy statement/prospectus, Deloitte & Touche LLP has applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports included in DII's Quarterly
Reports on Form 10-Q/A for the quarters ended April 4, 1999 and July 4, 1999,
which include an explanatory paragraph referring to the restatement of the March
29, 1998 and June 28, 1998 financial statements, and DII's Quarterly Report on
Form 10-Q for the quarter ended October 3, 1999 and incorporated by reference
herein, they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their reports on
such information should be restricted in light of the limited nature of the
review procedures applied. Deloitte & Touche LLP is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their reports on the
unaudited interim financial information because those reports are not "reports"
or a "part" of the proxy statement/prospectus prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Act.
The consolidated financial statements and the related financial statement
schedule of The DII Group, Inc. for the 52 weeks ended December 29, 1996, have
been incorporated by reference herein and in the registration statement in
reliance upon the reports of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
STOCKHOLDER PROPOSALS
Any proposals of shareholders of Flextronics intended to be presented at
the annual general meeting of shareholders of Flextronics to be held in 2000
must be received by Flextronics, addressed to the Chief Executive Officer of
Flextronics at 2090 Fortune Drive, San Jose, California 95131 no later than
March 18, 2000 to be considered for inclusion in the proxy statement and form of
proxy relating to that meeting.
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<PAGE> 140
If the merger is not consummated, any proposals of stockholders of DII
intended to be presented at the annual meeting of stockholders of DII to be held
in 2000 must have been received by DII, addressed to the Secretary of DII at
6273 Monarch Park Place, Niwot, Colorado 80503 on or before December 15, 1999 to
be considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
WHERE YOU CAN FIND MORE INFORMATION
Flextronics and DII each files annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that the companies file at the SEC's
public reference room in 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room. Flextronics' and DII's public filings are also available to the public
from commercial document retrieval services and at the Internet web site
maintained by the SEC at http://www.sec.gov. Reports, proxy statements and other
information concerning Flextronics and DII also may be inspected at the offices
of the National Association of Securities Dealers, Inc., Listing Section, 1735 K
Street, Washington, D.C. 20006.
Flextronics has filed a Form S-4 registration statement to register with
the SEC the offering and sale of the Flextronics ordinary shares to be issued to
DII stockholders in the merger. This document is a part of that registration
statement and constitutes a prospectus and proxy statement of Flextronics and a
proxy statement of DII for the special meeting.
As allowed by SEC rules, this document does not contain all the information
that stockholders can find in the registration statement or the exhibits to the
registration statement.
The SEC allows Flextronics and DII to incorporate information into this
document "by reference," which means that the companies can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be part of
this document, except for any information superseded by information contained
directly in this document. This document incorporates by reference the documents
listed below that Flextronics and DII have previously filed with the SEC. These
documents contain important information about the companies and their financial
condition.
FLEXTRONICS FILINGS (FILE NO. 0-23354)
- Annual Report on Form 10-K for fiscal year ended March 31, 1999;
- Quarterly Reports on Form 10-Q for fiscal quarters ended June 25, 1999,
September 24, 1999 and December 31, 1999;
- Current Reports on Form 8-K filed with the Commission on October 29,
1999, December 6, 1999 and December 23, 1999; and
- the description of Flextronics ordinary shares contained in Flextronics'
registration statement on Form 8-A filed with the SEC under Section 12(g)
of the Exchange Act.
DII FILINGS (FILE NO. 0-21374):
- Annual Report on Form 10-K for fiscal year ended January 3, 1999, as
amended;
- Quarterly Reports on Form 10-Q for fiscal quarters ended April 4, 1999,
as amended, July 4, 1999, as amended, and October 3, 1999;
- Current Report on Form 8-K filed on December 3, 1999; and
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<PAGE> 141
- the description of DII common stock contained in DII's registration
statement on Form 8-A filed with the SEC under Section 12(g) of the
Exchange Act.
Flextronics and DII hereby incorporate by reference additional documents
that Flextronics or DII may file with the SEC between the date of this document
and the date of the extraordinary general meeting or the special meeting,
respectively. These include periodic reports, such as annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as
proxy statements.
Flextronics has supplied all information contained or incorporated by
reference in this document relating to Flextronics or Slalom, and DII has
supplied all information relating to DII.
If you are a Flextronics shareholder or a DII stockholder, you may have
received some of the documents incorporated by reference. You may also obtain
any of those documents from the appropriate company or the SEC or the SEC's
Internet web site described above. Documents incorporated by reference are
available from the appropriate company without charge, excluding all exhibits
unless specifically incorporated by reference as an exhibit in this document.
Stockholders may obtain documents incorporated by reference in this document by
requesting them in writing or by telephone from the appropriate company at the
following addresses:
FLEXTRONICS INTERNATIONAL LTD.
2090 Fortune Drive
San Jose, California 95131
(408) 428-1300
THE DII GROUP, INC.
6273 Monarch Park Place, Suite 200
Niwot, Colorado 80503
(303) 652-2221
If you would like to request documents please do so by March 23, 2000 to
receive them before the Flextronics extraordinary general meeting or the DII
special meeting. If you request any incorporated documents, the appropriate
company will mail them to you by first-class mail, or other equally prompt
means, within one business day of receipt of your request.
YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS DOCUMENT TO VOTE YOUR SHARES AT THE FLEXTRONICS EXTRAORDINARY GENERAL
MEETING OR THE DII SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT DIFFERS FROM THAT CONTAINED IN THIS DOCUMENT. THIS
DOCUMENT IS DATED FEBRUARY 29, 2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS DOCUMENT TO FLEXTRONICS SHAREHOLDERS OR TO DII
STOCKHOLDERS NOR THE ISSUANCE OF FLEXTRONICS ORDINARY SHARES IN THE MERGER SHALL
CREATE ANY IMPLICATION TO THE CONTRARY.
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<PAGE> 142
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 155 of the Flextronics articles provides that, subject to the
Singapore Companies Act, every director or other officer shall be entitled to be
indemnified by Flextronics against all liabilities incurred by him in the
execution and discharge of his duties or in relation thereto, including any
liability in defending any proceedings, civil or criminal, which relate to
anything done or omitted or alleged to have been done or omitted by him as an
officer or employee of Flextronics and in which judgment is given in his favor,
or the proceedings otherwise disposed of without finding or admission of any
material breach of duty; in which he is acquitted; or in connection with any
application under any statute for relief from liability for any act or omission
in which relief is granted to him by the court.
In addition, no director or other officer shall be liable for the acts,
receipts, neglects or defaults of any other director or officer, joining in any
receipt or other act for conformity, any loss or expense happening to
Flextronics, through the insufficiency or deficiency of title to any property
acquired by order of the directors for Flextronics or for the insufficiency or
deficiency of any security upon which any of the moneys of Flextronics are
invested or for any loss or damage arising from the bankruptcy, insolvency or
tortious act of any person with whom any moneys, securities or effects are
deposited, or any other loss or misfortune which happens in the execution of his
duties, unless the same happens through his own negligence, willful default,
breach of duty or breach of trust.
Section 172 of the Companies Act renders void any provision for
indemnifying a company's directors or officers against liability which by law
would otherwise attach to them for any negligence, default, breach of duty or
breach of trust of which they may be guilty relating to the company. However, a
company is not prohibited from purchasing and maintaining insurance against any
such liability except where the liability arises out of conduct involving
dishonesty or a willful breach of duty, or indemnifying a director or officer
against any liability incurred in defending any proceedings, whether civil or
criminal, in which judgment is given in his favor or in which he is acquitted,
or in connection with any application in relation to liability in which relief
is granted to him by the court.
Flextronics has entered into indemnification agreements with its officers
and directors. These indemnification agreements provide Flextronics' officers
and directors with indemnification to the maximum extent permitted by the
Companies Act. Flextronics has also obtained a policy of directors' and
officers' liability insurance that will insure directors and officers against
the cost of defense, settlement or payment of a judgment under certain
circumstances.
II-1
<PAGE> 143
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------- -----
<C> <S>
2.01 Agreement among the Registrant, Alberton Holdings Limited
and Omac Sales Limited dated as of January 6, 1996.
(Incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K for the event
reported on February 2, 1996.)
2.02 Asset Transfer Agreement between Ericsson Business Networks
AB and Flextronics International Sweden AB dated as February
12, 1997. Certain schedules have been omitted. The
Registrant agrees to furnish supplementally a copy of any
omitted schedule to the Commission upon request.
(Incorporated by reference to Exhibit 2.6 of the
Registrant's registration statement on Form S-3, No.
333-21715.)
2.03 Exchange Agreement dated October 19, 1997 by and among the
Registrant, Neutronics Electronic Industries Holding A.G.
and the named Shareholders of Neutronics Electronic
Industries Holding A.G. (Incorporated by reference to
Exhibit 2 of the Registrant's Current Report on Form 8-K for
event reported on October 30, 1997.)
2.04 Agreement and Plan of Merger dated as of November 22, 1999
among the Registrant, Slalom Acquisition Corp. and The DII
Group, Inc. Certain schedules have been omitted. The
Registrant agrees to furnish supplementally a copy of any
omitted schedule to the Commission upon request. (Included
as Annex A to the prospectus forming a part of this
Registration Statement and incorporated herein by
reference.)
3.01 Memorandum of Association of the Registrant. (Incorporated
by reference to Exhibit 3.1 of the Registrant's registration
statement on Form S-1, No. 33-74622.)
3.02 Articles of Association of the Registrant. (Incorporated by
reference to Exhibit 3.2 of the Registrant's registration
statement on Form S-4, No. 33-85842.)
4.01 Indenture dated as of October 15, 1997 between Registrant
and State Street Bank and Trust Company of California, N.A.,
as trustee. (Incorporated by reference to Exhibit 10.1 of
the Registrant's Current Report on Form 8-K for event
reported on October 15, 1997.)
5.01 Opinion of Allen & Gledhill.*
8.01 Tax Opinion of Arthur Andersen LLP regarding certain tax
aspects of the merger.*
8.02 Tax Opinion of Curtis, Mallet-Prevost, Colt & Mosle LLP
regarding certain tax aspects of the merger.*
15.01 Letter from Deloitte & Touche re unaudited interim financial
information.*
21.01 Subsidiaries of Registrant.**
23.01 Consent of Arthur Andersen LLP.*
23.02 Consent of Moore Stephens.*
23.03 Consent of Deloitte & Touche LLP.*
23.04 Consent of KPMG LLP.*
23.05 Consent of Allen & Gledhill (included in Exhibit 5.01).*
23.06 Consent of Ronald R. Budacz.**
23.07 Consent of Salomon Smith Barney Inc.**
23.08 Consent of Broadview International LLC (included as part of
Annex F to this Registration Statement).
23.09 Consent of Arthur Andersen LLP (included in Exhibit 8.01).*
23.10 Consent of Curtis, Mallet-Prevost, Colt & Mosle LLP
(included in Exhibit 8.02).*
24.01 Power of Attorney. (See the signature page of this
Registration Statement).**
24.02 Power of Attorney of Patrick Foley.*
99.01 Form of the Registrant's proxy card.**
99.02 Form of proxy card of The DII Group, Inc.**
</TABLE>
- -------------------------
* Filed herewith.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are filed herewith.
II-2
<PAGE> 144
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(2) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(3) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(6) The undersigned Registrant undertakes that every prospectus: (a) that
is filed pursuant to paragraph (5) immediately preceding, or (b) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Jose, State of California, on the 29th day
of February, 2000.
FLEXTRONICS INTERNATIONAL LTD.
By: /s/ MICHAEL E. MARKS
------------------------------------
Michael E. Marks
Chairman of the Board,
Chief Executive Officer
and Authorized Representative
in the United States
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ MICHAEL E. MARKS Chairman of the Board, and February 29, 2000
- ------------------------------------------------ Chief Executive Officer
Michael E. Marks (principal executive
officer)
/s/ ROBERT R.B. DYKES President, Systems Group February 29, 2000
- ------------------------------------------------ and Chief Financial Officer
Robert R.B. Dykes (principal financial and
accounting officer)
Director
- ------------------------------------------------
Tsui Sung Lam
/s/ MICHAEL J. MORITZ* Director February 29, 2000
- ------------------------------------------------
Michael J. Moritz
/s/ RICHARD L. SHARP* Director February 29, 2000
- ------------------------------------------------
Richard L. Sharp
/s/ PATRICK FOLEY* Director February 29, 2000
- ------------------------------------------------
Patrick Foley
/s/ ALAIN AHKONG* Director February 29, 2000
- ------------------------------------------------
Alain Ahkong
/s/ SHING LEONG HUI* Director February 29, 2000
- ------------------------------------------------
Shing Leong Hui
*By: /s/ MICHAEL E. MARKS February 29, 2000
------------------------------------------
Michael E. Marks
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 146
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------- -----
<C> <S>
2.01 Agreement among the Registrant, Alberton Holdings Limited
and Omac Sales Limited dated as of January 6, 1996.
(Incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K for the event
reported on February 2, 1996.)
2.02 Asset Transfer Agreement between Ericsson Business Networks
AB and Flextronics International Sweden AB dated as February
12, 1997. Certain schedules have been omitted. The
Registrant agrees to furnish supplementally a copy of any
omitted schedule to the Commission upon request.
(Incorporated by reference to Exhibit 2.6 of the
Registrant's registration statement on Form S-3, No.
333-21715.)
2.03 Exchange Agreement dated October 19, 1997 by and among the
Registrant, Neutronics Electronic Industries Holding A.G.
and the named Shareholders of Neutronics Electronic
Industries Holding A.G. (Incorporated by reference to
Exhibit 2 of the Registrant's Current Report on Form 8-K for
event reported on October 30, 1997.)
2.04 Agreement and Plan of Merger dated as of November 22, 1999
among the Registrant, Slalom Acquisition Corp. and The DII
Group, Inc. Certain schedules have been omitted. The
Registrant agrees to furnish supplementally a copy of any
omitted schedule to the Commission upon request. (Included
as Annex A to the prospectus forming a part of this
Registration Statement and incorporated herein by
reference.)
3.01 Memorandum of Association of the Registrant. (Incorporated
by reference to Exhibit 3.1 of the Registrant's registration
statement on Form S-1, No. 33-74622.)
3.02 Articles of Association of the Registrant. (Incorporated by
reference to Exhibit 3.2 of the Registrant's registration
statement on Form S-4, No. 33-85842.)
4.01 Indenture dated as of October 15, 1997 between Registrant
and State Street Bank and Trust Company of California, N.A.,
as trustee. (Incorporated by reference to Exhibit 10.1 of
the Registrant's Current Report on Form 8-K for event
reported on October 15, 1997.)
5.01 Opinion of Allen & Gledhill.*
8.01 Tax Opinion of Arthur Andersen LLP regarding certain tax
aspects of the merger.*
8.02 Tax Opinion of Curtis, Mallet-Prevost, Colt & Mosle LLP
regarding certain tax aspects of the merger.*
15.01 Letter from Deloitte & Touche re unaudited interim financial
information.*
21.01 Subsidiaries of Registrant.**
23.01 Consent of Arthur Andersen LLP.*
23.02 Consent of Moore Stephens.*
23.03 Consent of Deloitte & Touche LLP.*
23.04 Consent of KPMG LLP.*
23.05 Consent of Allen & Gledhill (included in Exhibit 5.01).*
23.06 Consent of Ronald R. Budacz.**
23.07 Consent of Salomon Smith Barney Inc.**
23.08 Consent of Broadview International LLC (included as Annex F
to this Registration Statement).
23.09 Consent of Arthur Andersen LLP (included in Exhibit 8.01).*
23.10 Consent of Curtis, Mallet-Prevost, Colt & Mosle LLP
(included in Exhibit 8.02).*
24.01 Power of Attorney. (See the signature page of this Form
S-4).**
24.02 Power of Attorney of Patrick Foley.*
99.01 Form of the Registrant's proxy card.**
99.02 Form of proxy card of the DII Group, Inc.**
</TABLE>
- -------------------------
* Filed herewith.
** Previously filed.
<PAGE> 147
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
FLEXTRONICS INTERNATIONAL LTD.
SLALOM ACQUISITION CORP.
AND
THE DII GROUP, INC.
NOVEMBER 22, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 148
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER........................................ A-1
1.1 The Merger............................................ A-1
1.2 Timing of the Merger................................ A-1
1.3 Effect of the Merger................................ A-2
1.4 Effect on Capital Stock............................. A-2
1.5 Surrender of Certificates........................... A-4
1.6 Director of Parent.................................. A-5
1.7 Tax and Accounting Consequences..................... A-6
1.8 Taking of Necessary Action; Further Action.......... A-6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY........ A-7
2.1 Organization and Good Standing...................... A-7
2.2 Subsidiaries and Other Interests.................... A-7
2.3 Certificate of Incorporation and Bylaws............. A-7
2.4 Authority........................................... A-7
2.5 Company Capital Structure........................... A-8
2.6 Obligations With Respect to Capital Stock........... A-9
2.7 SEC Filings; Company Financial Statements........... A-10
2.8 Absence of Certain Changes or Events................ A-11
2.9 Taxes............................................... A-12
2.10 Title to Properties; Absence of Encumbrances........ A-14
2.11 Intellectual Property............................... A-14
2.12 Compliance with Law; Permits; Restrictions.......... A-15
2.13 Litigation.......................................... A-16
2.14 Employee Benefit Plans.............................. A-16
2.15 Environmental Matters............................... A-19
2.16 Agreements, Contracts and Commitments............... A-20
2.17 Change of Control Payments.......................... A-21
2.18 Insurance........................................... A-22
2.19 Customers and Suppliers............................. A-22
2.20 Inventory........................................... A-22
2.21 Related Parties..................................... A-23
2.22 Disclosure.......................................... A-23
2.23 Board Approval...................................... A-24
2.24 Fairness Opinion.................................... A-24
2.25 Brokers' and Finders' Fees.......................... A-24
2.26 Affiliates.......................................... A-24
2.27 Pooling of Interests................................ A-24
2.28 No Existing Discussions............................. A-24
2.29 DGCL Section 203 Not Applicable..................... A-24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB................................................ A-24
3.1 Organization........................................ A-24
3.2 Subsidiaries and Other Interests.................... A-25
</TABLE>
i
<PAGE> 149
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.3 Certificate of Incorporation and Bylaws............... A-25
3.4 Authority........................................... A-25
3.5 Parent and Merger Sub Capital Structure............. A-26
3.6 Obligations With Respect to Capital Stock........... A-27
3.7 SEC Filings; Parent Financial Statements............ A-27
3.8 Absence of Certain Changes or Events................ A-28
3.9 Taxes............................................... A-29
3.10 Title to Properties; Absence of Encumbrances........ A-30
3.11 Intellectual Property............................... A-31
3.12 Compliance with Law; Permits; Restrictions.......... A-31
3.13 Litigation.......................................... A-32
3.14 Employee Benefit Plans.............................. A-32
3.15 Environmental Matters............................... A-33
3.16 Insurance........................................... A-34
3.17 Customers and Suppliers............................. A-35
3.18 Inventory........................................... A-35
3.19 Inventory........................................... A-35
3.20 Disclosure.......................................... A-36
3.21 Board Approval...................................... A-36
3.22 Brokers' and Finders' Fees.......................... A-36
3.23 Affiliates.......................................... A-36
3.24 Pooling of Interests................................ A-36
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.............. A-36
4.1 Conduct of Business................................. A-36
4.2 Cooperation......................................... A-40
ARTICLE V ADDITIONAL AGREEMENTS............................. A-40
5.1 Proxy Statement/Prospectus; Registration Statement;
Antitrust and Certain Other Filings................. A-40
5.2 Meeting of Company Stockholders..................... A-41
5.3 Meeting of Parent Shareholders...................... A-43
5.4 Confidentiality; Access to Information;
Standstill............................................. A-43
5.5 No Solicitation..................................... A-44
5.6 Public Disclosure................................... A-45
5.7 Reasonable Efforts; Notification.................... A-45
5.8 Third Party Consents................................ A-46
5.9 Stock Options, Warrants, ESPP and Employee
Benefits............................................... A-46
5.10 Form S-8............................................ A-48
5.11 Nasdaq Quotation.................................... A-48
5.12 Indemnification; Insurance.......................... A-48
5.13 Affiliate Agreements................................ A-49
5.14 Letter of Company's Accountants..................... A-49
5.15 Letter of Parent's Accountants...................... A-49
5.16 Takeover Statutes................................... A-50
5.17 Stockholder Litigation.............................. A-50
5.18 Pooling Accounting.................................. A-50
5.19 Rights Agreement.................................... A-50
</TABLE>
ii
<PAGE> 150
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VI CONDITIONS TO THE MERGER......................... A-50
6.1 Conditions to Obligations of Each Party to Effect
the Merger............................................. A-50
6.2 Additional Conditions to Obligations of Company..... A-51
6.3 Additional Conditions to the Obligations of Parent
and Merger Sub......................................... A-52
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............... A-53
7.1 Termination......................................... A-53
7.2 Notice of Termination; Effect of Termination........ A-55
7.3 Fees and Expenses................................... A-55
7.4 Amendment........................................... A-56
7.5 Extension; Waiver................................... A-56
ARTICLE VIII GENERAL PROVISIONS............................. A-56
8.1 Non-Survival of Representations and Warranties...... A-56
8.2 Notices............................................. A-56
8.3 Interpretation; Certain Defined Terms............... A-57
8.4 Counterparts........................................ A-58
8.5 Entire Agreement; Third Party Beneficiaries......... A-58
8.6 Severability........................................ A-58
8.7 Other Remedies; Specific Performance................ A-59
8.8 Governing Law....................................... A-59
8.9 Rules of Construction............................... A-59
8.10 Assignment.......................................... A-59
8.11 Disclosure Letter................................... A-59
8.12 WAIVER OF JURY TRIAL................................ A-59
</TABLE>
INDEX OF EXHIBITS
Exhibit A Form of Company Option Agreement
Exhibit B Form of Company Voting Agreement
Exhibit C Form of Parent Voting Agreement
Exhibit D Form of Company Affiliate Agreement
Exhibit E Form of Parent Affiliate Agreement
iii
<PAGE> 151
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of November 22, 1999, among Flextronics International Ltd., a Singapore
company ("Parent"), Slalom Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and The DII Group, Inc., a
Delaware corporation ("Company").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware Law, Parent and Company intend to enter into a
business combination transaction.
B. The Merger (as defined in Section 1.1) is intended to be treated as a
tax-free reorganization pursuant to the provisions of Section 368(a)(1)(A) of
the Code. The Merger is intended to be treated as a "pooling of interests" for
accounting and financial reporting purposes.
C. The respective Boards of Directors of Parent and Company have: (i)
determined that the Merger is advisable and fair to, and in the best interests
of, Parent and Company and their respective stockholders, (ii) approved this
Agreement, the Merger and the other transactions contemplated by this Agreement,
and (iii) determined to recommend that the respective shareholders of Parent and
Company adopt and approve this Agreement and approve the Merger.
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, Company
shall execute and deliver a Company Option Agreement in favor of Parent in
substantially the form attached hereto as Exhibit A (the "Company Option
Agreement"). The Board of Directors of Company has approved the Company Option
Agreement.
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
executive officers and directors of Company are entering into voting agreements
in substantially the form attached hereto as Exhibit B (the "Company Voting
Agreements").
F. Concurrently with the execution of this Agreement, and as a condition
and inducement to Company's willingness to enter into this Agreement, certain
executive officers and directors of Parent are entering into voting agreements
in substantially the form attached hereto as Exhibit C (the "Parent Voting
Agreements").
In consideration of the foregoing and the representations, warranties,
covenants and agreements set forth in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined herein) and subject to
and upon the terms and conditions of this Agreement and the applicable
provisions of Delaware Law, Merger Sub shall be merged with and into Company
(the "Merger"), the separate corporate existence of Merger Sub shall cease and
Company shall continue as the surviving corporation, and Company as the
surviving corporation will become a wholly-owned subsidiary of Parent. Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation."
1.2 Timing of the Merger.
(a) Effective Time. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing a certificate
of merger, in such form as is required by the relevant provisions of Delaware
Law, with the Secretary of State of the State of Delaware in accordance with the
relevant provisions of Delaware Law (the "Certificate of Merger"). The effective
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<PAGE> 152
time (the "Effective Time") shall occur upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or on such other
date as may be agreed in writing by Company and Parent and specified in the
Certificate of Merger, and shall occur as soon as practicable on or after the
Closing (as herein defined).
(b) Closing. The closing of the Merger (the "Closing") shall take place at
the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California
94306, on April 3, 2000; or if each of the conditions set forth in Article VI
shall not then have been satisfied or waived, as soon as practicable thereafter
(but not more than two (2) business days after the satisfaction or waiver of
each of such conditions), or at such other time, date and location as the
parties hereto agree in writing (the "Closing Date"); provided, that Parent
shall be entitled, by written notice to Company, to specify that the Closing
Date shall be such other date as may be specified in such written notice (which
other date shall be after January 31, 2000 and before April 3, 2000, and shall
be not less than five business days after the date of such notice), if each of
the conditions set forth in Article VI (other than the conditions set forth in
Sections 6.1(f), 6.2(d), 6.3(d) and the last sentence of each of Sections 6.2(a)
and 6.3(a)) shall have been satisfied or waived at or before the date of such
notice, in which case the Closing Date shall be such date as may be specified in
such written notice.
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, at the Effective Time all
the property, rights, privileges, powers and franchises of Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities, and
duties of Company and Merger Sub shall become the liabilities of the Surviving
Corporation.
(a) Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation.
(b) Bylaws. At the Effective Time, the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation.
(c) Directors and Officers of Surviving Corporation. The initial
directors of the Surviving Corporation shall be the directors of Merger Sub
immediately prior to the Effective Time, until their respective successors
are duly elected or appointed and qualified. The initial officers of the
Surviving Corporation shall be the officers of Merger Sub immediately prior
to the Effective Time, until their respective successors are duly
appointed.
1.4 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Parent, Merger Sub, Company or the holders of any of the
following securities:
(a) Conversion of Company Common Stock. Each share of common stock,
par value $0.01 per share, of Company (the "Company Common Stock") that is
issued and outstanding immediately prior to the Effective Time, other than
any shares of Company Common Stock to be canceled pursuant to Section
1.4(d), will be canceled and extinguished and automatically converted
(subject to Sections 1.4(c) and 1.4(f)) into the right to receive, and
shall be exchangeable for .805 (the "Exchange Ratio") of an ordinary share,
par value S$0.01 per share, in the capital of Parent (the "Parent Ordinary
Shares").
(b) Stock Options; Employee Stock Purchase Plans. At the Effective
Time, all options and other rights to purchase or receive Company Common
Stock then outstanding under Company's 1993 Stock Option Plan, 1994 Stock
Incentive Plan, KMOS Semiconductor, Inc. 1989 Stock Option Plan, KMOS
Semiconductor, Inc. 1990 Non-Qualified Stock Option Plan, OAC Acquisition
Corp. 1992 Stock Option/Stock Issuance Plan, Orbit Semiconductor, Inc. 1994
Stock Incentive Plan and any options that were not granted under any such
plans (collectively, the "Company Stock Option Plans") shall be assumed by
Parent in accordance with Section 5.9
A-2
<PAGE> 153
of this Agreement. Rights outstanding under Company's 1994 Employee Stock
Purchase Plan (the "ESPP") and Company's 1997 Non-Employee Directors' Stock
Compensation Plan (the "Directors' Stock Plan") shall be treated as set
forth in Sections 5.9(c) and 5.9(d) of this Agreement.
(c) Fractional Shares. No fraction of a Parent Ordinary Share will be
issued by virtue of the Merger, but in lieu thereof, each holder of shares
of Company Common Stock who would otherwise be entitled to a fraction of a
Parent Ordinary Share (after aggregating all fractional Parent Ordinary
Shares that otherwise would be received by such holder) shall be entitled
to receive an amount of cash (rounded to the nearest whole cent) equal to
the product of (i) such fraction, multiplied by (ii) the last sale price of
one Parent Ordinary Share on the last trading day prior to the Effective
Time, as reported on the Nasdaq Stock Market.
(d) Cancellation of Company-Owned and Parent-Owned Stock and Preferred
Stock. Each share of Company Common Stock held by Company or owned by
Merger Sub, Parent or any direct or indirect wholly-owned subsidiary of
Company or of Parent immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(e) Capital Stock of Merger Sub. Each share of Common Stock, par value
$0.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into one validly issued, fully paid
and nonassessable share of Common Stock, $0.01 par value per share, of the
Surviving Corporation. Each certificate evidencing ownership of shares of
the Common Stock of Merger Sub shall evidence ownership of such shares of
capital stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. If, between the date hereof and the
Effective Time Parent (i) recapitalizes either through a split-up of its
outstanding shares into a greater number of shares, or through a
combination of its outstanding shares into a lesser number of shares, or
(ii) reorganizes, reclassifies or otherwise changes its outstanding shares
into the same or a different number of shares of other classes (other than
through a split-up or combination of shares provided for in the previous
clause), or (iii) declares a dividend on its outstanding shares payable in
shares or securities convertible into shares, the Exchange Ratio will be
adjusted appropriately so as to maintain the proportionate interests of the
stockholders of Company in the outstanding Parent Ordinary Shares.
(g) Restricted Stock. If any shares of Company Common Stock that are
outstanding immediately prior to the Effective Time are unvested or are
subject to a repurchase option, risk of forfeiture or other condition
providing that such shares may be forfeited or repurchased by Company upon
any termination of the stockholders' employment, directorship, consulting
or other relationship with Company (and/or any affiliate of Company) under
the terms of any restricted stock purchase agreement or other agreement
with Company that does not by its terms provide that such repurchase
option, risk of forfeiture or other condition lapses upon consummation of
the Merger ("Company Restricted Stock"), then the Parent Ordinary Shares
issued upon the conversion of such shares of Company Common Stock in the
Merger will, to the extent permitted by applicable law, continue to be
unvested and subject to the same repurchase options, risks of forfeiture or
other conditions following the Effective Time, and the certificates
representing such Parent Ordinary Shares may accordingly be marked with
appropriate legends noting such repurchase options, risks of forfeiture or
other conditions. Company shall take all actions that may be necessary to
ensure that, from and after the Effective Time, Parent is, to the extent
permitted by applicable law, entitled to exercise any such repurchase
option or other right set forth in any such restricted stock purchase
agreement or other agreement other than with respect to any such repurchase
option, risk of forfeiture or other condition that by its terms lapses upon
consummation of the Merger. A listing of the holders of Company Restricted
Stock,
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<PAGE> 154
together with the number of shares of Company Restricted Stock held by
each, is set forth on Part 1.4(g) of the Company Disclosure Letter.
1.5 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust company reasonably
acceptable to Company to act as the exchange agent (the "Exchange Agent") in the
Merger pursuant to an exchange agent agreement reasonably acceptable to Company.
(b) Provision of Share Certificates for Parent Ordinary Shares and
Cash. Promptly, and in no event later than the tenth (10th) business day, after
the Effective Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article I, certificates representing the Parent
Ordinary Shares issuable pursuant to Section 1.4 in exchange for outstanding
shares of Company Common Stock, and cash in an amount sufficient for payment of
cash in lieu of fractional shares pursuant to Section 1.4(c) and any dividends
or distributions to which holders of shares of Company Common Stock may be
entitled pursuant to Section 1.5(d) (such Parent Ordinary Shares and cash being
referred to herein as the "Exchange Fund").
(c) Exchange Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (as of the Effective
Time) of a certificate or certificates ("Certificates"), which immediately prior
to the Effective Time represented outstanding shares of Company Common Stock
whose shares were converted into the right to receive Parent Ordinary Shares
pursuant to Section 1.4, (i) a letter of transmittal in customary form (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall contain such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Parent Ordinary Shares, cash in lieu of
any fractional shares pursuant to Section 1.4(c) and any dividends or other
distributions pursuant to Section 1.5(d). Upon surrender of Certificates for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor, and the
Exchange Agent shall deliver to the holders, certificates representing the
number of whole Parent Ordinary Shares into which their shares of Company Common
Stock were converted at the Effective Time, payment in lieu of fractional shares
which such holders have the right to receive pursuant to Section 1.4(c) and any
dividends or distributions payable pursuant to Section 1.5(d), and the
Certificates so surrendered shall forthwith be canceled. Until so surrendered,
outstanding Certificates will be deemed from and after the Effective Time, for
all corporate purposes, to evidence ownership of the number of whole Parent
Ordinary Shares into which such shares of Company Common Stock shall have been
so converted, and the right to receive an amount in cash in lieu of the issuance
of any fractional shares in accordance with Section 1.4(c) and any dividends or
distributions payable pursuant to Section 1.5(d). No interest shall be paid or
will accrue on any cash payable to holders of Certificates pursuant to the
provisions of this Article I.
(d) Distributions With Respect to Unexchanged Share Certificates. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Ordinary Shares with a record date after the
Effective Time will be paid to the holders of any unsurrendered Certificates
with respect to the Parent Ordinary Shares represented thereby until the holders
of record of such Certificates shall surrender such Certificates. Subject to
applicable law, following surrender of any such Certificates, the Exchange Agent
shall deliver to the record holders thereof, without interest, certificates
representing whole Parent Ordinary Shares issued in exchange therefor along with
payment in lieu of fractional shares pursuant to Section 1.4(c) hereof and the
amount of any such dividends or other distributions with a record date after the
Effective Time and theretofore paid with respect to such whole Parent Ordinary
Shares.
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<PAGE> 155
(e) Transfers of Ownership. If requests are received for certificates
representing Parent Ordinary Shares to be issued in a name other than that in
which the Certificates surrendered in exchange therefor are registered, it will
be a condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and accompanied by proper forms for transfer of the Parent
Ordinary Shares represented thereby and such other documents as may be required
by the Exchange Agent or Parent, as the case may be, and that the persons
requesting such issue will have paid to Parent or any agent designated by it any
transfer or other taxes required by reason of the transfer of such Parent
Ordinary Shares to such persons, or established to the satisfaction of Parent or
any agent designated by it that such tax has been paid or is not payable.
(f) Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing Parent Ordinary Shares into which the shares of Company Common
Stock represented by such Certificates were converted pursuant to Section 1.4,
cash for fractional shares, if any, as may be required pursuant to Section
1.4(c) and any dividends or distributions payable pursuant to Section 1.5(d);
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing Parent Ordinary
Shares, cash and other distributions, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
(g) No Further Ownership Rights in Company Common Stock. All Parent
Ordinary Shares issued in accordance with the terms hereof (including any cash
paid in lieu of fractional shares pursuant to Section 1.4(c)) shall be deemed to
have been issued in full satisfaction of all rights pertaining to the shares of
Company Common Stock represented by the Certificates surrendered therefor, and
there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If after the Effective Time
Certificates are presented to the Surviving Corporation for any reason, except
as otherwise provided by law, they shall be canceled and exchanged as provided
in this Article I, subject to Section 1.5(h).
(h) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of Company for 180 days after the
Effective Time shall be delivered to Parent, upon demand, and any stockholders
of Company who have not previously complied with Section 1.5(c) shall thereafter
look only to Parent for payment of their claim for Parent Ordinary Shares, any
cash in lieu of fractional Parent Ordinary Shares and any dividends or
distributions with respect to Parent Ordinary Shares.
(i) No Liability. Notwithstanding anything to the contrary in this Section
1.5, neither the Exchange Agent, Parent, the Surviving Corporation nor any party
hereto shall be liable to a holder of Parent Ordinary Shares or Company Common
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.6 Director of Parent.
(a) Parent shall take all actions necessary to cause the election and
appointment of Ronald Budacz, or such person as may be selected by Mr. Budacz
with the consent of Parent, which consent shall not be unreasonably withheld,
provided that such person is not an employee of Company or any of its
subsidiaries (the "Company Nominee"), to the Board of Directors of Parent (the
"Parent Board"), and his election to the position of Deputy Chairman, as of the
Effective Time.
(b) The Company Nominee shall hold his position as a member of the Parent
Board, and as Deputy Chairman, for a term of three (3) years if permitted by
Singapore law or the Articles and
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Memorandum of Association of Parent. If such term is not permitted by Parent's
Articles and Memorandum of Association and applicable law, the Company Nominee
shall hold such position until the next Annual General Meeting of the
shareholders of Parent, and Parent shall use all reasonable efforts to cause the
Company Nominee to be nominated and re-elected at such Annual General Meeting to
serve as a member of the Parent Board, unless he shall decline or be unable to
serve, until his resignation or removal or the election or appointment of his
successor in the manner provided by Parent's charter documents and applicable
law.
1.7 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall constitute a
non-taxable reorganization within the meaning of Section 368(a)(1)(A) of the
Code.
(b) Neither Parent nor Merger Sub nor the Surviving Corporation will report
the Merger or take any other action for tax purposes inconsistent with treatment
of the Merger as a reorganization within the meaning of Section 368 of the Code,
to the full extent permitted by the Code.
(c) It is intended by the parties hereto that the Merger be treated as a
pooling of interests for accounting purposes. Upon the written request of
Parent, Merger Sub and Company shall enter into an amendment to this Agreement
providing that in lieu of the Merger of Merger Sub with and into Company as
contemplated by this Article I, the structure of the transactions contemplated
by this Agreement would be modified so that Parent may effect an acquisition of
all of the outstanding Company Common Stock directly, or by an affiliate of
Parent or a trust established by Parent or an affiliate thereof, or may effect a
merger of Company with or into any other subsidiary or affiliate of Parent, in
each case on the terms specified in such written request of Parent; provided
that (a) the holders of Company Common Stock and holders of Company Options are
not and will not be adversely affected in any way thereby; (b) the transaction
provided for in such amendment qualifies as a tax free reorganization pursuant
to Internal Revenue Code Section 368(a) and that Company's stockholders shall
not incur any tax liability as a result thereof or with respect thereto; (c) the
transaction provided for in such amendment may be accounted for as a pooling of
interests under GAAP; (d) the transaction does not impose any additional
requirements or obligations upon Company (other than obligations arising after
the Effective Time) or adversely affect the ability of any of Company, Parent or
Merger Sub to satisfy the conditions to Closing by the scheduled Closing Date
set forth in Article VI hereof; and (e) the transaction shall not have any other
adverse effect on Company, its employees or operations prior to the Effective
Time or on Company's stockholders. In any proceeding in which there shall be any
dispute between Parent and Company as to whether any transaction meets the
criteria set forth in clauses (a) through (e) of the preceding sentence, Parent
shall have the burden of proof.
1.8 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Parent,
Company and Merger Sub will take all such lawful and necessary or desirable
action. Parent shall cause Merger Sub to perform all of its obligations relating
to this Agreement and the transactions contemplated hereby.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date of this Agreement and as of the Closing Date, Company
represents and warrants to Parent and Merger Sub, subject to the exceptions
specifically disclosed in writing (and referencing the specific representation
qualified thereby or to which exceptions specific references are made herein) in
the disclosure letter delivered by Company to Parent dated as of the date hereof
and certified by a duly authorized officer of Company (the "Company Disclosure
Letter"), as follows:
2.1 Organization and Good Standing. Company and each of its subsidiaries
(a) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized; (b) has the corporate or
other power and authority to own, lease and operate its assets and property and
to carry on its business as now being conducted; and (c) except as would not be
material to Company, is duly qualified or licensed to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary.
2.2 Subsidiaries and Other Interests. Other than the entities identified
in Part 2.2 of the Company Disclosure Letter, neither Company nor any of the
other entities identified in Part 2.2 of the Company Disclosure Letter owns any
capital stock of, or any equity interest of any nature in, any corporation,
partnership, joint venture arrangement or other business entity. Neither Company
nor any of its subsidiaries has agreed or is obligated to make, or is bound by
any written, oral or other agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan or legally binding commitment or
undertaking of any nature, as in effect as of the date hereof under which it may
become obligated to make any future investment in or capital contribution to any
other entity. Neither Company, nor any of its subsidiaries, has, at any time,
been a general partner of any general partnership, limited partnership or other
entity. Part 2.2 of the Company Disclosure Letter indicates the jurisdiction of
organization of each entity listed therein and Company's direct or indirect
equity interest therein.
2.3 Certificate of Incorporation and Bylaws. Company has delivered to
Parent a true and correct copy of: (a) the Certificate of Incorporation and
Bylaws of Company, as amended to date and as in full force in effect; and (b)
Company's minute book containing all records of all proceedings, consents,
actions and meetings during the past three (3) years of Company's stockholders,
Board of Directors and any committees of the Board of Directors (other than
minutes of the November 8, 1999 and November 20, 1999 meetings of the Board of
Directors of Company). Neither Company nor any of its subsidiaries is in
violation of any of the provisions of its Certificate of Incorporation or Bylaws
or equivalent governing instruments.
2.4 Authority.
(a) Company has all requisite corporate power and authority to enter into
this Agreement and the Company Option Agreement and to consummate the
transactions contemplated hereby and thereby, subject to approval by the
stockholders of Company. The execution and delivery of this Agreement and the
Company Option Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Company, subject, in the case of consummation of the Merger, only
to the approval and adoption of this Agreement and the approval of the Merger by
Company's stockholders. A vote of the holders of outstanding shares of the
Company Common Stock representing a majority of all votes entitled to be cast on
the matter is sufficient for Company's stockholders to approve and adopt this
Agreement and approve the Merger. This Agreement and the Company Option
Agreement have each been duly executed and delivered by Company and, assuming
the due authorization, execution and delivery by Parent and Merger Sub, each
constitutes the valid and binding obligation of Company, enforceable against
Company in accordance with its terms, except as enforceability may be limited by
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bankruptcy and other similar laws affecting the rights of creditors generally
and general principles of equity. The execution and delivery of this Agreement
and the Company Option Agreement by Company does not, and the performance of
this Agreement and the Company Option Agreement by Company will not, (i)
conflict with or violate the Certificate of Incorporation or Bylaws of Company
or the equivalent organizational documents of any of its subsidiaries, (ii)
subject to obtaining the approval and adoption of this Agreement and the
approval of the Merger by Company's stockholders as contemplated in Section 5.2
and compliance with the requirements set forth in Section 2.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Company or any of its subsidiaries or by which Company or any of its
subsidiaries or any of their respective properties is bound or affected, or
(iii) result in any material breach of or constitute a material default (or an
event that with notice or lapse of time or both would become a material default)
under, or impair Company's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a material lien or
Encumbrance on any of the material properties or assets of Company or any of its
subsidiaries pursuant to, any Company Contract (as defined in Section 2.16) or
any other material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise, concession, or other instrument or obligation to
which Company or any of its subsidiaries is a party or by which Company or any
of its subsidiaries or its or any of their respective assets are bound or
affected. Part 2.4 of the Company Disclosure Letter lists all consents, waivers
and approvals under any Company Contract or any other of Company's or any of its
subsidiaries' agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby,
which, if individually or in the aggregate not obtained, could reasonably be
expected to result in a material loss of benefits to Company, Parent or the
Surviving Corporation as a result of the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required to be obtained or
made by Company in connection with the execution and delivery of this Agreement
or the consummation of the Merger, except (i) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which Company is
qualified to do business, (ii) the filing of the Proxy Statement/Prospectus (as
defined in Section 2.22) with the SEC in accordance with the Exchange Act, (iii)
as may be required under applicable federal, foreign and state securities (or
related) laws and under the HSR Act, and the corresponding laws of any foreign
country, and (iv) such other consents, authorizations, filings, approvals and
registrations which if not obtained or made would not be material to Company or
Parent or have a material adverse effect on the ability of the parties hereto to
consummate the Merger.
2.5 Company Capital Structure.
(a) Stock. The authorized capital stock of Company consists of (i)
90,000,000 shares of Company Common Stock, par value $0.01 per share, of which
there were 38,266,719 shares issued and outstanding as of November 19, 1999,
including shares held in treasury, and (ii) 5,000,000 shares of Preferred Stock,
par value $0.01 per share, of which no shares are issued or outstanding. All
outstanding shares of Company Common Stock are duly authorized, validly issued,
fully paid and nonassessable and are not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of Company or any agreement
or document to which Company is a party or by which it is bound. As of November
19, 1999, there are 1,647,000 shares of Company Common Stock held in treasury by
Company.
(b) Options and Warrants. As of November 19, 1999, Company had reserved an
aggregate of 8,590,492 shares of Company Common Stock for issuance pursuant to
the Company Stock Option Plans (including shares subject to outstanding options
or other outstanding rights). Stock options and unvested performance shares
granted under the Company Stock Option Plans are respectively referred
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to in this Agreement as "Company Options" and "Performance Shares." As of
November 19, 1999, there were outstanding Company Options to purchase an
aggregate of 3,392,492 shares of Company Common Stock and rights to acquire
561,000 shares of Company Common Stock upon the vesting of Performance Shares
pursuant to the Company Stock Option Plans. As of November 19, 1999, there were
no warrants outstanding to purchase any shares of Company Common Stock. As of
November 19, 1999, there were available an aggregate of 543,562 shares of
Company Common Stock for issuance pursuant to Company's ESPP. All shares of
Company Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
Part 2.5 of the Company Disclosure Letter lists for each holder of Company
Options or Performance Shares as of November 19, 1999: (i) the name of such
holder; (ii) the exercise price of the Company Options; (iii) the vesting
schedule for the Company Options and the Performance Shares; and (iv) whether
the exercisability of the Company Options or the vesting of the Performance
Shares will be accelerated in any way by the transactions contemplated by this
Agreement and the extent of acceleration, if any.
(c) Compliance with Legal Requirements. All outstanding shares of Company
Common Stock, all outstanding Company Options, all Performance Shares and all
outstanding shares of capital stock of each subsidiary of Company have been
issued and granted in compliance with (i) all applicable securities laws and, to
the knowledge of Company, all other applicable Legal Requirements and (ii) all
material requirements set forth in applicable agreements or instruments.
(d) Vesting Acceleration. There are no commitments or agreements of any
character to which Company is bound obligating Company to accelerate the vesting
of any Company Options or Performance Shares as a result of the Merger.
(e) Option Records. Company has made available to Parent accurate, current
and complete copies of the Company Stock Option Plans and any other stock option
plans pursuant to which Company has granted stock options or other rights that
are currently outstanding and the form of all stock option agreements or other
agreements evidencing such options or rights.
(f) Ownership of Subsidiaries. All of the outstanding capital stock of, or
other ownership interests in, each subsidiary of Company is owned by Company,
directly or indirectly, free and clear of any Encumbrance and free of any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other ownership interests). There
are no issued or outstanding securities exchangeable or convertible into or
exercisable for equity securities or other ownership interests of any of the
Company's subsidiaries.
2.6 Obligations With Respect to Capital Stock.
(a) Except as set forth in Sections 2.5(a) and 2.5(b), there are no equity
securities of, or partnership interests or similar ownership interests in,
Company, or any securities exchangeable or convertible into or exercisable for
such equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding.
(b) Except as set forth in Section 2.5(b), there are no subscriptions,
options, warrants, calls, rights (including preemptive rights), commitments or
agreements of any character to which Company or any of its subsidiaries is a
party or by which it is bound obligating Company or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition
of, any shares of capital stock, partnership interests or similar ownership
interests of Company or any of its subsidiaries or obligating Company or any of
its subsidiaries to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment or
agreement.
(c) Except as contemplated by or disclosed elsewhere in this Agreement,
there are no registration rights and there is no voting trust, proxy, rights
plan, antitakeover plan or other agreement
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or understanding to which Company is a party or by which it is bound with
respect to any equity security of any class of Company or with respect to any
equity security, partnership interest or similar ownership interest of any class
of any of its subsidiaries. Stockholders of Company will not be entitled to
dissenters' or appraisal rights under applicable state law in connection with
the Merger.
2.7 SEC Filings; Company Financial Statements.
(a) SEC Filings Generally. Company has filed all forms, reports and
documents required to be filed by Company with the SEC since January 1, 1997 and
has made available to Parent such forms, reports and documents in the form filed
with the SEC. All such required forms, reports and documents (including those
that Company may file subsequent to the date hereof) are referred to herein as
the "Company SEC Reports." As of their respective dates, the Company SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Company SEC Reports and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading except to
the extent corrected by a subsequently filed Company SEC Report (except that
inaccuracies or omissions in Company SEC Reports filed prior to the date of this
Agreement may be corrected only by other Company SEC Reports filed prior to the
date of this Agreement). Taken as a whole, the Company SEC Reports do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except to the extent corrected prior to the date of this Agreement
by a subsequently filed Company SEC Report (except inaccuracies or omissions in
Company SEC Reports filed prior to the date of this Agreement may be corrected
only by other Company SEC Reports filed prior to the date of this Agreement).
None of Company's subsidiaries is required to file any forms, reports or other
documents with the SEC. Each of the Company SEC Reports included, as exhibits
thereto, all documents required to be filed as exhibits to such Company SEC
Report under the rules and regulations of the SEC, except to the extent filed
prior to the date of this Agreement in a subsequently filed Company SEC Report.
All agreements filed by Company as exhibits to Company SEC Reports, as displayed
on the World Wide Web via the EDGAR Service, conform to the agreements as
executed by all parties thereto and are in full force and effect as so filed,
except those which have expired in accordance with their terms or have been
revised as disclosed in the Company SEC Reports.
(b) Publicly Reported Financial Statements. Each of the consolidated
financial statements (including, in each case, any related notes thereto)
contained in the Company SEC Reports (the "Company Financials"), including each
Company SEC Report filed after the date hereof until the Closing, (i) complied
as to form in all material respects with the published rules and regulations of
the SEC with respect thereto, (ii) was prepared in accordance with GAAP applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto) and (iii) fairly presented in all material
respects the consolidated financial position of Company and its subsidiaries as
at the respective dates thereof and the consolidated results of Company's
operations and cash flows for the periods indicated, except to the extent
corrected by a subsequently filed Company SEC Report (except that inaccuracies
or omissions in Company SEC Reports filed prior to the date of this Agreement
may be corrected only by other Company SEC Reports filed prior to the date of
this Agreement), and except that the unaudited interim financial statements may
not contain footnotes and were or are subject to normal and recurring year-end
adjustments. The balance sheet of Company contained in Company SEC Reports as of
January 3, 1999 is hereinafter referred to as the "Company Balance Sheet." Since
January 1, 1997, there has been no change in Company's accounting policies
except as described in the notes to the Company Financials. Since the date of
the Company Balance Sheet, neither Company nor any of its subsidiaries has
incurred any liabilities
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(absolute, accrued, contingent or otherwise) which are, individually or in the
aggregate, material to the business, results of operations or financial
condition of Company and its subsidiaries taken as a whole, except for (i)
liabilities incurred since the date of the Company Balance Sheet in the ordinary
course of business consistent with past practices, (ii) liabilities incurred in
connection with this Agreement, and (iii) liabilities specifically disclosed in
Company SEC Reports filed with the SEC prior to the date of this Agreement.
(c) Interim Financial Statements. Company has delivered to Parent copies of
Company's unaudited consolidated balance sheet as of October 3, 1999 and income
statement and statement of cash flows for the nine months ended October 3, 1999
(the "Company Interim Financial Statements"). The Company Interim Financial
Statements: (i) are in accordance with the books and records of Company; (ii)
fairly present in all material respects Company's consolidated financial
condition at the date therein indicated and the consolidated results of
operations for the period therein specified; and (iii) have been prepared in
accordance with GAAP applied on a consistent basis (except that the Company
Interim Financial Statements may not contain footnotes required by GAAP and may
be subject to normal and recurring year-end adjustments).
(d) Amendments. Company has heretofore furnished to Parent a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Company with the SEC
pursuant to the Securities Act or the Exchange Act.
2.8 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet, Company and each of its subsidiaries has carried on its business
in the ordinary course consistent with past practices, and except as
specifically and expressly disclosed in the Company SEC Reports filed with the
SEC prior to the date of this Agreement, since the date of the Company Balance
Sheet there has not been:
(a) any change in the financial condition, properties, assets,
liabilities, business, results of operations or prospects of Company, which
change by itself or in conjunction with all other such changes, whether or
not arising in the ordinary course of business, has had or can reasonably
be expected to have a Company Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of, any
of Company's or any of its subsidiaries' capital stock, or any purchase,
redemption or other acquisition by Company of any of Company's capital
stock or any other securities of Company or its subsidiaries, or any
options, warrants, calls or rights to acquire any such shares or other
securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or
purchase agreements, other than transactions among Company and its
subsidiaries;
(c) any split, combination or reclassification of any of Company's or
any of its subsidiaries' capital stock;
(d) any granting by Company or any of its subsidiaries of any increase
in compensation or fringe benefits to any of their officers or employees
(except for increases in compensation to employees that are not officers or
directors of Company, in the ordinary course of business consistent with
prior practice), or any payment by Company or any of its subsidiaries of
any bonus to any of their officers or employees (except for payments made
to employees that are not listed on Part 2.8(d) of the Company Disclosure
Letter in the ordinary course of business consistent with prior practice,
and payments of bonuses to the employees listed on Part 2.8(d) of the
Company Disclosure Letter in the amounts specified thereon), or any
granting by Company or any of its subsidiaries of any increase in severance
or termination pay (except for grants made to employees that are not listed
on Part 2.8(d) of the Company Disclosure Letter in the ordinary course of
business consistent with prior practice) or any entry by Company or any of
its
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subsidiaries into, or material modification or amendment of, any currently
effective employment, severance, termination, change-of-control or
indemnification agreement or any agreement the benefits of which are
contingent or the terms of which are materially altered upon the occurrence
of a transaction involving Company of the nature contemplated hereby;
(e) any material change or alteration in the policy of Company
relating to the granting of stock options to its employees, directors and
consultants;
(f) any purchase or sale or other disposition, or any agreement or
other legally binding arrangement for the purchase, sale or other
disposition, of any of the properties or assets of Company or any of its
subsidiaries, other than purchases and sales of inventory and equipment in
the ordinary course of business consistent with past practice;
(g) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or
business of Company or any subsidiary;
(h) any material change by Company in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP
(or the applicability thereof);
(i) any material contingent liability incurred by Company or any of
its subsidiaries as guarantor or otherwise with respect to the obligations
of others or any cancellation of any material debt or claim owing to, or
waiver of any material right of, Company or any of its subsidiaries;
(j) any material obligation or liability of any nature, whether
accrued, absolute or contingent, incurred by Company other than obligations
and liabilities incurred in the ordinary course of business consistent with
past practice;
(k) any payment or discharge of a material Encumbrance or liability of
Company which was not shown in the Company Interim Financial Statements or
which was not incurred in the ordinary course of business thereafter;
(l) any revaluation by Company of any of its assets, including,
without limitation, writing off notes or accounts receivable other than in
the ordinary course of business;
(m) any material contract entered into by Company or any of its
subsidiaries, other than in the ordinary course of business and as provided
to Parent, or any material amendment or termination of, or default under,
any material contract to which Company or any of its subsidiaries is a
party or by which it or any of them is bound;
(n) any obligation or liability incurred by Company to any of its
officers, directors or stockholders, or any loans or advances made to any
of its officers, directors, stockholders or affiliates, except normal
compensation and expense allowances payable to officers;
(o) any other material transaction entered into by Company or any of
its subsidiaries other than transactions in the ordinary course of
business; or
(p) any agreement or understanding whether in writing or otherwise,
for Company or any of its subsidiaries to take any of the actions specified
in paragraphs (a) through (o) above.
2.9 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or
"Taxes" refers to (i) any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and (ii) any liability for payment of any amounts of the
type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group.
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(b) Tax Returns and Audits.
(i) Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to Taxes required to be filed
by or on behalf of Company and each of its subsidiaries with any Tax
authority, such Returns are true, correct and complete in all material
respects, and Company and each of its subsidiaries have paid all Taxes
shown to be due on such Returns;
(ii) Company and each of its subsidiaries have withheld with respect
to its employees all material (A) federal and state income taxes, (B) Taxes
pursuant to the Federal Insurance Contribution Act ("FICA"), (C) Taxes
pursuant to the Federal Unemployment Tax Act ("FUTA") and other material
Taxes required to be withheld;
(iii) Neither Company nor any of its subsidiaries has been delinquent
in the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Company or any of its
subsidiaries, nor has Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period
for the assessment or collection of any material Tax;
(iv) No audit or other examination of any Return of Company or any of
its subsidiaries by any Tax authority is presently in progress, nor has
Company or any of its subsidiaries been notified of any request for such an
audit or other examination;
(v) No material adjustment relating to any Returns filed by Company or
any of its subsidiaries has been proposed in writing formally or informally
by any Tax authority to Company or any of its subsidiaries or any
representative thereof;
(vi) Neither Company nor any of its subsidiaries has any liability for
unpaid Taxes which has not been accrued for or reserved on the Company
Balance Sheet, whether asserted or unasserted, contingent or otherwise,
which is material to Company, other than any liability for unpaid Taxes
that may have accrued since the date of the Company Balance Sheet in
connection with the operation of the business of Company and its
subsidiaries in the ordinary course, including, without limitation, as a
result of acquisitions;
(vii) There is no contract, agreement, plan or arrangement to which
Company is a party, including but not limited to the provisions of this
Agreement and the agreements entered into in connection with this
Agreement, covering any employee or former employee of Company or any of
its subsidiaries that, individually or collectively, would be reasonably
likely to give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code; there is
no contract, agreement, plan or arrangement to which Company is a party or
by which it is bound to compensate any individual for excise taxes paid
pursuant to Section 4999 of the Code;
(viii) Neither Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by Company;
(ix) Neither Company nor any of its subsidiaries is party to or has
any obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement;
(x) Except as may be required as a result of the Merger, Company and
its subsidiaries have not been and will not be required to include any
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions,
events or accounting methods employed prior to the Closing;
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(xi) None of Company's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(xii) Company has provided to Parent or its legal or accounting
representatives copies of all material foreign, federal and state income
tax and all state sales and use tax Returns for Company and each of its
subsidiaries filed for all periods which have been requested by Parent or
its representatives;
(xiii) There are no material Encumbrances on the assets of Company or
any subsidiary relating to or attributable to Taxes, other than
Encumbrances for Taxes not yet due and payable;
(xiv) None of Company or any of its subsidiaries (A) has been a member
of an affiliated group filing a consolidated federal income Return (other
than a group the common parent of which was Company), or (B) has any
liability or obligation for the Taxes of any Person (other than any of
Company and its subsidiaries) under Treasury Regulations Section 1.1502-6
(or any similar provision of state, local or foreign law), as a transferee
or successor, by contract, or otherwise; and
(xv) Neither Company nor any of its subsidiaries is subject to any
joint venture, partnership or other arrangement or contract that is treated
as a partnership for U.S. federal income tax purposes.
2.10 Title to Properties; Absence of Encumbrances.
(a) Part 2.10 of the Company Disclosure Letter lists each parcel of real
property owned by Company or any subsidiary and all real property leases to
which Company or any subsidiary is a party and each amendment thereto that is in
effect as of the date of this Agreement. All such current leases, and all
material leases of personal property, are in full force and effect, are valid
and effective in accordance with their respective terms, and afford Company and
each of its subsidiaries, in all material respects, peaceful and undisturbed
possession of the subject matter of the lease and there is not, under any of
such leases, any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default) by Company or any
of its subsidiaries that would give rise to a claim against Company or any
subsidiary in an amount greater than $100,000.
(b) Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Encumbrances, except as reflected in the Company
Financials and except for liens for taxes not yet due and payable and such
Encumbrances or other imperfections of title, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
(c) The plants, property and equipment of Company and its subsidiaries that
are used in the operations of their business are generally in good operating
condition and repair. All properties used in the operations of Company and its
subsidiaries are reflected in the Company Balance Sheet to the extent required
to be reflected under GAAP.
2.11 Intellectual Property.
(a) Title; Non-infringement. Company and each of its subsidiaries owns all
right, title and interest in, or has the right to use, sell or license all
patent applications, patents, trademark applications, trademarks, service marks,
trade names, copyright applications, copyrights, trade secrets, know-how,
technology, customer lists, proprietary processes and formulae, all source and
object code, algorithms, inventions, development tools and all documentation and
media constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records and other intellectual property and
proprietary rights used in or reasonably necessary or required for the conduct
of its respective business as presently conducted ("Company Intellectual
Property"). Set forth in
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Part 2.11 of the Company Disclosure Letter is a true and complete list of all
copyright and trademark registrations and applications and all patents and
patent applications for Company Intellectual Property owned by Company and each
of its subsidiaries. To the knowledge of Company, each such registration and
patent is valid and subsisting. Company is not aware of any material loss,
cancellation, termination or expiration of any such copyrights, trademarks,
patents, registrations or applications. To the knowledge of Company, the
business of Company and its subsidiaries does not cause Company or any of its
subsidiaries to infringe or violate any of the patents, trademarks, service
marks, trade names, mask works, copyrights, trade secrets, proprietary rights or
other intellectual property of any other person, and neither Company nor any of
its subsidiaries has received any written claim or notice of infringement or
potential infringement of the intellectual property of any other person. Neither
the manufacture, marketing, sale or intended use of any product currently
licensed or sold by Company or currently under development by Company violates
any license or agreement between Company and any third party. Company and each
of its subsidiaries has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all material Company Intellectual Property. Company is not aware of
any infringement of any Company Intellectual Property by any third party. There
are no royalties, fees or other payments payable by Company or any of its
subsidiaries to any person by reason of the ownership, use, license, sale or
disposition of the Company Intellectual Property.
(b) Year 2000. Company has taken reasonable steps to ensure that its
material systems and technology will record, store, process, calculate and
present calendar dates falling before, on and after (and if applicable, spans of
time including) January 1, 2000 and February 29, 2000 and will calculate any
information dependent on or relating to such dates in the same manner, and with
the same functionality, data integrity and performance, as the systems and
technology record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates (collectively, "Year 2000 Compliant"). Company has taken
reasonable steps to ensure that its systems, services and technology will lose
no functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000 and February 29, 2000. All of Company's and
its subsidiaries' internal computer and technology systems and services which
are critical or material to the operation of its business are Year 2000
Compliant. The Company Intellectual Property owned by the Company or any
subsidiary is Year 2000 Compliant. Neither the Company Intellectual Property
owned by the Company or any subsidiary nor any of the Company's material systems
and technology used in the provision of its services or used in the operation or
management of its business contains any significant defect in connection with
processing data containing dates in leap years or in the year 2000 or any
preceding or following years.
2.12 Compliance with Law; Permits; Restrictions.
(a) Neither Company nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of any law, rule,
regulation, order, judgment or decree applicable to Company or any of its
subsidiaries or by which Company or any of its subsidiaries or any of their
respective properties is bound or affected. No investigation or review by any
Governmental Entity is pending or, to Company's knowledge, has been threatened
in a writing delivered to Company against Company or any of its subsidiaries,
nor, to Company's knowledge, has any Governmental Entity indicated an intention
to conduct an investigation of Company or any of its subsidiaries with respect
to any alleged violation in any material respect of any law, rule, regulation,
order, judgment or decree applicable to Company or any of its subsidiaries.
(b) Company and its subsidiaries hold, to the extent legally required, all
permits, licenses, variances, exemptions, orders and approvals from governmental
authorities that are material to and required for the operation of the business
of Company as currently conducted (collectively, the "Company Permits"). Company
and its subsidiaries are in compliance in all material respects with the terms
of the Company Permits.
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2.13 Litigation. There are no claims, suits, actions or proceedings
pending or, to the knowledge of Company, threatened against, relating to or
affecting Company or any of its subsidiaries, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Company Material Adverse Effect or which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the Merger or any of the
other transactions contemplated hereby. No Governmental Entity has at any time
challenged or questioned in a writing delivered to Company the legal right of
Company to design, offer or sell any of its products or services in the present
manner or style thereof. As of the date hereof, to the knowledge of Company, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that would reasonably be expected to, cause or provide a
bona fide basis for a director or executive officer of Company to seek
indemnification from Company.
2.14 Employee Benefit Plans.
(a) Definitions. With the exception of the definitions of "Affiliate,"
"Employee" and "Employee Agreement" set forth in Section 2.14(a)(i), (v) and
(vi) below (which definitions shall apply only to this Section 2.14), for
purposes of this Agreement, the following terms shall have the meanings set
forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations issued thereunder;
(ii) "Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten, funded or unfunded,
including without limitation, each "employee benefit plan," within the
meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by Company or any
Affiliate for the benefit of any Employee;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "Employee" shall mean any current, former, or retired employee,
officer, or director of Company or any Affiliate;
(vi) "Employee Agreement" shall mean each management, employment,
severance, consulting, relocation or similar agreement or contract between
Company or any Affiliate and any Employee or consultant that provides for
annual compensation to such Employee or consultant in excess of $150,000;
(vii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(ix) "IRS" shall mean the Internal Revenue Service;
(x) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xi) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xii) "Pension Plan" shall mean each Company Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
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(b) List of Plans and Agreements. Part 2.14 of the Company Disclosure
Letter contains an accurate and complete list of each Company Employee Plan.
Company does not have any plan or commitment to establish any new Company
Employee Plan, to modify any Company Employee Plan (except to the extent
required by law or to conform any such Company Employee Plan to the requirements
of any applicable law, in each case as previously disclosed to Parent in
writing, or as required by this Agreement), or to enter into any Company
Employee Plan, nor does it have any intention or commitment to do any of the
foregoing.
(c) Documents. Company has provided to Parent: (i) correct and complete
copies of each Company Employee Plan including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three (3)
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan or related trust (other than with
respect to employee welfare plans (as defined in Sections 3(1) of ERISA) for
which Company provided to Parent the two (2) most recent such annual reports);
(iv) if the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the summary of material modifications thereto, if any,
required under ERISA with respect to each Company Employee Plan; (vi) all IRS
determination, opinion, notification and advisory letters, and rulings relating
to Company Employee Plans; (vii) all material written agreements and contracts
relating to each Company Employee Plan, including, but not limited to,
administrative service agreements, group annuity contracts and group insurance
contracts; and (viii) all written communications distributed to any Employee or
Employees relating to any Company Employee Plan and any proposed Company
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to Company.
(d) Employee Plan Compliance. (i) Company and its subsidiaries have
performed in all material respects all obligations required to be performed by
them under, are not in default or violation of, and have no knowledge of any
default or violation by any other party to any Company Employee Plan, and each
Company Employee Plan has been established and maintained in all material
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) each Company Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code has either received a favorable determination letter from the
IRS with respect to each such Plan as to its qualified status under the Code or
has remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a determination letter and make any
amendments necessary to obtain a favorable determination and no event has
occurred which would adversely affect the status of such determination letter or
the qualified status of such Plan; (iii) no "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, which is
not otherwise exempt under Section 408 of ERISA, has occurred with respect to
any Company Employee Plan; (iv) there are no actions, suits or claims pending,
or, to the knowledge of Company, threatened or reasonably anticipated (other
than routine claims for benefits) against any Company Employee Plan or against
the assets of any Company Employee Plan; (v) subject to applicable law, each
Company Employee Plan can be amended, terminated or otherwise discontinued after
the Effective Time in accordance with its terms, without liability to Parent,
Company or any of its Affiliates (other than ordinary administration expenses
typically incurred in a termination event); (vi) there are no audits, inquiries
or proceedings pending or, to the knowledge of Company, threatened by the IRS or
DOL with respect to any Company Employee Plan; and (vii) neither Company nor any
Affiliate is subject to any penalty or tax with respect to any Company Employee
Plan under Section 402(i) of ERISA or Sections 4975 through 4980 of the Code.
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(e) Pension Plans. Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has Company or any subsidiary
contributed to or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Company Employee Plan provides, or
has any obligation to provide, retiree life insurance, retiree health or other
retiree employee welfare benefits to any person for any reason, except as may be
required by COBRA or other applicable law, and Company has never represented,
promised or contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) or any other person that such
Employee(s) or other person would be provided with retiree life insurance,
retiree health or other retiree employee welfare benefit, except to the extent
required by law.
(h) COBRA; FMLA. Neither Company nor any subsidiary nor, to Company's
knowledge, any other Affiliate has, prior to the Effective Time, and in any
material respect, violated any of the health care continuation requirements of
COBRA, any material requirements of FMLA or any material provisions of any
similar provisions of state law applicable to its Employees, except where the
same would not have a Company Material Adverse Effect.
(i) Contributions. All contributions due from the Company and any Affiliate
with respect to any of the Company Employee Plans have been made or accrued on
the Company Balance Sheet or arose after the date of the Company Balance Sheet
in the ordinary course of business consistent with past practices including as a
result of acquisitions.
(j) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, or a related trust or loan, that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee, other than any such
effects or any restrictions resulting under applicable laws of Singapore from or
in connection with Parent's assumption of its obligations hereunder.
(k) Employment Matters. Company and each of its subsidiaries: (i) is in
compliance in all material respects with all applicable foreign, federal, state
and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) has properly classified independent contractors for purposes of
federal and applicable state tax laws, laws applicable to employee benefits and
other applicable laws; (iv) is not liable for any arrears of wages or any taxes
or any penalty for failure to comply with any of the foregoing; and (v) is not
liable for any material payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice), in each case, except where failure
to be in compliance, to withhold or to properly classify such withholding could
not reasonably be expected to result in a material liability to Company. Company
and its subsidiaries have good labor relations, and Company has no knowledge of
any facts indicating that the consummation of the transactions provided for
herein will have a material adverse effect on its labor relations, and has no
knowledge that any of its officers or management employees, or any significant
number or other employees, intends to leave its employ. There are no pending,
or, to Company's knowledge, threatened or reasonably anticipated material claims
or actions against Company under any worker's compensation policy or long-term
disability
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policy. To Company's knowledge, no Employee of Company has materially violated
any employment contract, nondisclosure agreement or noncompetition agreement by
which such Employee is bound due to such Employee being employed by Company or
disclosing to Company or using trade secrets or proprietary information of any
other person or entity.
(l) Labor. No work stoppage, labor strike or other material labor dispute
against Company is pending, threatened or reasonably anticipated. Company does
not know of any activities or proceedings of any labor union to organize any
Employees. There are no actions, suits, claims, labor disputes or grievances
pending, or, to the knowledge of Company, threatened or reasonably anticipated
relating to any labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in any material liability to Company. Neither
Company nor any of its subsidiaries has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act. Company is not
presently, nor has it been in the past, a party to, or bound by, any collective
bargaining agreement or union contract with respect to Employees and no
collective bargaining agreement is being negotiated by Company. All employees of
the Company, and its United States Subsidiaries are legally permitted to be
employed by Company or such subsidiary in the United States of America.
2.15 Environmental Matters. To Company's knowledge:
(a) Compliance with Law. Each of Company, its subsidiaries and its
predecessors has complied and is in compliance in all material respects with all
Environmental, Health, and Safety Requirements. For purposes of this Agreement,
"Environmental, Health, and Safety Requirements" shall mean all statutes,
regulations, ordinances and other provisions having the force or effect of law,
all judicial and administrative orders and determinations, all contractual
obligations and all laws concerning public health and safety, worker health and
safety, and pollution or protection of the environment, including without
limitation all those relating to the presence, use, production, generation,
handling, transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or cleanup
of any Hazardous Materials, each as amended and as now or hereafter in effect.
"Hazardous Materials" means any toxic or hazardous substances, materials,
chemicals or wastes, pollutants, contaminants, toxic chemicals, petroleum
fractions, distillates, products or byproducts, asbestos, radioactive substances
and polychlorinated biphenyls, as those terms are defined in the following
statutes: the Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA"), 42 U.S.C. sec.9601, et seq.; the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. sec.6901, et seq.; the Toxic Substances Control
Act, 15 U.S.C. sec.2601, et seq.; the Clean Air Act, 42 U.S.C. sec.7401, et
seq.; the Clean Water Act, 33 U.S.C. sec.1251, et seq.; the Hazardous Materials
Transportation Authorization Act, 49 U.S.C. sec.5101, et seq.; and the
Occupational Safety and Health Act, 29 U.S.C. sec.651, et seq., or any related,
comparable or analogous law of the particular state, province or country in
which a particular Company facility is located.
(b) Neither Company, its subsidiaries nor their respective predecessors has
received any written or oral notice, report, demand, citation, request for
information, complaint or other information regarding any actual or alleged
violation of Environmental, Health, and Safety Requirements, or any liabilities
or potential liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), arising under Environmental, Health, and Safety Requirements.
Neither Company nor any of its subsidiaries is a potentially responsible party
under CERCLA, RCRA, or any similar law of the state, province or country in
which a Company facility is located. There have not been in the past, and are
not now, any Hazardous Materials on, under or migrating to or from any real
property owned or leased by it or any of its subsidiaries which could reasonably
be expected to result in a material liability to Company. There have not been in
the past, and are not now, any aboveground tanks, underground tanks or
underground pipes, lines, connections or other improvements at, on or under
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any real property owned or leased by it or any of its subsidiaries, including,
without limitation, treatment or storage tanks, sumps, or water, gas or oil
wells, except in accordance with applicable Environmental, Health and Safety
Requirements. Company has not deposited, released, spilled, discharged or
disposed of Hazardous Materials on any real property owned or leased by it or
any of its subsidiaries, except in accordance with applicable Environmental
Health and Safety Requirements, which could reasonably be expected to result in
a material liability to Company.
(c) None of Company, its subsidiaries, or their respective predecessors has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any Hazardous Material, or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a manner
that violates any Environmental, Health and Safety Requirements or would give
rise to material liabilities, including any liability for response costs,
corrective action costs, personal injury, property damage, natural resources
damages, administrative or civil penalties or criminal fines or penalties, or
attorney fees, pursuant to any Environmental, Health, and Safety Requirements
which, in any case, could reasonably be expected to result in a material
liability to Company.
(d) Liability for Others. Neither Company, its subsidiaries nor its
predecessors has, either expressly or by operation of law, assumed, retained or
undertaken any liability, including without limitation any obligation for
corrective or remedial action, of any other person or entity relating to
Environmental, Health, and Safety Requirements other than in connection with any
acquisitions of the assets, businesses or operations of another person or
entity, or which could reasonably be expected to result in a material liability
to Company.
(e) Ongoing Compliance. Company has not received written notice of any
facts, events, conditions or systems relating to the past or present facilities,
properties or operations of any of Company, its subsidiaries, its and their
respective predecessors which could prevent ongoing or continued compliance in
all material respects with applicable Environmental, Health, and Safety
Requirements, give rise to any material obligations pursuant to Environmental,
Health, and Safety Requirements, or give rise to any administrative or civil
penalties or criminal fines or penalties or any other material liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to
Environmental, Health, and Safety Requirements, including, without limitation,
any liabilities relating to onsite or offsite releases or threatened releases of
Hazardous Materials, personal injury, property damage or natural resources
damage.
2.16 Agreements, Contracts and Commitments. Neither Company nor any of its
subsidiaries is a party to or is bound by:
(a) any employment agreement, contract or commitment providing for
annual compensation in excess of $150,000 with any employee or member of
Company's Board of Directors, other than those that are terminable by
Company or any of its subsidiaries on no more than thirty days notice
without liability or financial obligation, except to the extent general
principles of wrongful termination law may limit Company's or any of its
subsidiaries' ability to terminate employees at will, or any consulting
agreement;
(b) any agreement of indemnification (other than indemnities of banks
and other financial institutions, financial advisers or underwriters or
indemnification provisions contained in any acquisition, disposition or
similar agreements or otherwise provided in the ordinary course of
business), any guaranty or any instrument evidencing indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase
money obligation, conditional sale, or otherwise, other than any such
instruments between or among Company and its subsidiaries or financing
facilities and borrowings thereunder made available to Company's
subsidiaries, divisions and facilities to finance their respective local or
regional operations;
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(c) any agreement, obligation or commitment containing covenants
purporting to limit or which effectively limit Company's or any of its
subsidiaries' freedom to compete in any material line of business or in any
geographic area or which would so limit Company or Surviving Corporation or
any of its subsidiaries or any employees of any thereof after the Effective
Time or granting any exclusive distribution or other exclusive rights;
(d) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Company or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Company's subsidiaries;
(e) any supply agreement, manufacturing agreement or purchase order to
which Company or one of its subsidiaries is a party which (i) may not be
canceled by Company or its subsidiary, as the case may be, without penalty
upon notice of 30 days or less, and (ii) which is material to Company;
(f) any license agreement under which Company or any of its
subsidiaries is licensor; or under which Company or any of its subsidiaries
is licensee (except for standard "shrink wrap" licenses for off-the-shelf
software products);
(g) any agreement by Company or any of its subsidiaries to encumber,
transfer or sell rights in or with respect to any Company Intellectual
Property;
(h) any joint venture contract or arrangement or any other agreement
that involves a sharing of profits with other persons or the payment of
royalties to any other person;
(i) any agreement, contract or commitment relating to capital
expenditures and which involves future payments in excess of $500,000 and
which is not made in the ordinary course of business consistent with past
practices; or
(j) any other agreement, contract or commitment currently in effect
that is material to Company's and its subsidiaries business, taken as a
whole, as presently conducted and proposed to be conducted.
Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to any contracts or commitments to which Company or any of its
subsidiaries is a party or by which it is bound that are required to be
disclosed in the Company Disclosure Letter pursuant to clauses (a) through (j)
above or pursuant to Section 2.11 hereof or are required to be filed as exhibits
to any Company SEC Report (any such agreement, contract or commitment, a
"Company Contract"), is in breach, violation or default thereunder, and neither
Company nor any of its subsidiaries has received written notice that it has
breached, violated or defaulted under, any of the material terms or conditions
of any Company Contract, in such a manner as would permit any other party to
cancel or terminate such Company Contract, could reasonably be expected to cause
the loss of any material benefit or result in any material liability to the
Company or any subsidiary, or would permit any other party to seek material
damages or other remedies (for any or all of such breaches, violations or
defaults, in the aggregate). Each Company Contract is in full force and effect.
No Company Contract has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of Company or any of
its subsidiaries, any acquisition of material property by Company or any of its
subsidiaries or the conduct of business by Company as currently conducted.
2.17 Change of Control Payments. Part 2.17 of the Company Disclosure
Letter sets forth each plan or agreement pursuant to which any amounts may
become payable (whether currently or in the future) to current or former
officers and directors of Company as a result of or in connection with the
Merger or as a result of termination of service or employment following the
Merger.
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2.18 Insurance. Company and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting business or owning assets similar to those of Company and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies have been paid and Company and its subsidiaries are otherwise in
compliance in all material respects with the terms of such policies and bonds.
To the knowledge of Company, there has been no threatened termination of, or
material premium increase with respect to, any of such policies.
2.19 Customers and Suppliers.
(a) Customers. Neither Company nor any of its subsidiaries has outstanding
material disputes concerning its goods and/or services with any customer who, in
the nine months ended October 3, 1999, was one of the twenty (20) largest
sources of revenues for Company, based on amounts paid (a "Company Significant
Customer") and Company has no knowledge of any material dissatisfaction on the
part of any Company Significant Customer. No current Company Significant
Customer has notified Company that it does not intend to continue as a customer
of Company or its subsidiaries after the Closing or that such customer intends
to terminate or materially modify existing contracts or arrangement with Company
or subsidiaries. Part 2.19(a) of the Company Disclosure Letter lists each
Company Significant Customer.
(b) Accounts Receivable. Part 2.19(b) of the Company Disclosure Letter
provides an accurate and complete breakdown and aging of the accounts receivable
and notes receivable of Company and its subsidiaries as of November 19, 1999,
categorized by period of aging (30, 60, 90 or 120 more days, and indicating
which receivables are subject to asserted warranty claims). Such accounts
receivable arose in the ordinary course of business and have been collected or
are collectible in the book amounts thereof, less allowances for doubtful
accounts and warranty returns determined in accordance with the past practices
of Company.
(c) Suppliers. Neither Company nor its subsidiaries have any outstanding
material disputes concerning goods or services provided by any supplier who, in
the nine months ended October 3, 1999, was one of the twenty (20) largest
suppliers of goods and services to Company, based on amounts paid for products
not readily available from another source ("Significant Supplier"). Company has
not received any written notice of a termination or interruption of any existing
contracts or arrangements with any Significant Suppliers. Company and its
subsidiaries have access, on reasonable terms, to all goods and services
reasonably necessary to them to carry on their business as currently conducted
and Company has no knowledge of any reason why Company and its subsidiaries will
not continue to have such access on reasonable terms subject to general industry
conditions relating to availability of components. No Significant Supplier has
notified Company or any of its subsidiaries that it will stop or materially
decrease the rate of supplying materials, products or services to Company. Part
2.19(c) of the Company Disclosure Letter lists each Significant Supplier.
(d) Warranties and Product Returns. Company's obligations to its customers
with respect to defects in materials or workmanship is generally limited to an
obligation to repair or replace the product in question. Since January 3, 1999,
Company has not had any of its products returned by a customer except for normal
warranty returns consistent with past history and those returns that would not
result in a reversal of any revenue by Company.
2.20 Inventory. The inventory of Company and its subsidiaries reflected in
the Company Interim Financial Statements (the "Inventory") was valued at cost
(determined on a first-in, first-out basis) or market, whichever is lower. The
Inventory is in all material respects of good and merchantable quality and is
readily usable and salable in the ordinary course of Company's businesses,
except for items of obsolete materials and materials of below standard quality,
substantially all of which have been written down to realizable market value, or
for which adequate
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reserves have been provided, in the Company Interim Financial Statements. For
Inventory manufactured to customer specifications effectively rendering the
Inventory salable only to that customer, the terms of the sales contracts
applicable thereto require the customer to acquire such Inventory (to the extent
of the quantity limits specified in such sales contracts) if it is manufactured
and delivered in accordance with such sales contracts.
2.21 Related Parties. Except as disclosed in Part 2.21 of the Company
Disclosure Letter or in Company's Proxy Statement dated March 31, 1999 relating
to its 1999 Annual Meeting of Stockholders, there are no undischarged contracts
or agreements or other material transactions between Company or any of its
subsidiaries, on the one hand, and any director or officer of Company or any of
their respective Related Persons (as defined below), on the other hand, and no
director or officer of the Company or any of their respective Related Persons
have any interest in any of the assets of Company or any of its subsidiaries, in
each case, which would be required to be disclosed pursuant to Item 404 of
Regulation S-K. Except as set forth in the Company SEC Reports, since the date
of Company's last proxy statement filed with the SEC, no event has occurred as
of the date of this Agreement that would be required to be reported by Company
pursuant to Item 404 of Regulation S-K promulgated by the SEC. No director or
officer of Company or any of their respective Related Persons has any claim,
charge, action or cause of action against Company or any of its Subsidiaries,
except for claims for accrued vacation pay, accrued benefits under the Company
Benefit Plans, claims for compensation, expense reimbursement and similar
obligations. "Related Persons" means each other member of such individual's
Family who is directly or indirectly controlled by such individual. "Family" of
an individual includes (A) such individual, (B) the individual's spouse,
siblings, or ancestors, (C) any lineal descendant of such individual, or their
siblings, or ancestors or (D) a trust for the benefit of any of the foregoing.
2.22 Disclosure. The information supplied by Company for inclusion in the
Form S-4 (or any similar successor form thereto) Registration Statement to be
filed by Parent with the SEC in connection with the issuance of Parent Ordinary
Shares in the Merger (the "Registration Statement") shall not at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The information supplied by Company
for inclusion in the proxy statement/prospectus to be sent to the stockholders
of Company in connection with the meeting of Company's stockholders to consider
the approval and adoption of this Agreement and the approval of the Merger (the
"Company Stockholders' Meeting") and to the shareholders of Parent in connection
with the meeting of Parent's shareholders to consider the approval of the
issuance of the Parent Ordinary Shares pursuant to the Merger (the "Parent
Shareholders' Meeting") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "Proxy Statement/Prospectus") shall
not, on the date the Proxy Statement/ Prospectus is mailed to Company's
stockholders or Parent's shareholders, at the time of the Company Stockholders'
Meeting or the Parent's Shareholder Meeting, respectively, or as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not false or misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders' Meeting which has become false or
misleading. The Proxy Statement/ Prospectus will comply as to form in all
material respects with the provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder. If at any time prior to the Effective
Time any event relating to Company or any of its affiliates, officers or
directors should be discovered by Company which is required to be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Company shall promptly inform Parent.
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Notwithstanding the foregoing, Company makes no representation or warranty with
respect to any information supplied by Parent or Merger Sub which is contained
in any of the foregoing documents.
2.23 Board Approval. The Board of Directors of Company has, as of the date
of this Agreement, unanimously determined (a) that the Merger is advisable and
fair to, and in the best interests of Company and its stockholders, and (b) to
recommend that the stockholders of Company approve and adopt this Agreement and
approve the Merger.
2.24 Fairness Opinion. Company's Board of Directors has received written
opinions from its financial advisors, Salomon Smith Barney Inc. and Broadview
International LLC, dated as of the date hereof, to the effect that the Exchange
Ratio is fair to Company's stockholders from a financial point of view, and have
delivered to Parent a copy of such opinions.
2.25 Brokers' and Finders' Fees. Except for fees payable to Salomon Smith
Barney Inc. and Broadview International LLC pursuant to engagement letters dated
October 18, 1999, copies of which have been provided to Parent, Company has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
2.26 Affiliates. Part 2.26 of the Company Disclosure Letter is a complete
list of those persons who may be deemed to be, in Company's reasonable judgment,
affiliates of Company within the meaning of Rule 145 promulgated under the
Securities Act (each, a "Company Affiliate").
2.27 Pooling of Interests. To the knowledge of Company, based on
consultation with its independent accountants, neither Company nor any of its
directors, officers, affiliates or stockholders has taken or agreed to take any
action which would preclude Parent's ability to account for the Merger as a
pooling of interests. Company is autonomous and has not been a subsidiary or
division or another corporation or other entity since May 21, 1993. Since
December 31, 1996, Company has not (a) paid any dividends or effected any other
distributions to its stockholders other than distributions to Company's
stockholders paid solely in shares of Company Common Stock, (b) reacquired or
purchased any Shares of its capital stock, (c) changed any of its equity
interests, or (d) sold significant assets in contemplation of a merger.
2.28 No Existing Discussions. As of the date hereof, Company is not
engaged, directly or indirectly, in any discussion or negotiations with any
other party with respect to any Company Acquisition Proposal (as defined in
Section 5.5).
2.29 DGCL Section 203 Not Applicable. The Board of Directors of Company
has taken all actions on its part required so that the restrictions contained in
Section 203 of the Delaware General Corporation Law applicable to a "business
combination" (as defined in such Section 203) will not apply to the Company's
execution, delivery or performance of this Agreement or to the consummation of
the Merger or the other transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As of the date of this Agreement and as of the Closing Date, Parent and
Merger Sub represent and warrant to Company, subject to the exceptions
specifically disclosed in writing (and referencing the specific representation
qualified thereby or to which exceptions specific references are made herein) in
the disclosure letter delivered by Parent to Company dated as of the date hereof
and certified by a duly authorized officer of Parent (the "Parent Disclosure
Letter"), as follows:
3.1 Organization. Parent and each of its subsidiaries (including Merger
Sub) (a) is a corporation duly organized and validly existing under the laws of
the jurisdiction in which it is organized; (b) has the corporate or other power
and authority to own, lease and operate its assets and property and to carry on
its business as now being conducted; and (c) except as would not be
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material to Parent, is duly qualified or licensed to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary.
3.2 Subsidiaries and Other Interests. Other than the entities identified
in Part 3.2 of the Parent Disclosure Letter, neither Parent nor any of the other
entities identified in Part 3.2 of the Parent Disclosure Letter owns any capital
stock of, or any equity interest of any nature in, any corporation, partnership,
joint venture arrangement or other business entity, except for passive
investments not exceeding five percent (5%) of any entity's ownership in equity
interests of companies as part of the cash management program of Parent. Neither
Parent nor any of its subsidiaries has agreed or is obligated to make, or is
bound by any written, oral or other agreement, contract, subcontract, lease,
binding understanding, instrument, note, option, warranty, purchase order,
license, sublicense, insurance policy, benefit plan or legally binding
commitment or undertaking of any nature, as in effect as of the date hereof
under which it may become obligated to make any future investment in or capital
contribution to any other entity. Neither Parent, nor any of its subsidiaries,
has, at any time, been a general partner of any general partnership, limited
partnership or other entity. Part 3.2 of the Parent Disclosure Letter indicates
the jurisdiction of organization of each entity listed therein and Parent's
direct or indirect equity interest therein.
3.3 Certificate of Incorporation and Bylaws. Parent has delivered or made
available to Company a true and correct copy of: (a) the Articles of Association
and Memorandum of Association of Parent, as amended to date and as in full force
in effect; and (b) Parent's minute book containing all records of all
proceedings, consents, actions and meetings during the past three (3) years of
the Parent's shareholders, Board of Directors and any committees of the Board of
Directors. Neither Parent nor any of its subsidiaries is in violation of any of
the provisions of its Articles of Association or Memorandum of Association or
equivalent governing instruments.
3.4 Authority.
(a) Parent has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby, subject
to approval by the shareholders of Parent. Merger Sub has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub, subject, in the case of consummation of the Merger, only to the approval
and adoption of this Agreement and the approval of the Merger by Parent's
shareholders. The affirmative vote of the holders of a majority of the issued
shares of Parent present in person or by proxy, attorney or representative at
the Parent Shareholders' Meeting is sufficient to approve the issuance of Parent
Ordinary Shares pursuant to the Merger. Parent, as the sole stockholder of
Merger Sub, has acted by written consent to approve the Merger and the adoption
of this Agreement by Merger Sub, which consent Parent and Merger Sub represent
and warrant constitutes the requisite approval of the Merger and this Agreement
by Merger Sub. This Agreement has been duly executed and delivered by Parent and
Merger Sub and, assuming the due authorization, execution and delivery by
Company, constitutes the valid and binding obligations of Parent and Merger Sub,
respectively, enforceable against Parent and Merger Sub in accordance with its
terms, except as enforceability may be limited by bankruptcy and other similar
laws affecting the rights of creditors generally and general principles of
equity. The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance of this Agreement by Parent and Merger Sub will not,
(i) conflict with or violate the Articles of Association or Memorandum of
Association of Parent or the Certificate of Incorporation or Bylaws of Merger
Sub or the equivalent organizational documents of any of Parent's subsidiaries,
(ii) subject to compliance with the requirements set forth in Section 3.4(b)
below, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or any of its subsidiaries or by which any of their
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respective properties is bound or affected, or (iii) result in any material
breach of or constitute a material default (or an event that with notice or
lapse of time or both would become a material default) under, or impair Parent's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a material lien or Encumbrance on any of the material
properties or assets of Parent or any of its subsidiaries pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, concession or other instrument or obligation, in each case that is
material to Parent, to which Parent or any of its subsidiaries is a party or by
which Parent or any of its subsidiaries or any of their respective properties
are bound or affected. Part 3.4 of the Parent Disclosure Letter lists all
consents, waivers and approvals under Parent's or any of its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby, which, if
individually or in the aggregate not obtained, could reasonably be expected to
result in a material loss of benefits to Parent or the Surviving Corporation as
a result of the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required to be obtained or
made by Parent or Merger Sub in connection with the execution and delivery of
this Agreement or the consummation of the Merger, except (i) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, (ii)
the filing of the Registration Statement and the Proxy Statement/Prospectus with
the SEC in accordance with the Securities Act and the Exchange Act, and the
effectiveness of the Registration Statement, (iii) as may be required under
applicable federal, foreign and state corporate and securities (or related) laws
and under the HSR Act and the corresponding laws of any foreign country, there
being no consents, approvals or other such matters required under the securities
laws of Singapore except for filings to notify of the allotment of the Parent
Ordinary Shares and except for filings to comply with relevant securities laws
in the event that any shares in the capital of Parent are offered to the public
in Singapore pursuant to this Agreement, and (iv) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not be material to Parent or Company or have a material adverse
effect on the ability of the parties hereto to consummate the Merger.
3.5 Parent and Merger Sub Capital Structure.
(a) Shares. The authorized share capital of Parent consists of two hundred
fifty million (250,000,000) Parent Ordinary Shares, par value S$0.01 per share,
of which there were 57,177,536 shares issued and outstanding as of November 19,
1999. All outstanding Parent Ordinary Shares are duly authorized, validly
issued, fully paid and nonassessable and are not subject to preemptive rights
created by statute, the Articles of Association or Memorandum of Association of
Parent or any agreement or document to which Parent is a party or by which it is
bound.
(b) Options and Warrants. As of November 19, 1999, Parent had reserved an
aggregate of 12,800,000 Parent Ordinary Shares for issuance pursuant to Parent's
1993 Share Option Plan, 1997 Interim Share Option Plan, 1998 Interim Share
Option Plan, 1999 Share Option Plan and non-plan options (the "Parent Equity
Plans"), including shares subject to outstanding options, and 400,000 Parent
Ordinary Shares for issuance pursuant to Parent's 1997 Employee Share Purchase
Plan. As of November 19, 1999, there were options outstanding to purchase an
aggregate of 6,389,704 Parent Ordinary Shares pursuant to the Parent Equity
Plans ("Parent Options") and purchase rights outstanding to purchase no more
than an aggregate of 293,277 Parent Ordinary Shares pursuant to Parent's 1997
Employee Share Purchase Plan. As of November 19, 1999, there were no warrants
outstanding to purchase Parent Ordinary Shares. All Parent Ordinary Shares
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable.
(c) Merger Sub. The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, $0.01 par value, 100 of which, as of the date
hereof, are issued and outstanding and
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are held by Parent. All of the outstanding shares of Merger Sub's common stock
have been duly authorized and validly issued, and are fully paid and
nonassessable. Merger Sub was formed for the purpose of consummating the Merger
and has no material assets or liabilities except as necessary for such purpose.
(d) Due Issuance. The Parent Ordinary Shares to be issued in the Merger,
when issued in accordance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable and free and clear of any Encumbrances
whatsoever except Encumbrances created by the respective holders thereof.
3.6 Obligations With Respect to Capital Stock.
(a) Except as set forth in Sections 3.5(a) and (b), there are no equity
securities of, or partnership interests or similar ownership interests in,
Parent, or any securities exchangeable or convertible into or exercisable for
such equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding.
(b) Except for securities Parent owns free and clear of all claims and
Encumbrances, directly or indirectly through one or more subsidiaries, and
except for shares of capital stock or other similar ownership interests of
certain subsidiaries of Parent that are owned by certain nominee equity holders
as required by the applicable law of the jurisdiction of organization of such
subsidiaries, as of the date of this Agreement, there are no equity securities
of, or partnership interests or similar ownership interests in, any subsidiary
of Parent, or any security exchangeable or convertible into or exercisable for
such equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding.
(c) Except as set forth in Section 3.5(b), there are no subscriptions,
options, warrants, calls, rights (including preemptive rights), commitments or
agreements of any character to which Parent or any of its subsidiaries is a
party or by which it is bound obligating Parent or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition
of, any shares of capital stock, partnership interests or similar ownership
interests of Parent or any of its subsidiaries or obligating Parent or any of
its subsidiaries to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrants, call, right, commitment or agreement.
3.7 SEC Filings; Parent Financial Statements.
(a) SEC Filings Generally. Parent has filed all forms, reports and
documents required to be filed by Parent with the SEC since January 1, 1997, and
has made available to Company such forms, reports and documents in the form
filed with the SEC. All such required forms, reports and documents (including
those that Parent may file subsequent to the date hereof) are referred to herein
as the "Parent SEC Reports." As of their respective dates, the Parent SEC
Reports (i) were prepared in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Parent SEC Reports, and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Taken as
a whole, the Parent SEC Reports do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any forms, reports or other documents with the
SEC. Each of the Parent SEC Reports included, as exhibits thereto, all documents
required to be filed as exhibits to such Parent SEC Report under the rules and
regulations of the SEC. All agreements filed by Parent as exhibits to the Parent
SEC Reports, as displayed on the World Wide Web via the
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EDGAR Service, conform to the agreements as executed by all parties thereto and
are in full force and effect as so filed, except those which have expired in
accordance with their terms or have been revised as disclosed in the Parent SEC
Reports.
(b) Publicly Reported Financial Statements. Each of the consolidated
financial statements (including, in each case, any related notes thereto)
contained in the Parent SEC Reports (the "Parent Financials"), including any
Parent SEC Reports filed after the date hereof until the Closing, (i) complied
as to form in all material respects with the published rules and regulations of
the SEC with respect thereto, (ii) was prepared in accordance with GAAP applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited interim financial
statements, as may be permitted by the SEC on Form 10-Q, 8-K or any successor
form under the Exchange Act), and (iii) fairly presented in all material
respects the consolidated financial position of Parent and its subsidiaries as
at the respective dates thereof and the consolidated results of Parent's
operations and cash flows for the periods indicated, except to the extent
corrected by a subsequently filed Parent SEC Report prior to the date of this
Agreement, and except that the unaudited interim financial statements may not
contain footnotes and were or are subject to normal and immaterial year-end
adjustments. The balance sheet of Parent contained in Parent SEC Reports as of
March 31, 1999 is hereinafter referred to as the "Parent Balance Sheet." Since
March 31, 1998, there has been no change in Parent's accounting policies except
as described in the notes to the Parent Financials. Since the date of the Parent
Balance Sheet, neither Parent nor any of its subsidiaries has incurred any
liabilities (absolute, accrued, contingent or otherwise) which are, individually
or in the aggregate, material to the business, results of operations or
financial condition of Parent and its subsidiaries taken as a whole, except for
(i) liabilities incurred since the date of the Parent Balance Sheet in the
ordinary course of business consistent with past practices, (ii) liabilities
incurred in connection with this Agreement, and (iii) liabilities specifically
disclosed in Parent SEC Reports filed prior to the date of this Agreement.
(c) Interim Financial Statements. Parent has delivered to Company copies of
Parent's unaudited consolidated balance sheet as of September 24, 1999 and
income statement and statement of cash flows for the six months ended September
24, 1999. Such financial statements: (i) are in accordance with the books and
records of Parent; (ii) fairly present in all material respects Parent's
consolidated financial condition at the date therein indicated and the
consolidated results of operations for the period therein specified; and (iii)
have been prepared in accordance with GAAP applied on a consistent basis (except
for the absence of any footnotes required by GAAP and may be subject to normal,
immaterial year end adjustments).
(d) Amendments. Parent has heretofore furnished to Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
3.8 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet, Parent and each of its subsidiaries has carried on its business
in the ordinary course consistent with past practices, and except as
specifically and expressly disclosed in the Parent SEC Reports filed with the
SEC prior to the date of this Agreement, since the date of the Parent Balance
Sheet there has not been:
(a) any change in the financial condition, properties, assets,
liabilities, business, results of operations or prospects of Parent, which
change by itself or in conjunction with all other such changes, whether or
not arising in the ordinary course of business, has had or can reasonably
be expected to have a Parent Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of, any
of Parent's or any of its subsidiaries'
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capital stock, or any purchase, redemption or other acquisition by Parent
of any of Parent's capital stock or any other securities of Parent or its
subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following
their termination pursuant to the terms of their pre-existing stock option
or purchase agreements;
(c) any split, combination or reclassification of any of Parent's or
any of its subsidiaries' capital stock;
(d) any material change or alteration in the policy of Parent relating
to the granting of stock options to its employees, directors and
consultants;
(e) any revaluation by Parent of any of its assets, including, without
limitation, writing off notes or accounts receivable other than in the
ordinary course of business;
(f) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or
business of Parent or any subsidiary;
(g) any material change by Parent in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP;
(h) any material contingent liability incurred by Parent or any of its
subsidiaries as guarantor or otherwise with respect to the obligations of
others or any cancellation of any material debt or claim owing to, or
waiver of any material right of, Parent or any of its subsidiaries;
(i) any material obligation or liability of any nature, whether
accrued, absolute or contingent, incurred by Parent other than (A)
obligations and liabilities which could not reasonably be expected to have
a Parent Material Adverse Effect and (B) obligations and liabilities
incurred in the ordinary course of business consistent with past practice;
(j) any material payment or discharge of a material Encumbrance or
liability of Parent which was not shown in the Parent Interim Financial
Statements or which was not incurred in the ordinary course of business
thereafter; or
(k) any agreement or understanding whether in writing or otherwise,
for Parent or any of its subsidiaries to take any of the actions specified
in paragraphs (a) through (j) above.
3.9 Taxes.
(a) Parent and each of its subsidiaries have timely filed all Returns
relating to Taxes required to be filed by or on behalf of Parent and each of its
subsidiaries with any Tax authority, such Returns are true, correct and complete
in all material respects, and Parent and each of its subsidiaries have paid all
Taxes shown to be due on such Returns;
(b) Parent and each of its subsidiaries have withheld with respect to its
employees all material (i) federal and state income taxes, (ii) Taxes pursuant
to FICA, (iii) Taxes pursuant to FUTA and other material Taxes required to be
withheld;
(c) Neither Parent nor any of its subsidiaries has been delinquent in the
payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Parent or any of its subsidiaries, nor
has Parent or any of its subsidiaries executed any unexpired waiver of any
statute of limitations on or extending the period for the assessment or
collection of any material Tax;
(d) No audit or other examination of any Return of Parent or any of its
subsidiaries by any Tax authority is presently in progress, nor has Parent or
any of its subsidiaries been notified of any request for such an audit or other
examination;
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(e) No material adjustment relating to any Returns filed by Parent or any
of its subsidiaries has been proposed in writing formally or informally by any
Tax authority to Parent or any of its subsidiaries or any representative
thereof;
(f) Neither Parent nor any of its subsidiaries has any liability for unpaid
Taxes which has not been accrued for or reserved on the Parent Balance Sheet,
whether asserted or unasserted, contingent or otherwise, which is material to
Parent, other than any liability for unpaid Taxes that may have accrued since
the date of the Parent Balance Sheet in connection with the operation of the
business of Parent and its subsidiaries in the ordinary course;
(g) Neither Parent nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Parent;
(h) Neither Parent nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation agreement or
arrangement;
(i) Except as may be required as a result of the Merger, Parent and its
subsidiaries have not been and will not be required to include any adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to Section 481
or Section 263A of the Code or any comparable provision under state or foreign
Tax laws as a result of transactions, events or accounting methods employed
prior to the Closing;
(j) None of Parent's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code;
(k) There are no material Encumbrances on the assets of Parent or any
subsidiary relating to or attributable to Taxes, other than Encumbrances for
Taxes not yet due and payable; and
(l) None of Parent or any of its subsidiaries (A) has been a member of an
affiliated group filing a consolidated federal income Return (other than a group
the common parent of which was Parent), or (B) has any liability or obligation
for the Taxes of any Person (other than any of Parent and its subsidiaries)
under Treasury Regulations Section 1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract, or otherwise.
3.10 Title to Properties; Absence of Encumbrances.
(a) All real estate leases to which Parent or any of its subsidiaries is a
party, and all material leases of personal property, are in full force and
effect, are valid and effective in accordance with their respective terms, and
afford Parent and each of its subsidiaries, in all material respects, peaceful
and undisturbed possession of the subject matter of the lease and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default) by
Parent or any of its subsidiaries that would give rise to a claim against Parent
or any subsidiary in an amount greater than $100,000.
(b) Parent has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Encumbrances, except as reflected in the Parent
Financials and except for liens for taxes not yet due and payable and such
Encumbrances or other imperfections of title, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
(c) The plants, property and equipment of Parent and its subsidiaries that
are used in the operations of their business are generally in good operating
condition and repair. All properties used in the operations of Parent and its
subsidiaries are reflected in the Parent Balance Sheet to the extent required to
be reflected under GAAP.
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3.11 Intellectual Property.
(a) Title; Non-infringement. Parent and each of its subsidiaries owns all
right, title and interest in, or has the right to use, sell or license all
patent applications, patents, trademark applications, trademarks, service marks,
trade names, copyright applications, copyrights, trade secrets, know-how,
technology, customer lists, proprietary processes and formulae, all source and
object code, algorithms, inventions, development tools and all documentation and
media constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records and other intellectual property and
proprietary rights used in or reasonably necessary or required for the conduct
of its respective business as presently conducted ("Parent Intellectual
Property"). To the knowledge of Parent, each copyright and trademark
registration and each patent for Parent Intellectual Property owned by Parent
and each of its subsidiaries is valid and subsisting. Parent is not aware of any
material loss, cancellation, termination or expiration of any such copyrights,
trademarks, patents, registrations or applications therefor. To the knowledge of
Parent, the business of Parent and its subsidiaries does not cause Parent or any
of its subsidiaries to infringe or violate any of the patents, trademarks,
service marks, trade names, mask works, copyrights, trade secrets, proprietary
rights or other intellectual property of any other person, and neither Parent
nor any of its subsidiaries has received any written claim or notice of
infringement or potential infringement of the intellectual property of any other
person. Neither the manufacture, marketing, sale or intended use of any product
currently licensed or sold by Parent or currently under development by Parent
violates any license or agreement between Parent and any third party. Parent and
each of its subsidiaries has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all material Parent Intellectual Property. Parent is not aware of any
infringement of any Parent Intellectual Property by any third party. There are
no royalties, fees or other payments payable by Parent or any of its
subsidiaries to any person by reason of the ownership, use, license, sale or
disposition of the Parent Intellectual Property.
(b) Year 2000. Parent has taken reasonable steps to ensure that its
material systems and technology is Year 2000 Compliant. Parent has taken
reasonable steps to ensure that its systems, services and technology will lose
no functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000 and February 29, 2000. All of Parent's and
its subsidiaries' internal computer and technology systems and services which
are critical or material to the operation of its business are Year 2000
Compliant. The Parent Intellectual Property owned by Parent or any subsidiary is
Year 2000 Compliant. Neither the Parent Intellectual Property owned by Parent or
any subsidiary nor any of Parent's material systems and technology used in the
provision of its services or used in the operation or management of its business
contains any significant defect in connection with processing data containing
dates in leap years or in the year 2000 or any preceding or following years.
3.12 Compliance with Law; Permits; Restrictions.
(a) Neither Parent nor any of its subsidiaries is, in any material respect,
in conflict with, or in default or in violation of (i) any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which Parent or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for conflicts, violations and
defaults that (individually or in the aggregate) would not cause Parent to lose
any material benefit or incur any material liability. No investigation or review
by any Governmental Entity is pending or, to Parent's knowledge, has been
threatened in a writing delivered to Parent against Parent or any of its
subsidiaries, nor, to Parent's knowledge, has any Governmental Entity indicated
an intention to conduct an investigation of Parent or any of its subsidiaries
with respect to any alleged violation of
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any law, rule, regulation, order, judgment or decree applicable to Parent or any
of its subsidiaries. There is no material agreement, judgment, injunction, order
or decree binding upon Parent or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of Parent or any of its subsidiaries, any acquisition of
material property by Parent or any of its subsidiaries or the conduct of
business by Parent as currently conducted.
(b) Parent and its subsidiaries hold, to the extent legally required, all
permits, licenses, variances, exemptions, orders and approvals from governmental
authorities that are material to and required for the operation of the business
of Parent as currently conducted (collectively, the "Parent Permits"). Parent
and its subsidiaries are in compliance in all material respects with the terms
of the Parent Permits.
3.13 Litigation. There are no claims, suits, actions or proceedings
pending or, to the knowledge of Parent, threatened against, relating to or
affecting Parent or any of its subsidiaries, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Parent Material Adverse Effect or which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the Merger or any of the other
transactions contemplated hereby. No Governmental Entity has at any time
challenged or questioned in a writing delivered to Parent the legal right of
Parent to design, offer or sell any of its products or services in the present
manner or style thereof. As of the date hereof, to the knowledge of Parent, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that would reasonably be expected to, cause or provide a
bona fide basis for a director or executive officer of Parent to seek
indemnification from Parent.
3.14 Employee Benefit Plans.
(a) Definitions. With the exception of the definitions of "Affiliate,"
"Employee" and "Employee Agreement" set forth in Section 3.14(a)(i), (iii) and
(iv) below (which definitions shall apply only to this Section 3.14), for
purposes of this Agreement, the following terms shall have the meanings set
forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with Parent within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations issued thereunder;
(ii) "Parent Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten, funded or unfunded,
including without limitation, each "employee benefit plan," within the
meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by Parent or any
Affiliate for the benefit of any Employee;
(iii) "Employee" shall mean any current, former, or retired employee,
officer, or director of Parent or any Affiliate;
(iv) "Employee Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or similar agreement or contract between Parent or any Affiliate and
any Employee or consultant that provides for annual compensation to such
Employee or consultant in excess of $150,000;
(b) Employee Plan Compliance. (i) Parent and its subsidiaries have
performed in all material respects all obligations required to be performed by
them under, are not in default or violation of, and
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have no knowledge of any default or violation by any other party to any Parent
Employee Plan, and each Parent Employee Plan has been established and maintained
in all material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) each Parent Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination letter
from the IRS with respect to each such Plan as to its qualified status under the
Code or has remaining a period of time under applicable Treasury regulations or
IRS pronouncements in which to apply for such a determination letter and make
any amendments necessary to obtain a favorable determination and no event has
occurred which would adversely affect the status of such determination letter or
the qualified status of such Plan; (iii) no "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, which is
not otherwise exempt under Section 408 of ERISA, has occurred with respect to
any Parent Employee Plan; (iv) there are no actions, suits or claims pending,
or, to the knowledge of Parent, threatened or reasonably anticipated (other than
routine claims for benefits) against any Parent Employee Plan or against the
assets of any Parent Employee Plan; (v) there are no audits, inquiries or
proceedings pending or, to the knowledge of Parent, threatened by the IRS or DOL
with respect to any Parent Employee Plan; and (vi) neither Parent nor any
Affiliate is subject to any penalty or tax with respect to any Parent Employee
Plan under Section 402(i) of ERISA or Sections 4975 through 4980 of the Code.
(c) Pension Plans. Parent does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Title IV of ERISA or Section 412 of the Code.
(d) Multiemployer Plans. At no time has Parent or any subsidiary
contributed to or been requested to contribute to any Multiemployer Plan.
(e) No Post-Employment Obligations. No Parent Employee Plan provides, or
has any obligation to provide, retiree life insurance, retiree health or other
retiree employee welfare benefits to any person for any reason, except as may be
required by COBRA or other applicable statute, and Parent has never represented,
promised or contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) or any other person that such
Employee(s) or other person would be provided with retiree life insurance,
retiree health or other retiree employee welfare benefit, except to the extent
required by statute.
(f) COBRA; FMLA. Neither Parent nor any subsidiary nor, to Parent's
knowledge, any other Affiliate has, prior to the Effective Time, and in any
material respect, violated any of the health care continuation requirements of
COBRA, any material requirements of FMLA or any material provisions of any
similar provisions of state law applicable to its Employees, except where the
same would not have a Parent Material Adverse Effect.
(g) Contributions. All contributions due from the Parent and any Affiliate
with respect to any of the Parent Employee Plans have been made or accrued on
the Parent Balance Sheet or arose after the date of the Parent Balance Sheet in
the ordinary course of business consistent with past practices including as a
result of acquisitions.
3.15 Environmental Matters. To Parent's knowledge:
(a) Compliance with Law. Each of Parent, its subsidiaries and its
predecessors has complied and is in compliance in all material respects
with all Environmental, Health, and Safety Requirements.
(b) Neither Parent, its subsidiaries nor their respective predecessors
has received any written or oral notice, report, demand, citation, request
for information, complaint or other information regarding any actual or
alleged violation of Environmental, Health, and Safety Requirements, or any
liabilities or potential liabilities (whether accrued, absolute,
contingent,
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unliquidated or otherwise), arising under Environmental, Health, and Safety
Requirements. Neither Parent nor any of its subsidiaries is a potentially
responsible party under CERCLA, RCRA, or any similar law of the state,
province or country in which a Parent facility is located. There have not
been in the past, and are not now, any Hazardous Materials on, under or
migrating to or from any real property owned or leased by it or any of its
subsidiaries which could reasonably be expected to result in a material
liability to Parent. There have not been in the past, and are not now, any
aboveground tanks, underground tanks or underground pipes, lines,
connections or other improvements at, on or under any real property owned
or leased by it or any of its subsidiaries, including, without limitation,
treatment or storage tanks, sumps, or water, gas or oil wells, except in
accordance with applicable Environmental, Health and Safety Requirements.
Parent has not deposited, released, spilled, discharged or disposed of
Hazardous Materials on any real property owned or leased by it or any of
its subsidiaries, except in accordance with applicable Environmental Health
and Safety Requirements, which could reasonably be expected to result in a
material liability to Parent.
(c) None of Parent, its subsidiaries, or their respective predecessors
has treated, stored, disposed of, arranged for or permitted the disposal
of, transported, handled, or released any substance, including without
limitation any Hazardous Material, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that violates any Environmental, Health and Safety
Requirements or would give rise to material liabilities, including any
liability for response costs, corrective action costs, personal injury,
property damage, natural resources damages, administrative or civil
penalties or criminal fines or penalties, or attorney fees, pursuant to any
Environmental, Health, and Safety Requirements which, in any case, could
reasonably be expected to result in a material liability to Parent.
(d) Liability for Others. Neither Parent, its subsidiaries nor its
predecessors has, either expressly or by operation of law, assumed,
retained or undertaken any liability, including without limitation any
obligation for corrective or remedial action, of any other person or entity
relating to Environmental, Health, and Safety Requirements other than in
connection with any acquisitions of the assets, businesses or operations of
another person or entity, or which could reasonably be expected to result
in a material liability to Parent.
(e) Ongoing Compliance. Parent has not received written notice of any
facts, events, conditions or systems relating to the past or present
facilities, properties or operations of any of Parent, its subsidiaries,
its and their respective predecessors which could prevent ongoing or
continued compliance in all material respects with applicable
Environmental, Health, and Safety Requirements, give rise to any material
obligations pursuant to Environmental, Health, and Safety Requirements, or
give rise to any administrative or civil penalties or criminal fines or
penalties or any other material liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental, Health,
and Safety Requirements, including, without limitation, any liabilities
relating to onsite or offsite releases or threatened releases of Hazardous
Materials, personal injury, property damage or natural resources damage.
3.16 Insurance. Parent and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting business or owning assets similar to those of Parent and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies have been paid and Parent and its subsidiaries are otherwise in
compliance in all material respects with the terms of such policies and bonds.
To the knowledge of Parent, there has been no threatened termination of, or
material premium increase with respect to, any of such policies.
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3.17 Customers and Suppliers.
(a) Customers. Neither Parent nor any of its subsidiaries has outstanding
material disputes concerning its goods and/or services with any customer who, in
the nine months ended September 25, 1999, was one of the fifteen (15) largest
sources of revenues for Parent, based on amounts paid (a "Parent Significant
Customer") and Parent has no knowledge of any material dissatisfaction on the
part of any Parent Significant Customer.
(b) Suppliers. Neither Parent nor its subsidiaries have any outstanding
material disputes concerning goods or services provided by any supplier who, in
the nine months ended September 25, 1999, was one of the fifteen (15) largest
suppliers of goods and services to Parent, based on amounts paid for products
not readily available from another source ("Parent Significant Supplier").
Parent has not received any written notice of a termination or interruption of
any existing contracts or arrangements with any Parent Significant Suppliers.
Parent and its subsidiaries have access, on reasonable terms, to all goods and
services reasonably necessary to them to carry on their business as currently
conducted and Parent has no knowledge of any reason why Parent and its
subsidiaries will not continue to have such access on reasonable terms subject
to general industry conditions relating to availability of components. No Parent
Significant Supplier has notified Parent or any of its subsidiaries that it will
stop or materially decrease the rate of supplying materials, products or
services to Parent.
(c) Warranties and Product Returns. Parent's obligations to its customers
with respect to defects in materials or workmanship is generally limited to an
obligation to repair or replace the product in question. Since March 31, 1999,
Parent has not had any of its products returned by a customer except for normal
warranty returns consistent with past history and those returns that would not
result in a reversal of any material revenue by Parent.
3.18 Inventory. The inventory of Parent and its subsidiaries reflected in
the Parent Interim Financial Statements (the "Parent Inventory") was valued at
cost (determined on a first-in, first-out basis) or market, whichever is lower.
The Parent Inventory is in all material respects of good and merchantable
quality and is readily usable and salable in the ordinary course of Parent's
businesses, except for items of obsolete materials and materials of below
standard quality, substantially all of which have been written down to
realizable market value, or for which adequate reserves have been provided, in
the Parent Interim Financial Statements. For Parent Inventory manufactured to
customer specifications effectively rendering the Parent Inventory salable only
to that customer, the terms of the sales contracts applicable thereto generally
require the customer to acquire such Parent Inventory (to the extent of the
quantity limits specified in such sales contracts) if it is manufactured and
delivered in accordance with such sales contracts.
3.19 Disclosure. The information supplied by Parent for inclusion in the
Registration Statement shall not at the time the Registration Statement is filed
with the SEC and at the time it becomes effective under the Securities Act
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The information supplied by Parent for inclusion in the Proxy
Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is
mailed to Company's stockholders or Parent's shareholders, at the time of the
Company Stockholders' Meeting or the Parent Shareholders' Meeting or as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not false or misleading, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders' Meeting or the Parent Shareholders'
Meeting which has become false or misleading. The Registration Statement will
comply as to form in all material respects with the provisions of the Securities
Act and the rules and regulations thereunder. If at any time prior to the
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Effective Time, any event relating to Parent or any of its affiliates, officers
or directors should be discovered by Parent which is required to be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Parent shall promptly inform Company. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied by Company which is contained in any of the foregoing
documents.
3.20 Board Approval. The Board of Directors of Parent has, as of the date
of this Agreement, determined (a) that the Merger is advisable and fair to, and
in the best interests of Parent, its shareholders and Merger Sub, and (b) to
recommend that the shareholders of Parent approve the issuance of the Parent
Ordinary Shares pursuant to the Merger and adopt this Agreement.
3.21 Brokers' and Finders' Fees. Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.23 Affiliates. Part 3.23 of the Parent Disclosure Letter is a complete
list of those persons who may be deemed to be, in Parent's reasonable judgment,
affiliates of Parent within the meaning of Rule 145 promulgated under the
Securities Act (each a "Parent Affiliate").
3.24 Pooling of Interests. To the knowledge of Parent, based on
consultation with its independent accountants, neither Parent nor any of its
directors, officers, affiliates or stockholders has taken or agreed to take any
action which would preclude Parent's ability to account for the Merger as a
pooling of interests. Parent is autonomous and has not been a subsidiary or
division of another corporation or other entity since December 31, 1993. Since
December 31, 1996, Parent has not (a) paid any dividends or effected any other
distributions to its stockholders other than distributions to Parent's
shareholders paid solely in Parent Ordinary Shares, (b) reacquired or purchased
any of its sales, (c) changed any of its equity interests, or (d) sold
significant assets in contemplation of a merger.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, Parent and Company each agrees as to itself
and its respective subsidiaries, to carry on its (and its subsidiaries')
business in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in compliance in all material respects with
all applicable laws and regulations, pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, pay or perform its other
obligations when due, and use all reasonable efforts (and in any event no less
than would be consistent with its past practices), to (i) preserve intact its
(and its subsidiaries') present business organization, (ii) keep available the
services of its present officers and key employees and (iii) preserve its
relationships with customers, suppliers, licensors, licensees and others with
which it has business dealings. In addition, Company will promptly notify
Parent, and Parent will promptly notify Company, of any material event involving
its respective business or operations, and of any event that could reasonably be
expected to have a Material Adverse Effect.
(a) In addition, except as permitted by the terms of this Agreement,
and except as provided in Part 4.1 of the Company Disclosure Letter,
without the prior written consent of Parent, during the period from the
date of this Agreement and continuing until the earlier of the termination
of this Agreement pursuant to its terms or the Effective Time, Company
shall not do any of the following and shall not permit its subsidiaries to
do any of the following:
(i) Waive any stock repurchase rights, accelerate, amend or change
the period of exercisability of any options or restricted stock or
reprice options granted under any employee, consultant, director or
other stock plans or authorize cash payments in exchange
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for any options granted under any of such plans except as required by
the terms of such plans or any related agreements or employment
agreements in effect as of the date of this Agreement;
(ii) Grant any severance or termination pay to any officer or
employee except pursuant to written agreements in effect, or policies
existing, on the date hereof and as previously disclosed in the Company
Disclosure Letter, or adopt any new severance plan;
(iii) Transfer or license to any person or entity or otherwise
extend, amend or modify in any material respect any rights to the
Company Intellectual Property other than such extensions, amendments or
modifications as would be necessary to maintain the term or status of
the Company Intellectual Property;
(iv) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for, any capital stock;
(v) Purchase, redeem or otherwise acquire, directly or indirectly,
any shares of its capital stock, except repurchases of unvested shares
at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase
agreements in effect on the date hereof;
(vi) Issue, deliver, sell, authorize, pledge or otherwise encumber
any shares of capital stock or any securities convertible into shares of
capital stock, or subscriptions, rights, warrants or options to acquire
any shares of capital stock or any securities convertible into shares of
capital stock, or enter into other agreements or commitments of any
character obligating it to issue any such shares or convertible
securities, other than (a) the issuance, delivery and/or sale of shares
of Company Common Stock pursuant to the exercise of Company Options or
upon the vesting of Performance Shares, outstanding on the date of this
Agreement, (b) the issuance, delivery and/or sale of shares of Company
Common Stock issuable to participants in the ESPP consistent with the
terms thereof, (c) the issuance of shares of Company Common Stock under
the Directors' Stock Plan, or the grant of options to acquire shares of
Company Common Stock outside of any Company Stock Option Plan to newly
hired employees that are not officers or directors of Company on terms
consistent with past grants, provided that (1) the vesting of such
options does not accelerate in connection with the Merger or any of the
other transactions contemplated hereby, (2) such options vest over a
four-year period, with not more than twenty-five percent (25%) in the
first year, (3) the exercise price of such option is not less than the
fair market value of Company Common Stock on the date of grant, and (4)
the number of shares subject to such option is consistent with the past
practice of Company.
(vii) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
(viii) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof; or otherwise acquire or agree to acquire any assets
(other than inventory and other items in the ordinary course of
business), except for any such acquisitions involving aggregate
consideration (including assumed indebtedness) of not more than
$1,000,000, or enter into any material joint ventures, strategic
partnerships or alliances;
(ix) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the
aggregate, to Company and its subsidiaries'
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business, taken as a whole, except sales of inventory and obsolete
equipment in the ordinary course of business consistent with past
practice;
(x) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities
of Company, enter into any "keep well" or other agreement to maintain
any financial statement condition or enter into any arrangement having
the economic effect of any of the foregoing other than (i) in connection
with the financing of ordinary course trade payables consistent with
past practice or (ii) pursuant to existing credit facilities, as in
effect on the date of this Agreement, in the ordinary course of business
consistent with past practice;
(xi) (A) Enter into any employment contract or collective
bargaining agreement except offer letters in the ordinary course of
business consistent with past practice with new employees who are
terminable "at will", (B) pay or agree to pay any special bonus or
special remuneration to any director or employee other than (1) to
employees that are not officers or directors of Company in the ordinary
course of business consistent with past practice, and (2) payments of
bonuses to the employees listed on Part 2.8(d) of the Company Disclosure
Letter pursuant to bonus criteria specified thereon, (C) increase the
salaries or wage rates or fringe benefits (including rights to severance
or indemnification) payable, or to become payable to its directors,
officers, employees or consultants other than increases in salary to
employees that are not officers of Company in the ordinary course of
business, consistent with past practice, (D) grant any additional
severance or termination pay to, or enter into any employment or
severance agreements with, any employees or officers except to employees
that are not officers of Company in the ordinary course of business,
consistent with past practice, or (E) establish, adopt enter into or
amend any bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund policy or
arrangement for the benefit of any directors, officers or employees;
(xii) Make any payments outside of the ordinary course of business
in excess of $5.0 million in the aggregate, other than pursuant to those
certain letter agreements dated October 18, 1999 between Company and
Salomon Smith Barney Inc. and Broadview International LLC, respectively;
(xiii) Except as disclosed in Part 4.1 of the Company Disclosure
Letter pursuant to any other clause of this Section 4.1(a), enter into,
amend, modify or terminate any Company Contract or any agreement,
contract or obligation which, if in effect on the date of this
Agreement, would be a Company Contract;
(xiv) Enter into or amend any agreements pursuant to which any
other party is granted exclusive marketing or other exclusive rights of
any type or scope with respect to any of its products or technology;
(xv) Except as required by GAAP, revalue any of its assets or make
any change in accounting methods, principles or practices;
(xvi) Take any actions that could prevent Parent from being able to
account for the Merger as a pooling of interests whether or not
otherwise permitted by the provisions of this Article IV (provided that
if, prior to the taking of such actions, representatives of the
independent auditors of both Parent and Company have stated that a
proposed action would not prevent Parent from being able to account for
the Merger as a pooling of interests, such action shall not be deemed to
breach this clause (xvi));
(xvii) Initiate, compromise or settle any material litigation or
arbitration proceeding (other than as a result of a breach of this
Agreement by Parent), except that Company may
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compromise or settle litigation or arbitration if the terms of such
settlement do not require payment by Company and its subsidiaries of in
excess of $1.5 million and do not impose any other material obligations
on Company and its subsidiaries;
(xviii) Except as contemplated by Section 5.19, amend the Rights
Agreement or take any action with respect to, or make any determination
under, the Rights Agreement;
(xix) Take or agree in writing or otherwise to take, any of the
actions described in clauses (i) through (xviii) above, or any action
which would make any of its representations or warranties contained in
this Agreement untrue or incorrect or prevent it from performing or
cause it not to perform its covenants hereunder.
(b) In addition, except as permitted by the terms of this Agreement,
and except as provided in Part 4.1 of the Parent Disclosure Letter, without
the prior written consent of Company, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Parent shall not do
any of the following and shall not permit its subsidiaries to do any of the
following:
(i) waive any stock repurchase rights, accelerate, amend or change
the period of exercisability of any options or restricted stock or
reprice options granted under any employee, consultant, director or
other stock plans or authorize cash payments in exchange for any options
granted under any of such plans except as required by the terms of such
plans or any related agreements or employment agreements in effect as of
the date of this Agreement;
(ii) grant any severance or termination pay to any officer or
employee except pursuant to written agreements in effect, or policies
existing, on the date hereof, or adopt any new severance plan;
(iii) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for, any capital stock;
provided, that, subject to Section 1.4(f) above, Parent may effect a
bonus issue of its Ordinary Shares in the manner contemplated in its
proxy statement dated July 30, 1999 with respect to its Annual General
Meeting on August 27, 1999;
(iv) purchase, redeem or otherwise acquire, directly or indirectly,
any shares of its capital stock, except repurchases of unvested shares
at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase
agreements in effect on the date hereof;
(v) issue, deliver, sell, authorize, pledge or otherwise encumber
any shares or any securities convertible into shares, or subscriptions,
rights, warrants or options to acquire any shares or any securities
convertible into shares, or enter into other agreements or commitments
of any character obligating it to issue any such shares or convertible
securities, other than (A) the grant of Parent Options, (B) the
issuance, delivery and/or sale of Parent Ordinary Shares pursuant to the
exercise of Parent Options, (C) the issuance, delivery and/or sale of
Parent Ordinary Shares issuable to participants under Parent's 1997
Employee Share Purchase Plan consistent with the terms thereof, and the
(D) the issuance of Parent Ordinary Shares in connection with
acquisitions, joint ventures, strategic partnerships and strategic
alliances other than issuance that would require approval by Parent's
shareholders.
(vi) cause, permit or propose any amendments to its Articles of
Association or Memorandum of Association;
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(vii) acquire or agree to acquire, by merging or consolidating
with, or by purchasing all or a majority of the equity interests in, or
all or substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, in each case where the same could
reasonably be expected to prevent or materially delay the Merger;
(viii) revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
(ix) take any actions that could prevent it from being able to
account for the Merger as a pooling of interests whether or not
otherwise permitted by the provisions of this Article IV (provided that
if, prior to the taking of such actions, representatives of the
independent auditors of both Company and Parent have stated that a
proposed action would not prevent Parent from being able to account for
the Merger as a pooling of interests, such action shall not be deemed to
breach this clause (ix)); or
(x) take or agree in writing or otherwise to take, any of the
actions described in clauses (i) through (ix) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it
not to perform its covenants hereunder.
4.2 Cooperation. Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Parent and Company shall confer on a
regular and frequent basis with one or more representatives of the other party
to report on the general status of ongoing operations and shall promptly provide
the other party or its counsel with copies of all filings made by such party
with any Governmental Entity in connection with this Agreement, the Merger and
the transactions contemplated hereby and thereby.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Antitrust and
Certain Other Filings.
(a) As promptly as practicable after the execution of this Agreement,
Company and Parent will prepare and file with the SEC the Proxy
Statement/Prospectus, and Parent will prepare and file with the SEC the
Registration Statement in which the Proxy Statement/Prospectus will be
included as a prospectus. Each of Company and Parent will respond to any
comments of the SEC, and will use all reasonable efforts to have the
Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing; provided, however, that Parent
shall have no obligation to agree to account for the Merger as a "purchase"
in order to cause the Registration Statement to become effective. Each of
Company and Parent will cause the Proxy Statement/Prospectus to be mailed
to its respective stockholders and at the earliest practicable time after
the Registration Statement is declared effective by the SEC.
(b) As promptly as practicable after the date of this Agreement, each
of Company and Parent will prepare and file (i) with the United States
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger
notification or control laws and regulations of any other applicable
jurisdiction, as agreed to by the parties, including such filings as may be
required under the European Community Merger Regulation (the "Antitrust
Filings") and (ii) any other filings required to be filed by it under the
Exchange Act, the Securities Act or pursuant to any other Legal Requirement
relating to the Merger and the transactions contemplated by this Agreement
(the "Other Filings").
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(c) Company and Parent each shall promptly supply the other with any
information which may be required in order to effectuate any filings
pursuant to this Section 5.1. Each of Company and Parent will notify the
other promptly upon the receipt of any comments from the SEC or its staff
or any other government officials in connection with any filing made
pursuant hereto and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Registration
Statement, the Proxy Statement/Prospectus or any Antitrust Filings or Other
Filings or for additional information and will supply the other with copies
of all correspondence between such party or any of its representatives, on
the one hand, and the SEC, or its staff or any other government officials,
on the other hand, with respect to the Registration Statement, the Proxy
Statement/Prospectus, the Merger or any Antitrust Filing or Other Filing.
Each of Company and Parent will cause all documents that it is responsible
for filing with the SEC or other Governmental Entity under this Section 5.1
to comply in all material respects with all applicable requirements of law
and the rules and regulations promulgated thereunder.
(d) Whenever any event occurs which is required to be set forth in an
amendment or supplement to the Proxy Statement/Prospectus, the Registration
Statement or any Antitrust Filing or Other Filing, Company or Parent, as
the case may be, will promptly inform the other of such occurrence and
cooperate in filing with the SEC or any other Governmental Entity, as
applicable, and, if necessary or advisable, mailing to stockholders of
Company and/or shareholders of Parent, such amendment or supplement.
5.2 Meeting of Company Stockholders.
(a) Promptly after the date hereof, Company will take all action necessary
in accordance with Delaware Law and its Certificate of Incorporation and Bylaws
to convene the Company Stockholders' Meeting to be held as promptly as
practicable, and in any event (to the extent permissible under applicable law)
within 45 days after the declaration of effectiveness of the Registration
Statement, for the purpose of voting upon approval and adoption of this
Agreement and approval of the Merger. Subject to Section 5.2(c), Company will
use all reasonable efforts to solicit from its stockholders proxies in favor of
the adoption and approval of this Agreement and the approval of the Merger and
will take all other action necessary or advisable to secure the vote or consent
of its stockholders required under the rules of Nasdaq or Delaware Law in
connection with obtaining such approvals. Company shall not postpone or adjourn
(other than for the absence of a quorum) the Company Stockholders' Meeting
without the consent of Parent, which shall not be unreasonably withheld. Company
shall ensure that the Company Stockholders' Meeting is called, noticed,
convened, held and conducted, and subject to Section 5.2(c) that all proxies
solicited by Company in connection with the Company Stockholders' Meeting are
solicited, in compliance with the Delaware Law, its Certificate of Incorporation
and Bylaws, the rules of Nasdaq and all other applicable Legal Requirements.
Company's obligation to call, give notice of, convene and hold the Company
Stockholders' Meeting in accordance with this Section 5.2(a) shall not be
limited to or otherwise affected by the commencement, disclosure, announcement
or submission to Company of any Company Acquisition Proposal (as defined in
Section 5.5), or by any withdrawal, amendment or modification of the
recommendation of the Board of Directors of Company with respect to this
Agreement or the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of Company shall
unanimously recommend that Company's stockholders vote in favor of and adopt and
approve this Agreement and approve the Merger at the Company Stockholders'
Meeting; (ii) the Proxy Statement/Prospectus shall include a statement to the
effect that the Board of Directors of Company has unanimously recommended that
Company's stockholders vote in favor of and adopt and approve this Agreement and
the Merger at the Company Stockholders' Meeting; and (iii) neither the Board of
Directors of Company nor any committee thereof shall (A) withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify in a manner adverse
to Parent, the unanimous recommendation of the
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Board of Directors of Company that Company's stockholders vote in favor of and
adopt and approve this Agreement and the Merger or (B) approve or recommend, or
indicate publicly its intention to approve or recommend, any Company Acquisition
Transaction or Company Acquisition Proposal (as defined in Section 5.5). For
purposes of this Agreement, said recommendation of the Board of Directors shall
be deemed to have been modified in a manner adverse to Parent if said
recommendation shall no longer be unanimous.
(c) Nothing in this Agreement shall prevent the Board of Directors of
Company from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger, omitting such recommendation from the
Proxy Statement/Prospectus, or approving or recommending any Company Superior
Offer, if (i) a Company Superior Offer (as defined below) is made to Company and
is not withdrawn, (ii) Company shall have provided written notice to Parent (a
"Notice of Company Superior Offer") advising Parent that Company has received a
Company Superior Offer, specifying all of the material terms and conditions of
such Company Superior Offer and identifying the person or entity making such
Company Superior Offer, (iii) Parent shall not have, within five (5) business
days of Parent's receipt of the Notice of Company Superior Offer, made an offer
that the Company Board by a majority vote determines in its good faith judgment
(based on the written advice of its financial adviser) to be at least as
favorable to Company's stockholders as such Company Superior Offer (it being
agreed that the Board of Directors of Company shall convene a meeting to
consider any such offer by Parent promptly following the receipt thereof), (iv)
the Board of Directors of Company concludes in good faith, after consultation
with its outside counsel, that, in light of such Company Superior Offer, the
withholding, withdrawal, amendment or modification of such recommendation,
omitting such recommendation from the Proxy Statement/Prospectus, or approving
or recommending a Company Superior Offer, is required in order for the Board of
Directors of Company to comply with its fiduciary obligations to Company's
stockholders under applicable law, and (v) Company shall not have violated any
of the restrictions set forth in Section 5.5 or this Section 5.2. Company shall
provide Parent with at least three (3) business days prior notice (or such
lesser prior notice as provided to the members of Company's Board of Directors)
of any meeting of Company's Board of Directors at which Company's Board of
Directors considers, or is reasonably expected to consider, any Company
Acquisition Proposal to determine whether such Company Acquisition Proposal is a
Company Superior Offer. Subject to applicable laws, nothing contained in this
Section 5.2 shall limit Company's obligation to hold and convene the Company
Stockholders' Meeting (regardless of whether the unanimous recommendation of the
Board of Directors of Company shall have been withdrawn, amended or modified).
For purposes of this Agreement "Company Superior Offer" shall mean a bona
fide written offer made by a third party to consummate any of the following
transactions: (i) a merger or consolidation involving Company pursuant to which
the stockholders of Company immediately preceding such transaction will hold
less than 50% of the equity interest in the surviving or resulting entity of
such transaction or (ii) the acquisition by any person or group (including by
way of a tender offer or an exchange offer or a two step transaction involving a
tender offer followed with reasonable promptness by a cash-out merger involving
Company), directly or indirectly, of ownership of 100% of the then outstanding
shares of capital stock of Company, on terms that the Board of Directors of
Company determines, in its reasonable good faith judgment (based on the written
advice of a financial adviser of nationally recognized reputation) to be more
favorable to the Company Stockholders than the terms of the Merger; provided,
however, that any such offer shall not be deemed to be a "Company Superior
Offer" if any financing required to consummate the transaction contemplated by
such offer is not committed, or if such offer is subject to any material
contingency as to the availability of financing (unless in the reasonable
judgment of Company's Board of Directors, it is unlikely that such contingency
will not be satisfied).
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(d) Nothing contained in this Agreement shall prohibit Company or its Board
of Directors from taking and disclosing to its stockholders a position
contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act if,
in the good faith judgment of the Board of Directors of Company, after
consultation with outside counsel, failure so to disclose would be inconsistent
with its obligations under applicable law.
5.3 Meeting of Parent Shareholders.
(a) Promptly after the date hereof, Parent will take all action necessary
in accordance with the Companies Act, Chapter 50 of Singapore and its Articles
of Association to convene the Parent Shareholders' Meeting to be held as
promptly as practicable, and in any event (to the extent permissible under
applicable law) within 45 days after the declaration of effectiveness of the
Registration Statement. Parent will use all reasonable efforts to solicit from
its shareholders proxies in favor of the issuance of Parent Ordinary Shares
pursuant to the Merger, and will take all other action necessary or advisable to
secure the vote or consent of its shareholders required by the rules of Nasdaq
or Singapore law to obtain such approvals. Notwithstanding anything to the
contrary contained in this Agreement, Parent may, with the consent of the
meeting, adjourn the Parent Shareholders' Meeting to the extent necessary to
ensure that any necessary supplement or amendment to the Proxy
Statement/Prospectus is provided to Parent Shareholders in advance of a vote on
the issuance of Parent Ordinary Shares pursuant to the Merger, or, if as of the
time for which the Parent Shareholders' Meeting is originally scheduled (as set
forth in the Proxy Statement/ Prospectus) there are insufficient Parent Ordinary
Shares represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Parent Shareholders' Meeting. Parent
shall ensure that the Parent Shareholders' Meeting is called, noticed, convened,
held and conducted, that all proxies solicited by Parent in connection with the
Parent Shareholders' Meeting are solicited in compliance with Singapore law, its
Articles of Association, the rules of Nasdaq and all other applicable legal
requirements. Parent's obligation to call, give notice, or convene and hold the
Parent Shareholders' Meeting in accordance with this Section 5.3(a) shall not be
limited to or otherwise affected by any withdrawal, amendment or modification of
the recommendation of the Board of Directors of Parent with respect to the
issuance of Parent Ordinary Shares pursuant to the Merger.
(b)(i) the Board of Directors of Parent shall recommend that Parent
Shareholders vote in favor of the issuance of the Parent Ordinary Shares
pursuant to the Merger, (ii) the Proxy Statement/ Prospectus shall include a
statement to the effect that the Board of Directors of Parent has recommended
that Parent shareholders vote in favor of such matters at the Parent
Shareholders' Meeting, and (iii) neither the Board of Directors of Parent nor
any committee thereof shall withdraw, amend or modify, or propose to resolve to
withdraw, amend or modify in a manner adverse to Company, the recommendation of
the Board of Directors of Parent that Parent shareholders vote in favor of such
matters. For purposes of this Agreement, said recommendation of the Board of
Directors shall be deemed to have been modified in a manner adverse to Company
if said recommendation shall no longer be unanimous, provided that, for all
purposes of this Agreement, an action by any Board of Directors or committee
thereof shall be unanimous if each member of such Board of Directors or
committee has approved such action other than (i) any such member who has
appropriately abstained from voting on such matter because of an actual or
potential conflict of interest and (ii) any such member who is unable to vote in
connection with such action as a result of death or disability.
5.4 Confidentiality; Access to Information; Standstill.
(a) Confidentiality Agreement. The parties acknowledge that Company and
Parent have previously executed mutual Confidentiality Agreements, dated as of
August 9, 1999 and November 9, 1999 (the "Confidentiality Agreements"), and the
Standstill Agreement dated as of November 9, 1999 (the "Standstill Agreement"),
which Agreements will continue in full force and effect in accordance with their
respective terms.
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(b) Access to Information. Company and Parent will each afford to the other
and its accountants, counsel and other representatives reasonable access during
normal business hours to its properties, books, records and personnel during the
period prior to the Effective Time to obtain all information concerning its
business, including the status of its product development efforts, properties,
results of operations and personnel, as such other party may reasonably request
and, during such period, each of Parent and Company shall (and shall cause each
of their respective subsidiaries to) furnish promptly to the other a copy of
each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws. Unless otherwise required by law, the parties will hold any
such information which is non-public in confidence in accordance with the
Confidentiality Agreements. No information or knowledge obtained in any
investigation pursuant to this Section 5.4 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.5 No Solicitation.
(a) Company and its subsidiaries will not, nor will they authorize or
permit any of their respective officers, directors, affiliates or employees or
any investment banker, attorney or other advisor or representative retained by
any of them to, directly or indirectly, (i) solicit, initiate, encourage or
induce the making, submission or announcement of any Company Acquisition
Proposal, (ii) propose, enter into or participate in any discussions or
negotiations regarding, or furnish to any person any non-public information with
respect to, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes or may reasonably be expected to lead to, any
Company Acquisition Proposal, (iii) engage in discussions with any person with
respect to any Company Acquisition Proposal, except as to the existence of these
provisions, (iv) subject to Section 5.2(c), approve, endorse or recommend any
Company Acquisition Proposal, or (v) enter into any letter of intent or similar
document or any contract, agreement or commitment contemplating or otherwise
relating to any Company Acquisition Transaction (as defined below); provided,
however, that prior to the approval of this Agreement and the Merger at the
Company Stockholders' Meeting, this Section 5.5 shall not prohibit Company from
furnishing non-public information regarding Company and its subsidiaries to, or
entering into discussions with, any person or group who has submitted to Company
prior to the date of the Company Stockholders' Meeting (and not withdrawn) an
unsolicited, written, bona fide Company Acquisition Proposal that the Board of
Directors of Company reasonably concludes (based on the written advice of its
financial adviser) may constitute a Company Superior Offer if (A) neither
Company nor any representative of Company and its subsidiaries shall have
violated any of the restrictions set forth in this Section 5.5, (B) prior to the
date of the Company Stockholders' Meeting, the Board of Directors of Company
concludes in good faith, after consultation with its outside legal counsel, that
such action is required in order for the Board of Directors of Company to comply
with its fiduciary obligations to Company's stockholders under applicable
Delaware Law, (C) prior to furnishing any such non-public information to, or
entering into any such discussions with, such person or group, Company gives
Parent written notice of the identity of such person or group and all of the
material terms and conditions of such Company Acquisition Proposal and of
Company's intention to furnish non-public information to, or enter into
discussions with, such person or group, and Company receives from such person or
group an executed confidentiality agreement containing terms at least as
restrictive with regard to Company's confidential information as the
Confidentiality Agreement, (D) Company gives Parent at least three (3) business
days advance notice of its intent to furnish such non-public information or
enter into such discussions, and (E) contemporaneously with furnishing any such
non-public information to such person or group, Company furnishes such
non-public information to Parent (to the extent such non-public information has
not been previously furnished by Company to Parent). Company and its
subsidiaries will immediately cease any and all existing activities, discussions
or negotiations with any parties conducted heretofore with respect to any
Company Acquisition Proposal. Without limiting the
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foregoing, it is understood that any violation of the restrictions set forth in
the preceding two sentences by any officer, director or employee of Company or
any of its subsidiaries or any investment banker, attorney or other advisor or
representative of Company or any of its subsidiaries shall be deemed to be a
breach of this Section 5.5(a) by Company.
(b) For purposes of this Agreement, "Company Acquisition Proposal" shall
mean any inquiry, offer or proposal (other than an offer or proposal by Parent)
regarding or relating to any acquisition, merger or other potential transaction
that if consummated would constitute a Company Acquisition Transaction. For the
purposes of this Agreement, "Company Acquisition Transaction" shall mean any
transaction or series of related transactions other than the transactions
contemplated by this Agreement involving: (A) any acquisition or purchase from
Company by any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) of more than a 15% interest in the
total outstanding voting securities of Company or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning 15% or more of the total outstanding
voting securities of Company or any of its subsidiaries, or any merger,
consolidation, business combination or similar transaction involving Company
pursuant to which the stockholders of Company immediately preceding such
transaction would hold less than 85% of the equity interests in the surviving or
resulting entity of such transaction; (B) any sale, lease, exchange, transfer,
license, acquisition or disposition of more than 15% of the assets of Company;
or (C) any liquidation or dissolution of Company.
(c) In addition to the obligations of Company set forth in the preceding
Section 5.5(a), Company as promptly as practicable shall advise Parent orally
and in writing of any request for non-public information which Company
reasonably believes would lead to a Company Acquisition Proposal or of any
Company Acquisition Proposal, or any inquiry with respect to or which Company
reasonably believes would lead to any Company Acquisition Proposal, the material
terms and conditions of such request, Company Acquisition Proposal or inquiry,
and the identity of the person or group making any such request, Company
Acquisition Proposal or inquiry. Company will keep Parent informed as promptly
as practicable in all material respects of the status and details (including
material amendments or proposed amendments) of any such request, Company
Acquisition Proposal or inquiry.
5.6 Public Disclosure. Parent and Company will consult with each other,
and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or any Company Acquisition Proposal and will not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law or the rules of the Nasdaq National Market after reasonable
efforts have been made to consult with the other party before such public
statement is required to be made. The parties have agreed to the text of the
joint press release announcing the signing of this Agreement.
5.7 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following:
(i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VI to be satisfied,
(ii) the obtaining of all necessary actions, waivers, consents,
approvals, orders and authorizations from Governmental Entities and the
making of all necessary registrations,
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declarations and filings (including registrations, declarations and filings
with Governmental Entities, if any) and the taking of all reasonable steps
as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity,
(iii) the obtaining of all necessary consents, approvals or waivers
from third parties,
(iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this Agreement
or the consummation of the transactions contemplated hereby, including
seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed, and
(v) the execution or delivery of any additional instruments necessary
to consummate the transactions contemplated by, and to fully carry out the
purposes of, this Agreement.
(b) Each of Company and Parent will give prompt notice to the other of (i)
any notice or other communication from any person alleging that the consent of
such person is or may be required in connection with the Merger, (ii) any notice
or other communication from any Governmental Entity in connection with the
Merger, or (iii) any litigation relating to, involving or otherwise affecting
Company, Parent or their respective subsidiaries that relates to, or that could
reasonably be expected to affect any party's ability to effect, the consummation
of the Merger. Company shall give prompt notice to Parent of any representation
or warranty made by it contained in this Agreement becoming untrue or
inaccurate, or any failure of Company to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement, in each case, such that the conditions set forth in
Section 6.3(a) or 6.3(b) would not be satisfied, provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement. Parent shall give prompt notice to Company of any
representation or warranty made by it or Merger Sub contained in this Agreement
becoming untrue or inaccurate, or any failure of Parent or Merger Sub to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied, provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.8 Third Party Consents. As soon as practicable following the date
hereof, Parent and Company will each use all reasonable efforts to obtain any
consents, waivers and approvals under any of its or its subsidiaries' respective
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby.
5.9 Stock Options, Warrants, ESPP and Employee Benefits.
(a) At the Effective Time, each then outstanding Company Option whether or
not vested or exercisable at the Effective Time and regardless of the respective
exercise prices of the Company Options, will be assumed by Parent, and each
Performance Share that vests at the Effective Time will be converted into Parent
Ordinary Shares pursuant to Section 1.4. Each Company Option so assumed by
Parent under this Agreement will continue to have, and be subject to, the same
terms and conditions set forth in the applicable Company Stock Option Plan (and
any applicable stock option agreement for such Company Option and any applicable
agreement accelerating the vesting of such Company Option disclosed in the
Company Disclosure Letter) immediately prior to the Effective Time (including,
without limitation, any repurchase rights or vesting provisions and provisions
providing for exercisability following termination of employment) except as such
terms and conditions may be altered to comply with Singapore legal requirements,
and except further that (i) each Company Option will be exercisable (or will
become exercisable in accordance with its terms) for that number of whole Parent
Ordinary Shares equal to the product of the number of shares of Company Common
Stock that were issuable upon exercise of such Company Option
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immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of Parent Ordinary Shares and (ii) in
the case of Company Options, the per share exercise price for the Parent
Ordinary Shares issuable upon exercise of such assumed Company Option will be
equal to the quotient determined by dividing the exercise price per share of
Company Common Stock at which such Company Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent; provided that if such calculation results in the exercise price
being less than the par value of a Parent Ordinary Share, the exercise price
shall be the par value of a Parent Ordinary Share. Each assumed Company Option
shall be vested immediately following the Effective Time as to the same
percentage of the total number of shares subject thereto as it was vested
immediately prior to the Effective Time, subject to acceleration in accordance
with the terms thereof as disclosed in the Company Disclosure Letter. Continuous
employment with Company or its subsidiaries shall be credited to the optionee
for purposes of determining the vesting of all Company Options after the
Effective Time. Within twenty (20) days after the Effective Time, Parent will
issue to each person who immediately prior to the Effective Time was a holder of
an outstanding Company Option a document evidencing the foregoing assumption
thereof by Parent.
(b) It is intended that Company Options assumed by Parent shall qualify
following the Effective Time as incentive stock options as defined in Section
422 of the Code to the extent such Company Options qualified as incentive stock
options immediately prior to the Effective Time and the provisions of this
Section 5.9 shall be applied consistent with such intent.
(c) At the Effective Time, each outstanding purchase right with respect to
the then open offering under the Company's ESPP (each an "Assumed Purchase
Right") shall be assumed by Parent. Each Assumed Purchase Right shall continue
to have, and be subject to, the terms and conditions set forth in the Company's
ESPP and the documents governing the Assumed Purchase Right, except as such
terms and conditions may be altered to comply with Singapore legal requirements,
and except further that the purchase price of the shares of Parent's Ordinary
Shares under the Assumed Purchase Right shall be the lesser of (i) the quotient
determined by the dividing 85% of the fair market value of the Company's Common
Stock on the Offering Date (as defined in the Company's ESPP) by the Exchange
Ratio and (ii) 85% of the last sale price of the Parent's Ordinary Shares on
Nasdaq on the last day of the offering that was open at the Effective Time (with
the number of shares rounded down to the nearest whole share and the Purchase
Price rounded up to the nearest whole cent; provided that if such calculation
results in the purchase price being less than the par value of a Parent Ordinary
Share, the purchase price shall be the par value of a Parent Ordinary Share).
The Assumed Purchase Rights shall be exercisable only for Parent Ordinary
Shares. The Company's ESPP shall terminate immediately following the purchase of
shares under the Assumed Purchase Rights.
(d) Effective immediately prior to the Effective Time, Company shall issue
a final pro rata number of shares of Company Common Stock to directors of
Company under Company's Directors' Stock Plan, it being understood that such
shares of Company Common Stock shall be deemed outstanding as of the Effective
Time for purposes of Section 1.4(a).
(e) Parent shall take all action necessary to reserve for issuance a
sufficient number of Parent Ordinary Shares for delivery upon exercise of the
Company Options and the Assumed Purchase Rights, and the vesting of Performance
Shares.
(f) As soon as practicable after the execution of this Agreement, Company
and Parent shall confer and work together in good faith to agree upon mutually
acceptable employee benefit and compensation arrangements in accordance with
this Section 5.9 (which may include terminating certain Company Employee Plans
(as defined in Section 2.14(a)(ii)) immediately prior to the Effective Time if
appropriate and to the extent permitted under applicable law).
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(g) For a period of at least one year following the Effective Time, Parent
shall provide (or cause to be provided) benefits to any person who was employed
by Company or its subsidiaries immediately prior to the Effective Time and who
continues to be an employee of Parent or its subsidiaries ("Company Employees")
that are either no less favorable in the aggregate to the benefits provided to
similarly-situated employees of Parent or are generally equivalent to the
benefits provided under the Company Employee Plans in existence immediately
prior to the Effective Time. After the Effective Time, Parent shall grant (or
cause to be granted) to each Company Employee credit for all service with
Company prior to the Effective Time to the same extent as if such service had
been service with Parent for (i) all eligibility and vesting purposes under all
employee benefit plans, policies, programs and arrangements of Parent and any of
its subsidiaries that cover a Company Employee, and (ii) purposes of satisfying
any preexisting condition exclusion or actively-at-work requirement that would
otherwise apply to such Company Employee under any medical, dental or other
welfare benefit plans, policies, programs and arrangements of Parent and any of
its subsidiaries that employ a Company Employee, to the extent that this clause
(ii) does not violate the applicable plan, policy, program or arrangement;
provided that Parent shall, to the extent permitted by the terms thereof and
applicable law, as soon as practicable, take all action, including effecting any
amendments to any such plan, policy, program or arrangement, as may be necessary
or appropriate to prevent such violation.
(h) Parent shall cause Surviving Corporation to assume, honor, maintain and
perform in accordance with their respective terms, without deductions,
counterclaims, interruptions or deferments (other than withholding under
applicable law), all employment and severance agreements and arrangements
disclosed on Part 5.9(h) of the Company Disclosure Letter, including any terms
thereof, which provides for the payment or acceleration of benefits to
employees, former employees or directors or former directors of Company upon or
in connection with a change of control of Company. Parent further agrees to
cause the Surviving Corporation to make any amendments to Company's Deferred
Compensation Plan necessary to ensure that the intent of such plan is fulfilled
despite the changes resulting from the Merger, such as, but not limited to, the
conversion of Company Common Stock to Parent Ordinary Shares.
(i) Parent shall cause Merger Sub and the Surviving Company to take all
actions prescribed by the Exchange Act and the rules and regulations thereunder,
including any SEC no-actions or interpretative letters issued thereunder, in
order to ensure that the exchange of Company Common Stock and Parent's
assumption of Company Options and obligations relating to unvested Performance
Shares in accordance with this Agreement will not be deemed to be a purchase or
sale of securities by any officer, director or employee of Company or any of its
subsidiaries for purpose of Section 16 under the Exchange Act.
5.10 Form S-8. Parent agrees to file a registration statement on Form S-8
for the Parent Ordinary Shares issuable with respect to assumed Company Options,
Performance Shares and Assumed Purchase Rights as soon as is reasonably
practicable after the Effective Time and shall maintain the effectiveness of
such registration statement thereafter for so long as any of such options or
other rights remain outstanding.
5.11 Nasdaq Quotation. Parent agrees to cause the Parent Ordinary Shares
issuable, and those required to be reserved for issuance, in connection with the
Merger, to be approved prior to the Effective Time for quotation on the Nasdaq
Stock Market, subject to official notice of issuance.
5.12 Indemnification; Insurance.
(a) Indemnification. From and after the Effective Time, Parent will (to the
extent permitted under all applicable laws), and will cause the Surviving
Corporation to, fulfill and honor in all respects the obligations of Company
pursuant to any indemnification agreements between Company and its directors,
officers, employees and other agents and representatives as of the Effective
Time
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(the "Indemnified Parties") and any indemnification provisions under Company's
Certificate of Incorporation or Bylaws as in effect on the date hereof. The
Certificate of Incorporation and Bylaws of the Surviving Corporation will
contain provisions with respect to exculpation and indemnification that are at
least as favorable to the Indemnified Parties as those contained in the
Certificate of Incorporation and Bylaws of Company as in effect on the date
hereof, which provisions will not be amended, repealed or otherwise modified for
a period of six (6) years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, immediately prior to
the Effective Time, were entitled to indemnification under the corresponding
provision of the Certificate of Incorporation and Bylaws of Company, unless such
modification is required by law.
(b) Insurance. For a period of six (6) years after the Effective Time,
Parent will cause the Surviving Corporation to maintain in effect, to the extent
available, directors' and officers' liability insurance, with respect to claims
arising from events or conditions occurring on or prior to the Effective Time,
including any claims relating to the Merger, covering those persons who are
currently covered by Company's directors' and officers' liability insurance
policy on terms comparable to those applicable to the current directors and
officers of Company; provided, however, that in no event will Parent or the
Surviving Corporation be required to expend in excess of 200% of the annual
premium currently paid by Company for such coverage (or such coverage as is
available for such 200% of such annual premium).
(c) Survival and Beneficiaries. This Section 5.12 shall survive the
consummation of the Merger, is intended to benefit Company, the Surviving
Corporation and each Indemnified Party, shall be binding on all successors and
assigns of the Surviving Corporation and Parent, and shall be enforceable by the
Indemnified Parties.
5.13 Affiliate Agreements. Company will use all reasonable efforts to
deliver or cause to be delivered to Parent, as promptly as practicable on or
following the date hereof, from each Company Affiliate an executed affiliate
agreement in substantially the form attached hereto as Exhibit C (the "Company
Affiliate Agreement"), each of which will be in full force and effect as of the
date thereof and as of the Effective Time. Parent will use all reasonable
efforts to deliver or cause to be delivered, as promptly as practicable on or
following the date hereof, from each Parent Affiliate an executed affiliate
agreement in substantially the form attached hereto as Exhibit D (the "Parent
Affiliate Agreement"), each of which will be in full force and effect as of the
date hereof and as of the Effective Time. Parent will be entitled to place
appropriate legends on the certificates evidencing any Parent Ordinary Shares to
be received by a Company Affiliate or Parent Affiliate pursuant to the terms of
this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Parent Ordinary Shares, consistent with the terms of the
Company Affiliate Agreement or Parent Affiliate Agreement.
5.14 Letter of Company's Accountants. Company shall use all reasonable
efforts to cause to be delivered to Parent a letter of Deloitte & Touche LLP,
dated no more than two business days before the date on which the Registration
Statement becomes effective (and reasonably satisfactory in form and substance
to Parent), that is customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
5.15 Letter of Parent's Accountants. Parent shall use all reasonable
efforts to cause to be delivered to Company a letter of Arthur Andersen LLP,
dated no more than two business days before the date on which the Registration
Statement becomes effective (and reasonably satisfactory in form and substance
to Company), that is customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
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5.16 Takeover Statutes. If any takeover statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, each of Parent and Company and their respective Boards of Directors
shall grant such approvals and take such lawful actions as are necessary to
ensure that the Merger and such other transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise act to eliminate or minimize the effects of such statute and any
regulations promulgated thereunder on such transactions.
5.17 Stockholder Litigation. Each of Company and Parent shall give the
other the reasonable opportunity to participate in the defense of any
stockholder litigation against Company or Parent, as applicable, and its
directors relating to the transactions contemplated by this Agreement and the
Option Agreements.
5.18 Pooling Accounting. Each of Parent and Company shall use all
reasonable efforts to cause the Merger to be accounted for as a pooling of
interests. Parent will use its reasonable efforts to ensure that no person who
is a Parent Affiliate takes any action that would prevent Parent from accounting
for the Merger as a pooling of interests. Company will use all reasonable
efforts to ensure that no person who is a Company Affiliate takes any action
that would prevent Parent from accounting for the Merger as a pooling of
interests.
5.19 Rights Agreement. Company shall, within five (5) business days of the
date hereof, take all actions necessary, if any, such that, for all purposes
under the Rights Agreement dated as of May 4, 1993 between Company and Norwest
Bank Minnesota, N.A., as rights agent, neither Parent nor Merger Sub shall be
deemed an Acquiring Person (as defined in the Rights Agreement), the
Distribution Date (as defined in the Rights Agreement) shall not be deemed to
occur, and the Rights will not separate from the Company Common Stock, as a
result of Parent's or Merger Sub's entering into this Agreement, the Company
Option Agreement or the Company Voting Agreement or consummating the Merger
and/or the other transactions contemplated hereby or thereby. Company shall,
within five (5) business days of the date hereof, taken all necessary action, if
any, with respect to all of the outstanding Rights so that, immediately prior to
the Effective Time, (a) Company will not have any obligations under the Rights
or the Rights Agreement with respect to the Merger and/or the other transactions
contemplated hereby and (b) the holders of Rights will have no rights under the
Rights or the Rights Agreement with respect to the Merger and/or the other
transactions contemplated hereby.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company Stockholder Approval. This Agreement shall have been
approved and adopted, and the Merger shall have been approved by a vote of
holders of outstanding shares of Company Common Stock representing a
majority of all votes entitled to be cast on the matter.
(b) Parent Shareholder Approval. The issuance of the Parent Ordinary
Shares pursuant to the Merger shall have been duly approved by the
requisite majority of the shareholders of Parent under applicable Nasdaq
rules, Singapore laws and Parent's Articles of Association.
(c) Registration Statement Effective; Proxy Statement. The SEC shall
have declared the Registration Statement effective. No stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose, and no
similar proceeding in respect of the Proxy Statement/Prospectus, shall have
been initiated or threatened in writing by the SEC.
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(d) No Order; HSR Act. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger or otherwise limiting or restricting Parent's conduct or operation
of the business of Company and its subsidiaries following the Merger in a
manner that could reasonably be expected to have a Parent Material Adverse
Effect. All waiting periods, if any, under the HSR Act and the European
Community Merger Regulation relating to the transactions contemplated
hereby will have expired or terminated early and all material foreign
antitrust approvals required to be obtained prior to the Merger in
connection with the transactions contemplated hereby shall have been
obtained.
(e) Approvals. Other than the filing provided for by Section 1.2(a),
all authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity the failure of which to file or obtain is reasonably
likely to have a Company Material Adverse Effect or Parent Material Adverse
Effect shall have been filed, been obtained or occurred.
(f) Tax Opinions. Parent and Company shall each have received written
opinions from their respective tax counsel (Fenwick & West LLP and Curtis,
Mallet-Prevost, Colt & Mosle LLP, respectively), in form and substance
reasonably satisfactory to them, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the
Code and such opinions shall not have been withdrawn. The parties to this
Agreement agree to make such reasonable representations as requested by
such counsel for the purpose of rendering such opinions.
(g) Nasdaq Listing. The Parent Ordinary Shares to be issued in the
Merger shall have been approved for quotation on the Nasdaq Stock Market
subject to notice of issuance.
6.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:
(a) Representations and Warranties. Each representation and warranty
of Parent and Merger Sub contained in this Agreement (i) shall have been
true and correct in all material respects as of the date of this Agreement
and (ii) shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect as if made on the Closing
Date (except, in the case of clause (ii), for breaches, inaccuracies and
omissions of such representations and warranties which have neither had nor
reasonably would be expected to have a Material Adverse Effect on Parent
(it being understood that, for purposes of determining the accuracy of such
representations and warranties, (1) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded, and (2) any update of or modification to the Parent Disclosure
Letter made or purported to have been made after the execution of this
Agreement shall be disregarded). Company shall have received a certificate
with respect to the foregoing signed on behalf of Parent by an authorized
officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and Company shall have received a
certificate to such effect signed on behalf of Parent by an authorized
officer of Parent.
(c) Material Adverse Effect. No Parent Material Adverse Effect shall
have occurred since the date of this Agreement and be continuing.
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(d) Opinion of Accountants.
(i) Parent shall have received from Arthur Andersen LLP,
independent auditors for Parent, a letter dated the Closing Date (which
may contain customary qualifications and assumptions), to the effect
that Arthur Andersen LLP concurs with Parent's management conclusion
that Parent may account for the Merger as a pooling of interests under
Accounting Principles Board Opinion No. 16, and Company shall have
received a copy of such letter.
(ii) Company shall have received from Deloitte & Touche LLP,
independent public accountants for Company, a letter dated the Closing
Date (which may contain customary qualifications and assumptions), to
the effect that Deloitte & Touche LLP concurs with Company's management
conclusion that no conditions exist related to Company that would
preclude Parent from accounting for the Merger as a pooling of interests
under Accounting Principles Board Opinion No. 16.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. The representations and warranties
of Company contained in this Agreement (i) shall have been true and correct
in all material respects as of the date of this Agreement and (ii) shall be
true and correct in all material respects on and as of the Closing Date
with the same force and effect as if made on and as of the Closing Date
(except, for (1) breaches, inaccuracies and omissions of such
representations and warranties (A) contained in Section 2.8(a), which shall
be true and correct as of the date of this Agreement and shall be true and
correct in all material respects on and as of January 31, 2000, or (B) with
respect to any representation or warranty which have neither had nor
reasonably would be expected to have a Material Adverse Effect on Company,
or, (2) in the case of clause (ii), which directly result from actions
taken with the prior written consent, or taken at the written direction of
Parent, it being understood that, for purposes of determining the accuracy
of such representations and warranties, (1) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded, and (2) any update of or modification to the Company
Disclosure Letter made or purported to have been made after the execution
of this Agreement shall be disregarded). Parent shall have received a
certificate with respect to the foregoing signed on behalf of Company by an
authorized officer of Company.
(b) Agreements and Covenants. Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Closing Date, and Parent shall have received a certificate to
such effect signed on behalf of Company by an authorized officer of
Company.
(c) Material Adverse Effect. No Company Material Adverse Effect shall
have occurred since the date of this Agreement and prior to January 31,
2000.
(d) Opinion of Accountants.
(i) Parent shall have received from Arthur Andersen LLP,
independent auditors for Parent, a letter dated the Closing Date (which
may contain customary qualifications and assumptions), to the effect
that Arthur Andersen LLP concurs with Parent's management conclusion
that Parent may account for the Merger as a pooling of interests under
Accounting Principles Board Opinion No. 16.
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(ii) Company shall have received from Deloitte & Touche LLP,
independent public accountants for Company, a letter dated the Closing
Date (which may contain customary qualifications and assumptions), to
the effect that Deloitte & Touche LLP concurs with Company's management
conclusion that no conditions exist related to Company that would
preclude Parent from accounting for the Merger as a pooling of interests
under Accounting Principles Board Opinion No. 16, and Parent shall have
received a copy of such letter.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approvals of the
stockholders of Company or shareholders of Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated by the date that is six (6) months after the date of this
Agreement (the "Outside Date"), for any reason; provided, however, that the
Outside Date shall be extended to the date that is nine (9) months after
the date of this Agreement upon written notice of either party to the other
party, which notice shall be delivered on or within ten (10) days before
the date that is six (6) months after the date of this Agreement if any of
the conditions specified in Section 6.1(d) have not been satisfied on the
date of such notice; and provided, further, that the right to terminate or
extend this Agreement under this Section 7.1(b) shall not be available to
any party whose action or failure to act has been a principal cause of or
resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a breach of this Agreement;
(c) by either Company or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is
final and nonappealable;
(d) by either Company or Parent if the required approval of the Merger
by the stockholders of Company contemplated by this Agreement shall not
have been obtained by reason of the failure to obtain the required vote at
a meeting of the Company Stockholders duly convened therefor or at any
adjournment thereof; provided, however, that the right to terminate this
Agreement under this Section 7.1(d) shall not be available to Company where
the failure to obtain approval of the Company's stockholders shall have
been caused by (i) the action or failure to act of Company and such action
or failure to act constitutes a material breach by Company of this
Agreement or (ii) a breach of any Company Voting Agreements by any party
thereto other than Parent;
(e) by either Company or Parent if the required approval of the
shareholders of Parent contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting
of the shareholders of Parent duly convened therefor or at any adjournment
thereof; provided, however, that the right to terminate this Agreement
under this Section 7.1(e) shall not be available to Parent where the
failure to obtain the Parent shareholder approval shall have been caused by
(i) the action or failure to act of the Parent and such action or failure
to act constitutes a material breach by Parent of this Agreement or (ii) a
breach of any Parent Voting Agreement by any party thereto other than
Company;
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(f) by Parent (at any time prior to the adoption and approval of this
Agreement and the Merger by the required vote of the stockholders of
Company) if a Company Triggering Event (as defined below) shall have
occurred.
(g) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent or Merger Sub set forth in this
Agreement, or if any representation or warranty of Parent or Merger Sub
shall have become untrue, in either case such that the conditions set forth
in Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time
of such breach or as of the time such representation or warranty shall have
become untrue, provided that if such inaccuracy in Parent's or Merger Sub's
representations and warranties or breach by Parent or Merger Sub is curable
by Parent or Merger Sub through the exercise of its reasonable efforts,
then Company may not terminate this Agreement under this Section 7.1(g)
prior to the Outside Date for 30 days after delivery of written notice from
Company to Parent or Merger Sub, as the case may be, of its breach,
provided Parent or Merger Sub continues to exercise all reasonable efforts
to cure its breach (it being understood that Company may not terminate this
Agreement pursuant to this paragraph (g) if such breach by Parent or Merger
Sub is cured prior to the Outside Date during such 30 day period, or if
Company shall have materially breached this Agreement); or
(h) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided that if such
inaccuracy in Company's representations and warranties or breach by Company
is curable by Company through the exercise of its reasonable efforts, then
Parent may not terminate this Agreement under this Section 7.1(h) prior to
the Outside Date for 30 days after delivery of written notice from Parent
to Company of such breach, provided Company continues to exercise all
reasonable efforts to cure such breach (it being understood that Parent may
not terminate this Agreement pursuant to this paragraph (h) if such breach
by Company is cured prior to the Outside Date during such 30 day period, or
if Parent shall have materially breached this Agreement).
For the purposes of this Agreement, a "Company Triggering Event" shall be
deemed to have occurred if: (i) the Board of Directors of Company or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Parent its unanimous recommendation in favor of
the adoption and approval of the Agreement or the approval of the Merger; (ii)
Company shall have failed to include in the Proxy Statement/Prospectus the
unanimous recommendation of the Board of Directors of Company in favor of the
adoption and approval of the Agreement and the approval of the Merger; (iii) the
Board of Directors of Company fails to reaffirm its unanimous recommendation in
favor of the adoption and approval of the Agreement and the approval of the
Merger within 10 business days after Parent requests in writing that such
recommendation be reaffirmed at any time following the public announcement of a
Company Acquisition Proposal; (iv) the Board of Directors of Company or any
committee thereof shall have approved or publicly recommended any Company
Acquisition Proposal; (v) Company shall have entered into any letter of intent
or similar document or any agreement, contract or commitment accepting any
Company Acquisition Proposal; (vi) a tender or exchange offer relating to
securities of Company shall have been commenced by a person or entity
unaffiliated with Parent and Company shall not have sent to its securityholders
pursuant to Rule 14e-2 promulgated under the Exchange Act, within ten (10)
business days after such tender or exchange offer is first published sent or
given, a statement disclosing that Company recommends rejection of such tender
or exchange offer; or (vii) for any reason Company fails to call and hold the
Company Stockholders' Meeting by the Outside Date (provided that such failure
shall not constitute a Company Triggering Event if, at the
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Outside Date, Company would be entitled to terminate this Agreement under
Section 7.1(b), 7.1(c), 7.1(e) or pursuant to Section 7.1(g)).
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (a) as set forth
in Section 5.4(a), this Section 7.2, Section 7.3 and Article VIII, each of which
shall survive the termination of this Agreement, and (b) that nothing herein
shall relieve any party from liability for any willful breach of this Agreement.
No termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreements and Standstill Agreement, all of
which obligations shall survive termination of this Agreement in accordance with
their terms.
7.3 Fees and Expenses.
(a) General. All fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses whether or not the Merger is consummated;
provided, however, that Parent and Company shall share equally all fees and
expenses, other than attorneys' and accountants fees and expenses, incurred
in relation to the printing and filing (with the SEC) of the Proxy
Statement/Prospectus (including any preliminary materials related thereto)
and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto.
(b) Termination Fee. In the event that this Agreement is terminated by
Parent or Company, as applicable, pursuant to Sections 7.1(b), (d) or (f),
Company shall promptly, but in no event later than two days after the date
of such termination, pay Parent a fee equal to three percent (3%) of the
value of the Company Equity Value, in immediately available funds (the
"Company Termination Fee"); provided, that in the case of termination under
Section 7.1(b) or 7.1(d), such payment shall be made only if (A) following
the date hereof and prior to the termination of this Agreement, a third
party has publicly announced a Company Acquisition Proposal, (B) the
failure to consummate the Merger by the Outside Date is principally due to
action or failure to act by Company, and such action or failure to act
constitutes a breach of this Agreement, and (C) within twelve (12) months
following the termination of this Agreement a Company Acquisition (as
defined below) is consummated or Company enters into an agreement providing
for a Company Acquisition (in which case such payment shall be made
promptly, but in no event later than two days after the consummation of
such Company Acquisition or the entry by Company into such agreement).
Company acknowledges that the agreements contained in this Section 7.3(b)
are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Parent would not enter into this
Agreement; accordingly, if Company fails to pay in a timely manner the
amounts due pursuant to this Section 7.3(b), and, in order to obtain such
payment, Parent makes a claim that results in a judgment against Company
for the amounts set forth in this Section 7.3(b), Company shall pay to
Parent its reasonable costs and expenses (including reasonable attorneys'
fees and expenses) in connection with such suit, together with interest on
the amounts set forth in this Section 7.3(b) at the prime rate of The Chase
Manhattan Bank in effect on the date such payment was required to be made.
Payment of the fees described in this Section 7.3(b) shall not be in lieu
of damages incurred in the event of a willful breach of this Agreement. For
the purposes of this Agreement "Company Acquisition" shall mean any of the
following transactions (other than the transactions contemplated by this
Agreement); (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Company pursuant to which the stockholders of Company immediately preceding
such transaction hold less than fifty percent (50%) of the aggregate equity
interests in the surviving or resulting entity of such transaction, (ii) a
sale or other disposition by Company
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of assets representing in excess of fifty percent (50%) of the aggregate
fair market value of Company's business immediately prior to such sale or
(iii) the acquisition by any person or group (including by way of a tender
offer or an exchange offer or issuance by Company), directly or indirectly,
of beneficial ownership or a right to acquire beneficial ownership of
shares representing in excess of fifty percent (50%) of the voting power of
the then outstanding shares of capital stock of Company.
In no event shall Company be required to make a payment pursuant to this
Section 7.2 to the extent that such payment, together with the aggregate
proceeds (without offset for any amounts paid or withheld for taxes) received by
Parent in respect of the Option and any Option Shares (each as defined in the
Company Option Agreement), prior to the time of such payment, exceeds or would
exceed 3.5% of the Company Equity Value.
For the purposes of this Agreement, "Company Equity Value" means the
product of the average closing price of Company Common Stock on the Nasdaq
National Market over the five (5) trading days prior to the date of termination
pursuant to Sections 7.1(b), (d), or (f), and the sum of: (A) all shares of
Company Common Stock that are outstanding as of the date of termination; (B) all
shares of Company Common Stock issuable upon conversion of all shares of capital
stock that is convertible into shares of Company Common Stock; and (C) all
shares of Company Common Stock issuable upon conversion of all options and
warrants to acquire Company Common Stock that are outstanding as of the date of
termination.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations
and warranties of Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time. The
obligations of Parent and Company pursuant to Sections 5.4(a), 7.3 and 7.4, and
this Article VIII, shall survive the termination of this Agreement.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt
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confirmed) to the parties at the following addresses or telecopy numbers (or at
such other address or telecopy numbers for a party as shall be specified by like
notice):
If to Parent or Merger Sub, to: If to Company, to:
FLEXTRONICS INTERNATIONAL LTD. THE DII GROUP, INC.
2090 Fortune Drive 6273 Monarch Park Place, Suite 200
San Jose, California 95131 Niwot, Colorado 80503
Attention: Chief Executive Officer Attention: Chief Executive Officer
Telecopy No.: (408) 428-0420 Telecopy No.: (303) 652-0416
with a copy to: with a copy to:
Fenwick & West LLP Curtis, Mallet-Prevost, Colt & Mosle
LLP
Two Palo Alto Square 101 Park Avenue
Palo Alto, California 94306 New York, New York 10178-0061
Attention: David K. Michaels Attention: Jeffrey N. Ostrager
Facsimile Number: (650) 494-1417 Facsimile Number: (212) 697-1559
8.3 Interpretation; Certain Defined Terms. When a reference is made in
this Agreement to Exhibits, such reference shall be to an Exhibit to this
Agreement unless otherwise indicated. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the business
of" an entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity. Reference to the subsidiaries
of an entity shall be deemed to include all direct and indirect subsidiaries of
such entity. For the purposes of this Agreement, the following definitions
apply:
(a) "Code" means the Internal Revenue Code of 1986, as amended;
(b) "Delaware Law" means the General Corporation Law of the State of
Delaware;
(c) "Encumbrances" means any lien, pledge, hypothecation, charge,
mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction
on the voting of any security, any restriction on the transfer of any
security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute
of ownership of any asset);
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended;
(e) "GAAP" means United States generally accepted accounting
principles;
(f) "Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality of any nation
or subdivision of any nation;
(g) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended;
(h) "knowledge" means with respect to a party hereto, with respect to
any matter in question, that any of the officers of such party has actual
knowledge of such matter, after reasonable inquiry of such matter;
(i) "Legal Requirements" means any law, statute, constitution,
principle of common law, resolution, ordinance, code, edict, decree, rule,
regulation, ruling or requirement issued, enacted,
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adopted, promulgated, implemented or otherwise put into effect by or under
the authority of any Governmental Entity (as defined above);
(j) "Material Adverse Effect" when used in connection with an entity
means any change, event, violation, inaccuracy, circumstance or effect that
is or is reasonably likely to be materially adverse to, (A) the business,
assets (including intangible assets), capitalization, financial condition
or results of operations of such entity taken as a whole with its
subsidiaries, (B) the ability of such person to perform its obligations
under this Agreement and to consummate the transactions provided for
hereunder, or (C) the ability of such entity to conduct its business as
presently conducted (except for changes, events, circumstances or effects
that are caused solely by (i) conditions affecting the U.S. or world
economy, (ii) conditions affecting the electronics manufacturing services
industry as a whole, (iii) the pendency or announcement of this Agreement
or the transactions contemplated hereby, to the extent attributable to the
pendency or announcement of this Agreement or the transactions contemplated
hereby, (iv) changes in the market price or trading volume of such entity's
capital stock or (v) actions taken by Company with the prior written
consent of Parent or at Parent's written direction; provided that any party
asserting that any change, event, circumstance or effect is or has been
caused solely by one or more of the conditions or events described in the
preceding clauses (i) through (iv) shall bear the burden of proof in any
proceeding with respect to establishing such assertion). "Company Material
Adverse Effect" means a Material Adverse Effect with respect to Company and
its subsidiaries, and "Parent Material Adverse Effect" means Material
Adverse Effect with respect to Parent and its Subsidiaries.
(k) "person" shall mean any individual, corporation (including any
non-profit corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust, company (including any
limited liability company or joint stock company), firm or other
enterprise, association, organization, entity or Governmental Entity;
(l) "SEC" means the United States Securities and Exchange Commission;
(m) "Securities Act" means the Securities Act of 1933, as amended; and
(n) "subsidiary" of a specified entity means any corporation,
partnership, limited liability company, joint venture or other legal entity
which the specified entity controls, or of which the specified entity
(either alone or through or together with any other subsidiary) owns,
directly or indirectly, 50% or more of the stock or other equity or
partnership interests the holders of which are generally entitled to vote
for the election of the Board of Directors or other governing body of such
corporation or other legal entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Letter
and the Parent Disclosure Letter (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality and Standstill Agreements shall continue in full force and
effect until the Closing and shall survive any termination of this Agreement;
and (b) except for the provisions of Sections 1.4, 1.5, 5.9(h) and 5.12, are not
intended to confer upon any other person any rights or remedies hereunder.
8.6 Severability. In the event that any provision of this Agreement or the
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the
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remainder of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto. The
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such void or
unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Any litigation or dispute resolution proceeding among the parties relating to
this Agreement will take place in County of New Castle, Delaware. The parties
consent to the personal jurisdiction of and the venue in the state and federal
courts within such county.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Any purported assignment in
violation of this Section shall be void.
8.11 Disclosure Letter. Notwithstanding anything in the Company Disclosure
Letter or the Parent Disclosure Letter to the contrary, nothing in the Company
Disclosure Letter or the Parent Disclosure Letter shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the
disclosure identifies the exception with particularity and describes the
relevant facts in reasonable detail; provided, that a particular matter need
only be disclosed once in such manner so long as it is cross-referenced wherever
else applicable in the Company Disclosure Letter or the Parent Disclosure
Letter, as the case may be, in a manner sufficiently clear to identify to which
representation or warranty an exception is being made or unless it is apparent
from the express disclosure made on the Company Disclosure Letter or Parent
Disclosure Letter, as applicable, that an exception is being made to such
representation or warranty.
8.12 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
FLEXTRONICS INTERNATIONAL LTD.
Signature: /s/ MICHAEL E. MARKS
------------------------------------------------------------------------------
Printed Name: Michael E. Marks
Title: Chairman and Chief Executive Officer
SLALOM ACQUISITION CORP.
Signature: /s/ MICHAEL E. MARKS
------------------------------------------------------------------------------
Printed Name: Michael E. Marks
Title: Chief Executive Officer
THE DII GROUP, INC.
Signature: /s/ RONALD R. BUDACZ
------------------------------------------------------------------------------
Printed Name: Ronald R. Budacz
Title: Chief Executive Officer
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
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ANNEX B
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") is made and entered into as
of November 22, 1999, between The DII Group, Inc., a Delaware corporation
("Company"), and Flextronics International Ltd., a Singapore company ("Parent").
Capitalized terms used in this Agreement but not defined herein shall have the
meanings ascribed to such terms in the Merger Agreement (as defined below).
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Company,
Parent and Slalom Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), are entering into an Agreement and Plan of
Merger (the "Merger Agreement"), that provides, among other things, upon the
terms and subject to the conditions thereof, for Company and Parent to enter
into a business combination transaction (the "Merger").
B. As a condition to Parent's willingness to enter into the Merger
Agreement, Parent has required that Company agree, and Company has so agreed, to
grant to Parent an option to acquire shares of Company Common Stock ("Company
Shares"), upon the terms and subject to the conditions set forth herein.
In consideration of the foregoing and of the mutual covenants and
agreements set forth herein and in the Merger Agreement and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Grant of Option. Company hereby grants to Parent an irrevocable option
(the "Option"), exercisable following the occurrence of an Exercise Event (as
defined in Section 2(a)), to acquire up to a number of Company Shares equal to
19.9% of the shares of Company Common Stock issued and outstanding as of the
date, if any, upon which an Exercise Notice (as defined in Section 2(b) below)
shall have been delivered (the "Option Shares"), in the manner set forth below
by paying cash at a price of $65.406 per share (the "Exercise Price"). The
Option shall not be transferable except to the Company pursuant to Section 8
below.
2. Exercise of Option; Maximum Proceeds.
(a) For all purposes of this Agreement, an "Exercise Event" shall mean any
of (i) the occurrence of a Company Triggering Event (as such term is defined in
the Merger Agreement) other than any event under clause (vii) of the definition
of Company Triggering Event, (ii) a public announcement of an Option Acquisition
Proposal (as defined below) shall have been made prior to the date the Merger
Agreement is terminated pursuant to the terms thereof (the "Merger Termination
Date") and the occurrence of one or more of the following on or after the date
of the announcement of such Option Acquisition Proposal: (1) the requisite vote
of the stockholders of Company in favor of the Merger Agreement and the Merger
shall not have been obtained at the Company Stockholders' Meeting (as such term
is defined in the Merger Agreement); (2) a tender offer or exchange offer for
15% or more of the outstanding shares of Company Common Stock shall have been
commenced (other than by Parent or an affiliate of Parent); (3) for any reason
Company shall have failed to call and hold the Company Stockholders' Meeting by
the Outside Date (as defined in the Merger Agreement); or (4) Company shall have
failed to take all actions necessary to hold the Company Stockholders' Meeting
as promptly as practicable, and in any event (to the extent permissible under
applicable law) within 45 days after the declaration of effectiveness of the
Registration Statement, (iii) the acquisition by any person (other than Parent)
or "group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of beneficial ownership of 25% or more of the total
outstanding voting securities of the Company or any of its subsidiaries, or (iv)
the commencement of a solicitation within the meaning of Rule 14a-1(l)
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by any person or entity other than Parent or its Board of Directors (or any
person or entity acting on behalf of Parent or its Board of Directors) seeking
to alter the composition of Company's Board of Directors. For purposes of this
Agreement, "Option Acquisition Proposal" shall mean any offer or proposal (other
than an offer or proposal by Parent) relating to any transaction or series of
related transactions involving: (A) any purchase from Company or acquisition by
any person or "group" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) of more than a 10% interest in the total
outstanding voting securities of Company or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning 10% or more of the total outstanding
voting securities of Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving Company;
(B) any sale, lease, exchange, transfer, license, acquisition or disposition of
more than 10% of the assets of Company (other than sales of inventory in the
ordinary course of business); or (C) any liquidation or dissolution of Company.
(b) Parent may deliver to Company a written notice (an "Exercise Notice")
specifying that it wishes to exercise and close a purchase of Option Shares at
any time following the occurrence, prior to termination of the Option, of an
Exercise Event and specifying the total number of Option Shares it wishes to
acquire. Unless such Exercise Notice is withdrawn by Parent, the closing of a
purchase of Option Shares (a "Closing") specified in such Exercise Notice shall
take place at the principal offices of Company upon such date as may be
designated by Parent in writing.
(c) The Option shall terminate upon the earliest to occur of (i) the
Effective Time (as such term is defined in the Merger Agreement), (ii)
termination of the Merger Agreement other than pursuant to Section 7.1(b), (d),
(f) or (h) thereof, (iii) 14 months following the termination of the Merger
Agreement pursuant to Section 7.1(b), (d), (f) or (h), and (iv) 14 months
following the first occurrence of an Exercise Event; provided, however, that if
the Option is exercisable but cannot be exercised by reason of any applicable
government order or because the waiting period related to the issuance of the
Option Shares under the HSR Act shall not have expired or been terminated, or
because any other condition to closing has not been satisfied, then the Option
shall not terminate until the tenth business day after such impediment to
exercise shall have been removed or shall have become final and not subject to
appeal.
(d) If Parent at any time, whether before or after receipt of any Company
Termination Fee pursuant to Section 7.3(b) of the Merger Agreement, receives
proceeds in connection with any sales or other dispositions of this Option or
Option Shares (including on surrender of this Option to Company pursuant to
Section 8 hereof or by selling Option Shares to Company pursuant to Section 6(f)
or Section 9 hereof), plus any dividends (or equivalent distributions under
Section 7(a) hereof) received by Parent declared on Option Shares, less the
Exercise Price multiplied by the number of Company Shares purchased by Parent
pursuant to the Option, which, taken together with any Company Termination Fee
paid or payable pursuant to Section 7.3(b) of the Merger Agreement, exceeds
three and one-half percent (3.5%) of the Company Equity Value (as defined
below), then all proceeds to Parent in excess of such sum shall be promptly
remitted in cash by Parent to Company. For the purposes of this Agreement,
"Company Equity Value" means the product of the average closing price of Company
Common Stock on the Nasdaq National Market over the five (5) trading days prior
to the Closing with respect to the first exercise by Parent of the Option, and
the sum of: (A) all shares of Company Common Stock that are outstanding as of
the close of business on the date immediately preceding the Closing with respect
to the first exercise by Parent of the Option; (B) all shares of Company Common
Stock issuable upon conversion of all shares of capital stock that, at the time
of the Closing with respect to the first exercise by Parent of the Option, is
convertible into shares of Company Common Stock; and (C) all shares of Company
Common Stock issuable upon conversion of all options and warrants to acquire
Company Common Stock that are
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outstanding, pt the time of the Closing with respect to the first exercise by
Parent of the Option (other than pursuant to this Agreement).
3. Conditions to Closing. The obligation of Company to issue Option Shares
to Parent hereunder is subject to the conditions that (a) any waiting period
under the HSR Act applicable to the issuance of the Option Shares hereunder
shall have expired or been terminated; (b) all material consents, approvals,
orders or authorizations of, or registrations, declarations or filings with, any
Governmental Entity, if any, required in connection with the issuance of the
Option Shares hereunder shall have been obtained or made, as the case may be;
and (c) no preliminary or permanent injunction or other order by any court of
competent jurisdiction prohibiting or otherwise restraining such issuance shall
be in effect. It is understood and agreed that at any time during which Parent
shall be entitled to deliver to Company an Exercise Notice, the parties will use
their respective reasonable efforts to satisfy all conditions to Closing, so
that a Closing may take place as promptly as practicable.
4. Closing. At any Closing, Company shall deliver to Parent a single
certificate in definitive form representing the number of Company Shares
designated by Parent in its Exercise Notice consistent with this Agreement, such
certificate to be registered in the name of Parent and to bear the legend set
forth in Section 9 hereof, against delivery of payment by Parent to the Company
of the aggregate purchase price for the Company Shares so designated and being
purchased by delivery of a certified check, bank check or wire transfer of
immediately available funds.
5. Representations and Warranties of Company. Company represents and
warrants to Parent that (a) Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder; (b) the execution and delivery of this Agreement by
Company and consummation by Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Company
and no other corporate proceedings on the part of Company are necessary to
authorize this Agreement or any of the transactions contemplated hereby; (c)
this Agreement has been duly executed and delivered by Company and constitutes a
legal, valid and binding obligation of Company and, assuming this Agreement
constitutes a legal, valid and binding obligation of Parent, is enforceable
against Company in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws affecting the rights of creditors
generally and general principles of equity; (d) except for any filings,
authorizations, approvals or orders required under the HSR Act and any required
filings of under state securities, or "blue sky" laws, Company has taken all
necessary corporate and other action to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for issuance,
a sufficient number of unissued Company Shares for Parent to exercise the Option
in full and will take all necessary corporate or other action to authorize and
reserve for issuance all additional Company Shares or other securities which may
be issuable pursuant to Section 7(a) upon exercise of the Option, all of which,
upon their issuance and delivery in accordance with the terms of this Agreement
and payment therefor by Parent, will be validly issued, fully paid and
nonassessable; (e) upon delivery of the Company Shares and any other securities
to Parent upon exercise of the Option, Parent will acquire such Company Shares
or other securities free and clear of all claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever, excluding those imposed
by Parent; (f) the execution and delivery of this Agreement by Company do not,
and the performance of this Agreement by the Company will not, (i) violate the
Certificate of Incorporation or Bylaws of the Company, (ii) conflict with or
violate any law, rule, regulation, judgment, decree or order applicable to the
Company or any of its subsidiaries or by which they or any of their respective
properties is bound or affected or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give rise to any right of
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termination, amendment, acceleration or cancellation of, or result in the
creation of a material lien or encumbrance on any material property or assets of
Company or any of its subsidiaries pursuant to, any material contract,
agreement, instrument or obligation to which Company or any of its subsidiaries
is a party or by which Company or any of its subsidiaries or any of their
material property is bound or affected; and (g) the execution and delivery of
this Agreement by Company do not, and the performance of this Agreement by
Company will not, require any consent, approval, authorization or permit of, or
filing with, or notification to, any Governmental Entity, except pursuant to
applicable state securities or blue sky laws and the HSR Act or applicable
corresponding laws of any foreign jurisdiction.
6. Registration Rights
(a) Following the termination of the Merger Agreement, Parent (sometimes
referred to herein as the "Holder") may by written notice (a "Registration
Notice") to Company (the "Registrant") request the Registrant to register under
the Securities Act all or any part of the shares acquired by the Holder pursuant
to this Agreement (such shares requested to be registered the "Registrable
Securities") in order to permit the sale or other disposition of such shares
pursuant to a bona fide firm commitment underwritten public offering in which
the Holder and the underwriters shall effect as wide a distribution of such
Registrable Securities as is reasonably practicable (a "Permitted Offering");
provided, however, that any such Registration Notice must relate to a number of
shares equal to at least 2% of the outstanding shares of Common Stock of the
Registrant on a fully diluted basis and that any rights to require registration
hereunder shall terminate with respect to any shares that may be sold pursuant
to Rule 144(k) under the Securities Act or at such time as all of the
Registrable Securities may be sold in any three month period pursuant to Rule
144 under the Securities Act.
(b) The Registrant shall use all reasonable efforts to effect, as promptly
as practicable, the registration under the Securities Act of the Registrable
Securities requested to be registered in the Registration Notice; provided,
however, that (i) the Holder shall not be entitled to more than an aggregate of
two effective registration statements hereunder, and provided further, that if
the Registrant withdraws a filed registration statement at the request of the
Holder (other than as the result of a material change in the Registrant's
business or the Holder's learning of new material information concerning the
Registrant), then such filing shall be deemed to have been an effective
registration for purposes of this clause (i), (ii) the Registrant will not be
required to file any such registration statement during any period of time (not
to exceed 45 days after a Registration Notice in the case of clause (A) below or
90 days after a Registration Notice in the case of clauses (B) and (C) below)
when (A) the Registrant is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at such time
and such information would have to be disclosed if a registration statement were
filed at that time; (B) the Registrant is required under the Securities Act to
include audited financial statements for any period in such registration
statement and such financial statements are not yet available for inclusion in
such registration statement; or (C) the Registrant determines, in its reasonable
judgment, that such registration would interfere with any financing, acquisition
or other material transaction involving the Registrant and (iii) the Registrant
will not be required to maintain the effectiveness of any such registration
statement for a period greater than 90 days. If consummation of the sale of any
Registrable Securities pursuant to a registration hereunder does not occur
within 180 days after the filing with the SEC of the initial registration
statement therefor, the provisions of this Section 6 shall again be applicable
to any proposed registration. The Registrant shall use all reasonable efforts to
cause any Registrable Securities registered pursuant to this Section 6 to be
qualified for sale under the securities or blue sky laws of such jurisdictions
as the Holder may reasonably request and shall continue such registration or
qualification in effect in such jurisdictions until the Holder has sold or
otherwise disposed of all of the securities subject to the registration
statement; provided, however, that the Registrant shall not be
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required to qualify to do business in, or consent to general service of process
in, any jurisdiction by reason of this provision.
(c) The registration rights set forth in this Section 6 are subject to the
condition that the Holder shall provide the Registrant with such information
with respect to the Holder's Registrable Securities, the plan for distribution
thereof, and such other information with respect to the Holder as, in the
reasonable judgment of counsel for the Registrant, is necessary to enable the
Registrant to include in a registration statement all material facts required to
be disclosed with respect to a registration thereunder, including the identity
of the Holder and the Holder's plan of distribution.
(d) A registration effected under this Section 6 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and expenses of counsel to the Holder, and the Registrant shall use all
reasonable efforts to provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as are
customary in connection with underwritten public offerings and as such
underwriters may reasonably require. In connection with any registration, the
Holder and the Registrant agree to enter into an underwriting agreement
reasonably acceptable to each such party, in form and substance customary for
transactions of this type with the underwriters participating in such offering.
(e) Indemnification.
(i) The Registrant will indemnify the Holder, each of its directors
and officers and each person who controls the Holder within the meaning of
Section 15 of the Securities Act, and each underwriter of the Registrant's
securities, with respect to any registration, qualification or compliance
which has been effected pursuant to this Agreement, against all expenses,
claims, losses, damages or liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or
any amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which they
were made, not misleading, or any violation by the Registrant of any rule
or regulation promulgated under the Securities Act applicable to the
Registrant in connection with any such registration, qualification or
compliance, and the Registrant will reimburse the Holder and, each of its
directors and officers and each person who controls the Holder within the
meaning of Section 15 of the Securities Act, and each underwriter for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage,
liability or action; provided that the Registrant will not be liable in any
such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Registrant by the
Holder or director or officer or controlling person or underwriter seeking
indemnification.
(ii) The Holder will indemnify the Registrant, each of its directors
and officers and each underwriter of the Registrant's securities covered by
such registration statement and each person who controls the Registrant
within the meaning of Section 15 of the Securities Act, against all claims,
losses, damages and liabilities (or actions in respect thereof), including
any of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
or any violation by the Holder of any rule or regulation promulgated under
the Securities Act applicable to the Holder in connection with any
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such registration, qualification or compliance, and will reimburse the
Registrant, such directors, officers or control persons or underwriters for
any legal or any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Registrant by the Holder expressly for
use therein; provided that in no event shall any indemnity under this
Section 6(e) exceed the gross proceeds of the offering received by the
Holder.
(iii) Each party entitled to indemnification under this Section 6(e)
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense; provided, however,
that the Indemnifying Party shall pay such expense if representation of the
Indemnified Party by counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 6(e) unless the failure to give such
notice is materially prejudicial to the Indemnifying Party's ability to
defend such action. No Indemnifying Party, in the defense of any such claim
or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. No Indemnifying Party shall be
required to indemnify any Indemnified Party with respect to any settlement
entered into without such Indemnifying Party's prior consent (which shall
not be unreasonably withheld).
(f) Purchase in Lieu of Registration. Notwithstanding anything herein to
the contrary, following delivery of a Registration Notice, Company will have the
option, exercisable by written notice delivered to the Holder within ten (10)
business days after Company's receipt of a Registration Notice, irrevocably to
agree to purchase all or any part of the Registrable Securities covered by such
Registration Notice, for cash at per share price equal to the average of the
closing sale prices of Company Common Stock on the Nasdaq National Market for
the ten (10) trading days immediately preceding the date of the Registration
Notice. Any purchase of Registrable Securities by Company hereunder will take
place at a closing to be held at the principal executive offices of Company or
its counsel at any reasonable date and time designated by Company in its
purchase notice, within ten (10) business days following delivery of Company's
purchase notice, or at such other place and time as Company and the Holder shall
agree, and the purchase price shall be paid in immediately available funds.
7. Adjustment Upon Changes in Capitalization; Rights Plans.
(a) In the event of any change in the Company Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers (other than the Merger),
recapitalizations, combinations, exchanges of shares and the like, the type and
number of shares or securities subject to the Option and the Exercise Price
shall be adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction so that Parent shall receive, upon
exercise of the Option, the number and class of shares or other securities or
property that Parent would have received in respect
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of the Company Shares if the Option had been exercised immediately prior to such
event or the record date therefor, as applicable.
(b) Prior to such time as the Option is terminated, and at any time after
the Option is exercised (in whole or in part, if at all), the Company shall not
(i) adopt (or permit the adoption of) a shareholders rights plan that contains
provisions for the distribution or exercise of rights thereunder as a result of
Parent or any affiliate or transferee being the beneficial owner of shares of
the Company by virtue of the Option being exercisable or having been exercised
(or as a result of beneficially owning shares issuable in respect of any Option
Shares), or (ii) take any other action which would prevent or disable Parent
from exercising its rights under this Agreement or enjoying the full rights and
privileges possessed by other holders of Company Common Stock generally.
8. Surrender of Option. If, at any time prior to the termination of the
Option, any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) (an "Acquiring Person") (a)
becomes the beneficial owner of more than a 50% interest in the total
outstanding voting securities of Company or any of its subsidiaries or (b) shall
have entered into an agreement with Company for, or shall have effected, a
merger, consolidation, business combination or similar transaction involving
Company, or any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of business),
acquisition or disposition of more than 50% of the assets of Company, then
Parent may, at its sole option and upon Parent's written request to Company
prior to the termination of the Option, surrender the Option to Company in
exchange for the payment by Company to Parent in immediately available funds of
an amount equal to the product of: (x) the excess, if any, of (i) the greater of
(A) the highest price per share paid by the Acquiring Person for any shares of
Company Common Stock in such transaction (or, if there is no readily available
per share price in such transaction, the aggregate consideration paid or to be
paid by the Acquiring Person in such transaction, divided by the aggregate
number of shares of Company Common Stock acquired by the Acquiring Person in
such transaction (the value of any consideration other than cash to be
determined, in the case of consideration with a readily ascertainable market
value, by reference to such market value and, in any case where the market value
of the consideration is not so ascertainable, by agreement in good faith between
Parent and Company)) or (B) the highest closing sale price of Company Common
Stock on the Nasdaq National Market during the 20 trading days ending with the
trading day immediately preceding the date of such request over (ii) the
Exercise Price, multiplied by (y) the total number of Option Shares as to which
the Option has not theretofore been exercised. Upon the delivery by Parent to
Company of a surrender request, each party shall take all actions necessary to
consummate such surrender transaction as expeditiously as possible. Upon
exercise of its right to surrender the Option or any portion thereof and full
payment therefor to Parent pursuant to this Section 8, any and all rights of
Parent with respect to the portion of the Option so surrendered shall be
terminated.
9. Restrictions on Transfer; Right of First Refusal. Prior to the fifth
anniversary of the date hereof (the "Expiration Date"), Parent shall not
directly or indirectly, by operation of law or otherwise, sell, assign, pledge,
or otherwise dispose of or transfer any Option Shares, other than (a) to
Company, (b) to an affiliate or subsidiary of Parent, (c) pursuant to a
Permitted Offering (as defined above), (d) in "broker's transactions" or to a
"market maker", as such terms are defined in Rule 144 under the Securities Act,
(e) to secure loans to Parent or guarantees of loans to any affiliate of Parent,
or (f) in accordance with this Section 9. At any time after the first occurrence
of an Exercise Event and prior to the fifth anniversary of the date hereof, if
Parent shall desire to sell, assign, transfer or otherwise dispose of all or any
of the Option Shares acquired pursuant to this Agreement, other than as
permitted by clauses (a) through (e) of the preceding sentence, it shall give
Company written notice of the proposed transaction, identifying the proposed
transferee and setting forth the terms of the proposed transaction. Such notice
shall be deemed an offer by Parent to Company to purchase all, but not less than
all of the Option Shares covered by such notice, which
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may be accepted within five (5) business days of receipt, on the same terms and
conditions and at the same price at which Parent is proposing to transfer such
Option Shares to such transferee. The purchase of any such shares by Company
shall be settled within five (5) business days of the date of the acceptance of
the offer and the purchase price shall be paid in immediately available funds.
In the event of the failure or refusal of Company to purchase all the Option
Shares covered by Parent's notice, Parent may sell all, but not less than all,
of such Option Shares to the proposed transferee at no less than the price
specified and on terms no more favorable to the transferee than those set forth
in Parent's notice to Company, provided that such sale must be completed within
ninety (90) days of the receipt by Company of Parent's notice of its proposed
transfer. In addition, prior to any transfer of Option Shares by Parent, other
than any transfer to Company or a transfer pursuant to Section 6 hereof, Parent
shall, if requested by Company, deliver to Company a written opinion of counsel
reasonably satisfactory to Company to the effect that such transfer may be
effected without registration under the Securities Act and any applicable state
securities laws.
10. No Distribution; Restrictive Legends. Parent represents and warrants
that the Option and any Option Shares purchased by it hereunder is being and
will be acquired by it without a view to any distribution thereof and
acknowledges that it may not sell or offer to sell the Option and any Option
Shares other than in a transaction registered under the Securities Act or exempt
from registration thereunder. Each certificate representing Option Shares issued
to Parent hereunder (other than certificates representing shares sold in a
registered public offering pursuant to Section 6) shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
11. Listing and HSR Filing. The Company, upon the request of Parent, shall
promptly file an application to list the Company Shares to be acquired upon
exercise of the Option for quotation on the Nasdaq National Market and shall use
its reasonable efforts to obtain approval of such listing as soon as
practicable. Promptly after the date hereof, each of the parties hereto shall
promptly file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice all required premerger notification and
report forms and other documents and exhibits required to be filed under the HSR
Act to permit the acquisition of the Company Shares subject to the Option at the
earliest possible date.
12. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature whatsoever
by reason of this Agreement.
13. Specific Performance. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached, immediate and irreparable
harm or injury would be caused for which money damages would not be an adequate
remedy. Accordingly, each party agrees that in addition to other remedies the
other party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event that any
action shall be brought in equity to enforce the provisions of the Agreement,
neither party will allege, and each party hereby waives the defense, that there
is an adequate remedy at law.
14. Entire Agreement. This Agreement and the Merger Agreement (including
the appendices and exhibits thereto) constitute the entire agreement between the
parties with respect to the subject
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matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
15. Further Assurances. Each party will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate as promptly as practicable the transactions
contemplated hereby.
16. Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
17. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
<TABLE>
<S> <C>
If to Parent or Merger Sub, to: If to Company, to:
FLEXTRONICS INTERNATIONAL LTD. THE DII GROUP, INC.
2090 Fortune Drive 6273 Monarch Park Place, Suite 200
San Jose, California 95131 Niwot, Colorado 80503
Attention: Chief Executive Officer Attention: Chief Executive Officer
Telecopy No.: (408) 428-0420 Telecopy No.: (303) 652-0416
with a copy to: with a copy to:
Fenwick & West LLP Curtis, Mallet-Prevost, Colt & Mosle LLP
Two Palo Alto Square 101 Park Avenue
Palo Alto, California 94306 New York, NY 10178
Attention: David K. Michaels Attention: Jeffrey N. Ostrager
Telecopy No.: (650) 494-1417 Telecopy No.: (212) 697-1559
</TABLE>
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
19. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
20. Expenses. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. Amendments; Waiver. This Agreement may be amended or waived by the
parties hereto only by an instrument in writing signed on behalf of each of the
parties hereto, or, in the case of a waiver, by an instrument signed on behalf
of the party waiving compliance.
22. Assignment. Neither party may sell, transfer, assign or otherwise
dispose of (by operation of law or otherwise) any of its rights or obligations
under this Agreement or the Option created hereunder to any other person,
without the express written consent of the other party. Any purported assignment
in violation of this Section shall be void. The rights and obligations hereunder
shall inure to the benefit of and be binding upon any successor of a party
hereto.
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23. WAIVER OF JURY TRIAL. EACH OF PARENT AND COMPANY HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF PARENT OR COMPANY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
THE DII GROUP, INC.
By: /s/ RONALD R. BUDACZ
--------------------------------------
Name: Ronald R. Budacz
--------------------------------------
Title: Chief Executive Officer
--------------------------------------
FLEXTRONICS INTERNATIONAL LTD.
By: /s/ MICHAEL E. MARKS
--------------------------------------
Name: Michael E. Marks
--------------------------------------
Title: Chief Executive Officer
--------------------------------------
[SIGNATURE PAGE TO STOCK OPTION AGREEMENT]
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ANNEX C
PARENT VOTING AGREEMENT
This Parent Voting Agreement (this "Agreement") is entered into as of
November 22, 1999 (the "Agreement Date") by and between The DII Group, Inc., a
Delaware corporation (the "Company") and [name of shareholder] ("Shareholder").
RECITALS
A. Flextronics International Ltd., a Singapore company (the "Parent"),
Company and Slalom Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Sub") are entering into an Agreement and Plan of Merger
dated as of November 22, 1999, as such may be hereafter amended from time to
time (the "Merger Agreement") which provides (subject to the conditions set
forth therein) for the merger of Sub with and into Company (the "Merger") with
Company to survive the Merger. Upon the effectiveness of the Merger, the
outstanding shares of Company's Common Stock will be converted into the right to
receive Ordinary Shares of Parent and outstanding options to purchase shares of
Company's Common Stock will be assumed by Parent, all as more particularly set
forth in the Merger Agreement. Capitalized terms used but not otherwise defined
in this Agreement will have the same meanings ascribed to such terms in the
Merger Agreement.
B. As of the Agreement Date, Shareholder owns in the aggregate (including
shares held both beneficially and of record and other shares held either
beneficially or of record) the number of Parent's Ordinary Shares set forth
below Shareholder's name on the signature page of this Agreement (all such
shares, together with any of Parent's Ordinary Shares or any other shares of
capital stock of Parent that may hereafter be acquired by Shareholder, being
collectively referred to herein as the "Subject Shares"). If, between the
Agreement Date and the Expiration Date (as defined in Section 1.1 below),
Parent's outstanding Ordinary Shares are changed into a different number or
class of shares by reason of any stock split, stock dividend, reverse stock
split, reclassification, recapitalization or other similar transaction, then the
shares constituting the Subject Shares shall be appropriately adjusted, and
shall include any shares or other securities of Parent issued on, or with
respect to, the Subject Shares in such a transaction.
C. As a condition to the willingness of Company to enter into the Merger
Agreement, Company has requested that Shareholder agree, and in order to induce
Company to enter into the Merger Agreement, Shareholder has agreed, to enter
into this Agreement.
In consideration of the facts recited above, the parties to this Agreement,
intending to be legally bound by this Agreement, now hereby agree as follows:
SECTION 1. Transfer of Subject Shares.
1.1 No Transfer of Voting Rights.
(a) Shareholder covenants and agrees that, prior to the Expiration Date,
Shareholder will not deposit any of the Subject Shares into a voting trust or
grant a proxy or enter into an agreement of any kind with respect to any of the
Subject Shares, except for the Proxy called for by Section 2.2 of this Agreement
and except for any other proxy granted by Shareholder to Company.
(b) As used in this Agreement, the term "Expiration Date" shall mean the
earlier of (i) the date upon which the Merger Agreement is validly terminated in
accordance with the provisions of Article VII of the Merger Agreement or (ii)
the Effective Time of the Merger.
1.2 Compliance with Parent Affiliate Agreement. If Shareholder is a party
to a Parent Affiliate Agreement, Shareholder will comply with the terms of such
Parent Affiliate Agreement.
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SECTION 2. Voting of Subject Shares.
2.1 Agreement. Shareholder hereby agrees that, prior to the Expiration
Date, at any meeting of the shareholders of Parent, however called, and in any
action taken by the written consent of shareholders of Parent without a meeting,
unless otherwise directed in writing by Company, Shareholder shall vote the
Subject Shares:
(a) in favor of the Merger, the execution and delivery by Parent of
the Merger Agreement and the adoption and approval of the terms thereof and
in favor of each of the other actions and transactions contemplated by the
Merger Agreement and any action required in furtherance hereof and thereof;
and
(b) in favor of the waiver (by amendment of any such agreement or
otherwise), effective as of immediately prior to the effectiveness of the
Merger, of any rights of first refusal, rights of first offer, rights of
notice, rights of co-sale, tag-along rights, information rights,
registration rights, preemptive rights, rights of redemption or repurchase,
or similar rights of Shareholder under any agreement, arrangement or
understanding applicable to the Subject Shares, to the extent that the same
may apply to the Merger or any other actions or transactions contemplated
by the Merger Agreement.
Prior to the Expiration Date, Shareholder shall not enter into any agreement or
understanding with any Person to vote or give instructions in any manner
inconsistent with clause "(a)" or "(b)" of this Section 2.1.
2.2 Proxy. Contemporaneously with the execution of this Agreement,
Shareholder shall deliver to Company a proxy with respect to the Subject Shares
in the form attached hereto as Exhibit 1, which proxy shall be irrevocable to
the fullest extent permitted by applicable law (the "Proxy").
2.3 No Limitations as Director. Nothing contained in this Agreement shall
be deemed to apply to, or to limit in any manner, the obligations of Shareholder
under his fiduciary duties as a director of Parent.
SECTION 3. Waivers.
3.1 Appraisal Rights. Shareholder hereby agrees not to exercise any rights
of appraisal and any dissenters' rights that Shareholder may have (whether under
applicable law or otherwise) or could potentially have or acquire in connection
with the Merger.
3.2 Other Rights. Shareholder hereby waives any rights of first refusal,
rights of first offer, rights to notice, rights of co-sale, tag-along rights,
information rights, registration rights, preemptive rights, rights of redemption
or repurchase, and similar rights of Shareholder under any agreement,
arrangement of understanding applicable to the Subject Shares, in each case as
the same may apply to the execution and delivery of the Merger Agreement and the
consummation of the Merger and the other actions and transactions contemplated
by the Merger Agreement.
SECTION 4. Representations and Warranties of Shareholder.
Shareholder hereby represents and warrants to Company as follows:
4.1 Due Authorization, etc. Shareholder has all requisite power and
capacity to execute and deliver this Agreement and to perform Shareholder's
obligations hereunder. This Agreement has been duly executed and delivered by
Shareholder and constitutes a legal, valid and binding obligation of
Shareholder, enforceable against Shareholder in accordance with its terms,
subject to (a) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies.
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4.2 No Conflicts, Required Filings and Consents.
(a) The execution and delivery of this Agreement by Shareholder do not, and
the performance of this Agreement by Shareholder will not: (i) conflict with or
violate any order, decree or judgment applicable to Shareholder or by which
Shareholder or any of Shareholder's properties or Subject Shares is bound or
affected; or (ii) result in any breach of or constitute a default (with notice
or lapse of time, or both) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
lien, restriction, adverse claim, option on, right to acquire, or any
encumbrance or security interest in or to, any of the Subject Shares pursuant
to, any written, oral or other agreement, contract or legally binding commitment
to which Shareholder is a party or by which Shareholder or any of Shareholder's
properties (including but not limited to the Subject Shares) is bound or
affected.
(b) The execution and delivery of this Agreement by Shareholder do not, and
the performance of this Agreement by Shareholder will not, require any written,
oral or other agreement, contract or legally binding commitment of any third
party.
4.3 Title to Subject Shares. As of the Agreement Date, Shareholder
beneficially or of record owns the Subject Shares set forth under Shareholder's
name on the signature page hereof and does not directly or indirectly own,
either beneficially or of record, any shares of capital stock of Parent or
rights to acquire any shares of capital stock of Parent, other than the Subject
Shares set forth below Shareholder's name on the signature page hereof (other
than shares subject to options and unvested performance shares).
4.4 Other Rights. Shareholder is not entitled to any rights of first
refusal, rights of first offer, rights to notice, rights of co-sale, tag-along
rights, information rights, registration rights, preemptive rights, rights of
redemption or repurchase or similar rights under any agreement, arrangement of
understanding applicable to the Subject Shares, except as disclosed in the
Parent Disclosure Letter (as defined in the Merger Agreement).
4.5 Accuracy of Representations. The representations and warranties
contained in this Agreement are accurate in all respects as of the date of this
Agreement, will be accurate in all respects at all times through the Expiration
Date and will be accurate in all respects as of the date of the consummation of
the Merger as if made on that date.
SECTION 5. Miscellaneous.
5.1 Expenses. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such costs and expenses.
5.2 Governing Law. The internal laws of the State of Delaware
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
5.3 Assignment; Binding Effect; Third Parties. Except as provided herein,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either of the parties hereto (whether by operation of law
or otherwise) without the prior written consent of the other party. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure to
the benefit of (a) Shareholder and Shareholder's heirs, successors and assigns
and (b) Company and its successors and permitted assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person or entity other than
the parties hereto or their respective heirs, successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
5.4 Severability. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable, then
the remainder of this Agreement and
C-3
<PAGE> 224
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto.
5.5 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
5.6 Termination; Amendment; Waiver. This Agreement shall terminate on the
Expiration Date. This Agreement may be amended by the written agreement of the
parties hereto. No waiver by any party hereto of any condition or of any breach
of any provision of this Agreement will be effective unless such waiver is set
forth in a writing signed by such party. No waiver by any party of any such
condition or breach, in any one instance, will be deemed to be a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or breach of any other provision contained herein.
5.7 Notices. All notices and other communications required or permitted
under this Agreement will be in writing and will be either hand delivered in
person, sent by telecopier, sent by certified or registered first class mail,
postage pre-paid, or sent by nationally recognized express courier service. Such
notices and other communications will be effective upon receipt if hand
delivered or sent by telecopier, three (3) days after mailing if sent by mail,
and one (l) business day after dispatch if sent by express courier, to the
following addresses, or such other addresses as any party may notify the other
parties in accordance with this Section:
<TABLE>
<S> <C>
If to Shareholder: If to Company:
At the address set forth below THE DII GROUP, INC.
Shareholder's signature on the signature 6273 Monarch Park Place, Suite 200
page hereto Niwot, Colorado 80503
Attn: Chief Executive Officer
</TABLE>
or to such other address as a party designates in a writing delivered to each of
the other parties hereto.
5.8 Entire Agreement. This Agreement and any documents delivered by the
parties in connection herewith constitute the entire agreement and understanding
between the parties with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings between the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon either party hereto unless made in writing and
signed by both parties hereto. The parties hereto waive trial by jury in any
action at law or suit in equity based upon, or arising out of, this Agreement or
the subject matter hereof.
5.9 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement was not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that, in addition to any other remedy to which Company is
entitled at law or in equity, Company shall be entitled to injunctive relief to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any Delaware court or in any U.S. federal court located in
Delaware.
5.10 Other Agreements. Nothing in this Agreement shall limit any of the
rights or remedies of Company or any of the obligations of Shareholder under any
other agreement.
5.11 Construction. This Agreement has been negotiated by the respective
parties hereto and their attorneys and the language hereof will not be construed
for or against either party. Unless otherwise indicated herein, all references
in this Agreement to "Sections" refer to sections of this Agreement. The titles
and headings herein are for reference purposes only and will not in any manner
limit the construction of this Agreement which will be considered as a whole.
C-4
<PAGE> 225
5.12 Sale of Shares. Notwithstanding anything contained in this Agreement,
Shareholder shall not be prohibited from depositing Subject Shares in a margin
account, and this Agreement shall terminate and the proxy shall be revoked with
respect to any Subject Shares that Shareholder ceases to own beneficially and of
record, without violation of Shareholder's obligations under any Company
Affiliate Agreement to which Shareholder is a party.
IN WITNESS WHEREOF, Company and Shareholder have caused this Agreement to
be executed as of the Agreement Date first written above.
<TABLE>
<S> <C>
THE DII GROUP, INC. SHAREHOLDER
By: Name:
- ------------------------------------------- ------------------------------------------
(Please Print)
Title: By:
- ------------------------------------------- -------------------------------------------
(Signature)
Title:
-------------------------------------------
Number of Shares Owned:
---------------------
Address:
-----------------------------------------
---------------------------------
---------------------------------
Facsimile: ( )
--------------------------------
</TABLE>
[SIGNATURE PAGE TO PARENT VOTING AGREEMENT]
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<PAGE> 226
EXHIBIT "1" TO VOTING AGREEMENT
IRREVOCABLE PROXY
The undersigned shareholder of Flextronics International Ltd., a Singapore
company (the "Parent"), hereby irrevocably (to the fullest extent permitted by
law) appoints and constitutes Ronald R. Budacz or Thomas J. Smach, and each of
them, the attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to the fullest extent of the undersigned's
rights with respect to (i) the shares of capital stock of Parent owned by the
undersigned as of the date of this proxy, which shares are specified on the
final page of this proxy and (ii) any and all other shares of capital stock of
Parent which the undersigned may acquire after the date hereof. (The shares of
the capital stock of Parent referred to in clauses (i) and (ii) of the
immediately preceding sentence are collectively referred to as the "Shares").
Upon the execution hereof, all prior proxies given by the undersigned with
respect to any of the Shares (other than any proxies granted to Company) are
hereby revoked, and no subsequent proxies will be given with respect to any of
the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with that certain Parent Voting Agreement, dated as of the date
hereof, between The DII Group, Inc., a Delaware corporation ("Company"), and the
undersigned (the "Voting Agreement"), and is granted in consideration of Company
entering into the Agreement and Plan of Merger, dated as of November 22, 1999,
among Parent, Slalom Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Parent, and Company ("Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
Notwithstanding anything contained herein to the contrary, this proxy shall
terminate and be revoked with respect to any Shares that the undersigned
shareholder ceases to own beneficially and of record, without violation of the
undersigned's obligations under any Parent Affiliate Agreement to which he is a
party.
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the Expiration Date (as defined
in the Voting Agreement) at any meeting of the shareholders of Parent, however
called, or in any action by written consent of shareholders of Parent:
(i) in favor of the Merger, the execution and delivery by Company of
the Merger Agreement and the adoption and approval of the terms thereof and
in favor of each of the other actions and transactions contemplated by the
Merger Agreement and any action required in furtherance hereof and thereof;
and
(ii) in favor of the waiver (by amendment of any such agreement or
otherwise), effective as of immediately prior to the effectiveness of the
Merger, of any rights of first refusal, rights of first offer, rights of
notice, rights of co-sale, tag-along rights, information rights,
registration rights, preemptive rights, rights of redemption or repurchase,
or similar rights of Shareholder under any agreement, arrangement or
understanding applicable to the Subject Shares, to the extent that the same
may apply to the Merger or any other actions or transactions contemplated
by the Merger Agreement.
The undersigned shareholder may vote the Shares on all other matters not
described in the foregoing subparagraph (i) and (ii) above.
Prior to the Expiration Date (as such term is defined in the Voting
Agreement), at any meeting of the shareholders of Parent, however called, and in
any action by written consent of shareholders of Parent, the attorneys and
proxies named above may, in their sole discretion, elect to abstain from voting
on any matter covered by the foregoing subparagraphs (i) and (ii) above.
<PAGE> 227
This proxy and any obligation of the undersigned hereunder shall be binding
upon the heirs, successors and assigns of the undersigned (including any
transferee of any of the Shares).
This proxy shall terminate upon the Expiration Date (as defined in the
Voting Agreement).
Dated: November 22, 1999
Name:
--------------------------------------
By:
--------------------------------------
Title (If Applicable):
-------------------------------------------------------------------------
2
<PAGE> 228
ANNEX D
COMPANY VOTING AGREEMENT
This COMPANY VOTING AGREEMENT (this "Agreement") is entered into as of
November 22, 1999 (the "Agreement Date") by and between Flextronics
International Ltd., a Singapore company ("Parent"), and [name of stockholder]
("Stockholder").
RECITALS
A. Parent, The DII Group, Inc., a Delaware corporation (the "Company") and
Slalom Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Parent ("Sub") are entering into an Agreement and Plan of Merger dated as of
November 22, 1999, as such may be hereafter amended from time to time (the
"Merger Agreement") which provides (subject to the conditions set forth therein)
for the merger of Sub with and into Company (the "Merger") with Company to
survive the Merger. Upon the effectiveness of the Merger, among other things,
the outstanding shares of Company's Common Stock will be converted into the
right to receive Ordinary Shares of Parent as more particularly set forth in the
Merger Agreement. Capitalized terms used but not otherwise defined in this
Agreement will have the same meanings ascribed to such terms in the Merger
Agreement.
B. As of the Agreement Date, Stockholder owns in the aggregate (including
shares held both beneficially and of record and other shares held either
beneficially or of record) the number of shares of Company's Common Stock set
forth below Stockholder's name on the signature page of this Agreement (all such
shares, together with any shares of Company's Common Stock or any other shares
of capital stock of Company that may hereafter be acquired by Stockholder, being
collectively referred to herein as the "Subject Shares"). If, between the
Agreement Date and the Expiration Date (as defined in Section 1.1 below), the
outstanding shares of Company's Common Stock are changed into a different number
or class of shares by reason of any stock split, stock dividend, reverse stock
split, reclassification, recapitalization or other similar transaction, then the
shares constituting the Subject Shares shall be appropriately adjusted, and
shall include any shares or other securities of Company issued on, or with
respect to, the Subject Shares in such a transaction.
C. As a condition to the willingness of Parent and Sub to enter into the
Merger Agreement, Parent and Sub have requested that Stockholder agree, and in
order to induce Parent and Sub to enter into the Merger Agreement, Stockholder
has agreed, to enter into this Agreement.
In consideration of the facts recited above, the parties to this Agreement,
intending to be legally bound by this Agreement, now hereby agree as follows:
SECTION 1. Transfer of Subject Shares.
1.1 No Transfer of Voting Rights.
(a) Stockholder covenants and agrees that, prior to the Expiration Date,
Stockholder will not deposit any of the Subject Shares into a voting trust or
grant a proxy or enter into an agreement of any kind with respect to any of the
Subject Shares, except for the Proxy called for by Section 2.2 of this Agreement
and except for any other proxy granted by Stockholder to Parent.
(b) As used in this Agreement, the term "Expiration Date" shall mean the
earlier of (i) the date upon which the Merger Agreement is validly terminated in
accordance with the provisions of Article VII of the Merger Agreement or (ii)
the Effective Time of the Merger.
1.2 Compliance with Company Affiliate Agreement. If Stockholder is party
to a Company Affiliate Agreement, Stockholder will comply with the terms of such
Company Affiliate Agreement.
D-1
<PAGE> 229
SECTION 2. Voting of Subject Shares.
2.1 Agreement. Stockholder hereby agrees that, prior to the Expiration
Date, at any meeting of the stockholders of Company, however called, and in any
action taken by the written consent of stockholders of Company without a
meeting, unless otherwise directed in writing by Parent, Stockholder shall vote
the Subject Shares:
(a) in favor of the Merger, the execution and delivery by Company of
the Merger Agreement and the adoption and approval of the terms thereof and
in favor of each of the other actions and transactions contemplated by the
Merger Agreement and any action required in furtherance hereof and thereof;
and
(b) in favor of the waiver (by amendment of any such agreement or
otherwise), effective as of immediately prior to the effectiveness of the
Merger, of any rights of first refusal, rights of first offer, rights of
notice, rights of co-sale, tag-along rights, information rights,
registration rights, preemptive rights, rights of redemption or repurchase,
or similar rights of Stockholder under any agreement, arrangement or
understanding applicable to the Subject Shares, to the extent that the same
may apply to the Merger or any other actions or transactions contemplated
by the Merger Agreement.
Prior to the Expiration Date, Stockholder shall not enter into any agreement or
understanding with any Person to vote or give instructions in any manner
inconsistent with clause "(a)" or "(b)" of this Section 2.1.
2.2 Proxy. Contemporaneously with the execution of this Agreement,
Stockholder shall deliver to Parent a proxy with respect to the Subject Shares
in the form attached hereto as Exhibit 1, which proxy shall be irrevocable to
the fullest extent permitted by applicable law (the "Proxy").
2.3 No Limitations as Director. Nothing contained in this Agreement shall
be deemed to apply to, or to limit in any manner, the obligations of Stockholder
under his fiduciary duties as a director of Company.
SECTION 3. Waivers.
3.1 Appraisal Rights. Stockholder hereby agrees not to exercise any rights
of appraisal and any dissenters' rights that Stockholder may have (whether under
applicable law or otherwise) or could potentially have or acquire in connection
with the Merger.
3.2 Other Rights. Stockholder hereby waives any rights of first refusal,
rights of first offer, rights to notice, rights of co-sale, tag-along rights,
information rights, registration rights, preemptive rights, rights of redemption
or repurchase, and similar rights of Stockholder under any agreement,
arrangement of understanding applicable to the Subject Shares, in each case as
the same may apply to the execution and delivery of the Merger Agreement and the
consummation of the Merger and the other actions and transactions contemplated
by the Merger Agreement.
SECTION 4. Representations and Warranties of Stockholder.
Stockholder hereby represents and warrants to Parent as follows:
4.1 Due Authorization, etc. Stockholder has all requisite power and
capacity to execute and deliver this Agreement and to perform Stockholder's
obligations hereunder. This Agreement has been duly executed and delivered by
Stockholder and constitutes a legal, valid and binding obligation of
Stockholder, enforceable against Stockholder in accordance with its terms,
subject to (a) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies.
D-2
<PAGE> 230
4.2 No Conflicts, Required Filings and Consents.
(a) The execution and delivery of this Agreement by Stockholder do not, and
the performance of this Agreement by Stockholder will not: (i) conflict with or
violate any order, decree or judgment applicable to Stockholder or by which
Stockholder or any of Stockholder's properties or Subject Shares is bound or
affected; or (ii) result in any breach of or constitute a default (with notice
or lapse of time, or both) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
lien, restriction, adverse claim, option on, right to acquire, or any
encumbrance or security interest in or to, any of the Subject Shares pursuant
to, any written, oral or other agreement, contract or legally binding commitment
to which Stockholder is a party or by which Stockholder or any of Stockholder's
properties (including but not limited to the Subject Shares) is bound or
affected.
(b) The execution and delivery of this Agreement by Stockholder do not, and
the performance of this Agreement by Stockholder will not, require any written,
oral or other agreement, contract or legally binding commitment of any third
party.
4.3 Title to Subject Shares. As of the Agreement Date, Stockholder
beneficially or of record owns the Subject Shares set forth under Stockholder's
name on the signature page hereof and does not directly or indirectly own,
either beneficially or of record, any shares of capital stock of Company, or
rights to acquire any shares of capital stock of Company, other than the Subject
Shares set forth below Stockholder's name on the signature page hereof (other
than shares subject to options and unvested performance shares).
4.4 Other Rights. Stockholder is not entitled to any rights of first
refusal, rights of first offer, rights to notice, rights of co-sale, tag-along
rights, information rights, registration rights, preemptive rights, rights of
redemption or repurchase or similar rights of Stockholder under any agreement,
arrangement of understanding applicable to the Subject Shares, except as
disclosed in the Company Disclosure Letter and defined in the Merger Agreement.
4.5 Accuracy of Representations. The representations and warranties
contained in this Agreement are accurate in all respects as of the date of this
Agreement, will be accurate in all respects at all times through the Expiration
Date and will be accurate in all respects as of the date of the consummation of
the Merger as if made on that date.
SECTION 5. Miscellaneous.
5.1 Expenses. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such costs and expenses.
5.2 Governing Law. The internal laws of the State of Delaware
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
5.3 Assignment; Binding Effect; Third Parties. Except as provided herein,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either of the parties hereto (whether by operation of law
or otherwise) without the prior written consent of the other party. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure to
the benefit of (a) Stockholder and Stockholder's heirs, successors and assigns
and (b) Parent and its successors and permitted assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person or entity other than
the parties hereto or their respective heirs, successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
5.4 Severability. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable, then
the remainder of this Agreement and
D-3
<PAGE> 231
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto.
5.5 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
5.6 Termination; Amendment; Waiver. This Agreement shall terminate on the
Expiration Date. This Agreement may be amended by the written agreement of the
parties hereto. No waiver by any party hereto of any condition or of any breach
of any provision of this Agreement will be effective unless such waiver is set
forth in a writing signed by such party. No waiver by any party of any such
condition or breach, in any one instance, will be deemed to be a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or breach of any other provision contained herein.
5.7 Notices. All notices and other communications required or permitted
under this Agreement will be in writing and will be either hand delivered in
person, sent by telecopier, sent by certified or registered first class mail,
postage pre-paid, or sent by nationally recognized express courier service. Such
notices and other communications will be effective upon receipt if hand
delivered or sent by telecopier, three (3) days after mailing if sent by mail,
and one (l) business day after dispatch if sent by express courier, to the
following addresses, or such other addresses as any party may notify the other
parties in accordance with this Section:
<TABLE>
<S> <C>
If to Stockholder: If to Parent:
At the address set forth below FLEXTRONICS INTERNATIONAL LTD.
Stockholder's signature on the signature 2090 Fortune Drive
page hereto; San Jose, California 95131
Attn: Chief Executive Officer
</TABLE>
or to such other address as a party designates in a writing delivered to each of
the other parties hereto.
5.8 Entire Agreement. This Agreement and any documents delivered by the
parties in connection herewith constitute the entire agreement and understanding
between the parties with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings between the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon either party hereto unless made in writing and
signed by both parties hereto. The parties hereto waive trial by jury in any
action at law or suit in equity based upon, or arising out of, this Agreement or
the subject matter hereof.
5.9 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement was not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that, in addition to any other remedy to which Parent is
entitled at law or in equity, Parent shall be entitled to injunctive relief to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any Delaware state court or in any U.S. federal court
located in Delaware.
5.10 Other Agreements. Nothing in this Agreement shall limit any of the
rights or remedies of Parent or any of the obligations of Stockholder under any
other agreement.
5.11 Construction. This Agreement has been negotiated by the respective
parties hereto and their attorneys and the language hereof will not be construed
for or against either party. Unless otherwise indicated herein, all references
in this Agreement to "Sections" refer to sections of this Agreement. The titles
and headings herein are for reference purposes only and will not in any manner
limit the construction of this Agreement which will be considered as a whole.
D-4
<PAGE> 232
5.12 Margin Account. Notwithstanding anything contained in this Agreement,
Stockholder shall not be prohibited from depositing Subject Shares in a margin
account, and this Agreement shall terminate and the proxy shall be revoked with
respect to any Subject Shares that Stockholder ceases to own beneficially and of
record, without violation of Stockholder's obligations under any Company
Affiliate Agreement to which Stockholder is a party.
IN WITNESS WHEREOF, Parent and Stockholder have caused this Agreement to be
executed as of the Agreement Date first written above.
<TABLE>
<S> <C>
PARENT STOCKHOLDER
By: ------------------------------------------------- Name: ---------------------------------------------
(Please Print)
Title: ---------------------------------------------- By: -------------------------------------------------
(Signature)
Title: ----------------------------------------------
Number of Shares Owned: ----------------------
Address: -------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
Facsimile: ( )----------------------------------
</TABLE>
[SIGNATURE PAGE TO COMPANY VOTING AGREEMENT]
D-5
<PAGE> 233
EXHIBIT "1" TO VOTING AGREEMENT
IRREVOCABLE PROXY
The undersigned stockholder of The DII Group, Inc. a Delaware corporation
(the "Company"), hereby irrevocably (to the fullest extent permitted by law)
appoints and constitutes Michael E. Marks, Robert R.B. Dykes and/or Flextronics
International Ltd., a Singapore company ("Parent"), and each of them, the
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to the fullest extent of the undersigned's rights with respect
to (i) the shares of capital stock of Company owned by the undersigned as of the
date of this proxy, which shares are specified on the final page of this proxy
and (ii) any and all other shares of capital stock of Company which the
undersigned may acquire after the date hereof. (The shares of the capital stock
of Company referred to in clauses (i) and (ii) of the immediately preceding
sentence are collectively referred to as the "Shares"). Upon the execution
hereof, all prior proxies given by the undersigned with respect to any of the
Shares (other than any proxies granted to Parent) are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares, except for
such proxies as the undersigned stockholder may give in connection with the
Company's Special Meeting of Stockholders with respect to proposals or matters
unrelated to the Merger Agreement and the Merger.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with that certain Voting Agreement, dated as of the date hereof,
between Parent and the undersigned (the "Voting Agreement"), and is granted in
consideration of Parent entering into the Agreement and Plan of Merger, dated as
of November 22, 1999, among Parent, Slalom Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Parent, and Company (the "Merger
Agreement"). Capitalized terms used but not otherwise defined in this proxy have
the meanings ascribed to such terms in the Merger Agreement.
Notwithstanding anything contained herein to the contrary, this proxy shall
terminate and be revoked with respect to any Shares that the undersigned
stockholder ceases to own beneficially and of record, without violation of the
undersigned's obligations under any Company Affiliate Agreement to which he is a
party.
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the Expiration Date (as defined
in the Voting Agreement) at any meeting of the stockholders of Company, however
called, or in any action by written consent of stockholders of Company:
(i) in favor of the Merger Agreement and the Merger, the execution and
delivery by Company of the Merger Agreement, the adoption and approval of
the terms thereof and in favor of each of the other actions contemplated by
the Merger Agreement, and any action required in furtherance hereof and
thereof; and
(ii) in favor of the waiver (by amendment of any such agreement or
otherwise), effective immediately prior to the effectiveness of the Merger,
of any rights of first refusal, rights of first offer, rights of notice,
rights of co-sale, tag-along rights, information rights, registration
rights, preemptive rights, rights of redemption or repurchase, or similar
rights of Stockholder under any agreement, arrangement or understanding
applicable to the Shares, to the extent that the same may apply to the
Merger or any other actions or transactions contemplated by the Merger
Agreement.
The undersigned stockholder may vote the Shares on all other matters not
described in the foregoing subparagraphs (i) and (ii) above.
Prior to the Expiration Date (as such term is defined in the Voting
Agreement), at any meeting of the stockholders of Company, however called, and
in any action by written consent of stockholders
<PAGE> 234
of Company, the attorneys and proxies named above may, in their sole discretion,
elect to abstain from voting on any matter covered by the foregoing
subparagraphs (i) and (ii) above.
This proxy and any obligation of the undersigned hereunder shall be binding
upon the heirs, successors and assigns of the undersigned (including any
transferee of any of the Shares).
This proxy shall terminate upon the Expiration Date (as defined in the
Voting Agreement).
Dated: November 22, 1999
Name:
--------------------------------------
By:
--------------------------------------
Title (If Applicable):
--------------------------------------------------------------------------
2
<PAGE> 235
ANNEX E
November 20, 1999
Board of Directors
The Dii Group, Inc.
6273 Monarch Park Place
Niwot, CO 80503
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of shares of the common stock, par value $0.01 per share
(the "Company Common Stock"), of The Dii Group, Inc. (the "Company") of the
Exchange Ratio (as defined below) in connection with the Merger (as defined
below) contemplated by the Agreement and Plan of Merger (the "Agreement") to be
entered into among the Company, Flextronics International Ltd. ("Parent") and
Slalom Acquisition Corp., a direct wholly owned subsidiary of Parent ("Merger
Sub").
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, the Company will merge with and into Merger Sub (the
"Merger"), and each issued and outstanding share of Company Common Stock, other
than certain shares to be cancelled pursuant to the Agreement, will be converted
into the right to receive 0.805 (the "Exchange Ratio") ordinary shares, par
value $0.01 per share (the "Parent Ordinary Shares"), of Parent.
In arriving at our opinion, we reviewed a draft of the Agreement, dated
November 16, 1999, and held discussions with certain senior officers, directors
and other representatives and advisors of each of the Company and Parent
concerning the businesses, operations and prospects of the Company and Parent.
We examined certain publicly available business and financial information
relating to the Company and Parent as well as certain financial forecasts and
other information and data for the Company and Parent which were provided to or
otherwise discussed with us by the managements of the Company and Parent,
including certain strategic implications and operational benefits anticipated to
result from the Merger. We reviewed the financial terms of the Merger as set
forth in the Agreement in relation to, among other things: current and
historical market prices and trading volumes of Company Common Stock and Parent
Ordinary Shares; the historical and projected earnings and other operating data
of the Company and Parent; and the historical and projected capitalization and
financial condition of the Company and Parent. We considered, to the extent
publicly available, the financial terms of certain other similar transactions
recently effected that we considered relevant in evaluating the Exchange Ratio
and analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations we
considered relevant in evaluating those of the Company and Parent. We also
evaluated the pro forma financial impact of the Merger on Parent. In addition to
the foregoing, we conducted such other analyses and examinations and considered
such other information and financial, economic and market criteria as we deemed
appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us and have further relied upon the assurances of the
managements of the Company and Parent that they are not aware of any facts that
would make any of such information inaccurate or misleading. With respect to
financial forecasts and other information and data provided to or otherwise
reviewed by or discussed with us, we have been advised by the managements of the
Company and Parent that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of the Company and Parent as to the future
financial performance of
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<PAGE> 236
the Company and Parent and the strategic implications and operational benefits
anticipated to result from the Merger. We express no view with respect to such
forecasts and other information and data or the assumptions on which they were
based. We have assumed, with your consent, that the Merger will be treated as a
tax-free reorganization for U.S. federal income tax purposes and as a pooling of
interests for accounting and financial reporting purposes. We have not made or
been provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company or Parent nor have we made
any physical inspection of the properties or assets of the Company or Parent. We
have assumed, that the final terms of the Agreement will not vary materially
from those set forth in the draft reviewed by us. We have further assumed that
the Merger will be consummated in accordance with the terms of the Agreement
without waiver of any of the conditions precedent to the Merger contained in the
Agreement.
Our opinion, as set forth herein, relates to the relative values of the
Company and Parent. We are not expressing any opinion as to what the value of
the Parent Ordinary Shares actually will be when issued in the Merger or the
price at which the Parent Ordinary Shares will trade subsequent to the Merger.
We were not requested to consider, and our opinion does not address, the
relative merits of the Merger as compared to any alternative business strategies
that might exist for the Company or the effect of any other transaction in which
the Company might engage. Our opinion necessarily is based upon information
available to us and financial, stock market and other conditions and
circumstances existing and disclosed to us as of the date hereof.
Salomon Smith Barney Inc. is acting as financial advisor to the Company in
connection with the Merger and will receive a fee for our services, a portion of
which is payable only upon the consummation of the Merger. We have in the past
provided and currently are providing investment banking services to the Company
unrelated to the Merger, for which we have received and will receive
compensation. In the ordinary course of our business, we and our affiliates may
actively trade or hold the securities of the Company and Parent for our own
account or for the account of our customers and, accordingly, may at any time
hold a long or short position in such securities. Salomon Smith Barney Inc. and
its affiliates (including Citigroup Inc. and its affiliates) may maintain
relationships with the Company and Parent and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of the Company in its evaluation of the
Merger and our opinion is not intended to be and does not constitute a
recommendation of the Merger to the Company or a recommendation to any
stockholder as to how such stockholder should vote on any matters relating to
the Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holders of shares of Company Common Stock.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
SALOMON SMITH BARNEY INC.
E-2
<PAGE> 237
ANNEX F
November 20, 1999
CONFIDENTIAL
Board of Directors
The Dii Group, Inc.
6273 Monarch Park Place
Suite 200
Niwot, CO 80503
Dear Members of the Board:
We understand that The Dii Group, Inc. ("Dii" or "Company"), Flextronics
International Ltd. ("Flextronics" or "Parent") and Slalom Acquisition Corp., a
wholly-owned subsidiary of Parent ("Merger Sub"), propose to enter into an
Agreement and Plan of Merger (the "Agreement") pursuant to which, through the
merger of Merger Sub with and into the Company (the "Merger") each share of Dii
common stock, par value $0.01 ("Company Common Stock"), then outstanding will be
converted into the right to receive 0.8050 (the "Exchange Ratio") ordinary
shares, par value $0.01 per share, in the capital of Parent (the "Parent
Ordinary Shares"). The Merger is intended to be treated as a tax-free
reorganization pursuant to the provisions of Section 368(a)(1)(A) of the United
States Internal Revenue Code of 1986, as amended, and to be treated as a
"pooling of interests" for accounting and financial reporting purposes. The
terms and conditions of the above described Merger are more fully detailed in
the Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair,
from a financial point of view, to Dii stockholders.
Broadview International LLC ("Broadview") focuses on providing merger and
acquisition advisory services to information technology ("IT"), communications
and media companies. In this capacity, we are continually engaged in valuing
such businesses, and we maintain an extensive database of IT, communications and
media mergers and acquisitions for comparative purposes. We are currently acting
as financial advisor to Dii's Board of Directors and will receive a fee from Dii
upon the successful conclusion of the Merger.
In rendering our opinion, we have, among other things:
1. reviewed the terms of a draft of the Agreement dated November 18,
1999 furnished to us by counsel for Dii on November 19, 1999 (which, for
the purposes of this opinion, we have assumed, with your permission, to be
identical in all material respects to the Agreement to be executed);
2. reviewed Dii's annual report on Form 10-K for the fiscal year ended
December 31, 1998, including the audited financial statements included
therein, Dii's quarterly report on Form 10-Q for the period ended September
30, 1999, including the unaudited financial statements included therein,
Dii's Prospectus filed with the Securities and Exchange Commission pursuant
to rule 424(b)(4), promulgated under the Securities Act of 1933, as
amended, dated September 29, 1999, relating to Dii's offering of 6,900,000
shares of common stock, and Dii's October 26, 1999 press release including
a pro forma balance sheet restated for the Company's recent equity
offering;
3. reviewed certain internal financial and operating information,
including yearly projections through December 31, 2001, relating to Dii,
prepared and furnished to us by Dii management;
4. participated in discussions with Dii management concerning the
operations, business strategy, current financial performance and prospects
for Dii;
F-1
<PAGE> 238
5. discussed with Dii management its view of the strategic rationale
for the Merger;
6. reviewed the recent reported closing prices and trading activity
for Company Common Stock;
7. compared certain aspects of the financial performance of Dii with
public companies we deemed comparable;
8. analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or in
part to the Merger;
9. reviewed recent equity research analyst reports covering Dii;
10. reviewed Flextronics' annual report on Form 10-K for the fiscal
year ended March 31, 1999, including the audited financial statements
included therein, Flextronics' quarterly report on Form 10-Q for the period
ended September 24, 1999, including the unaudited financial statements
included therein, and Flextronics' Prospectus filed with the Securities and
Exchange Commission pursuant to rule 424(b)(5) promulgated under the
Securities Act of 1933, as amended, dated October 26, 1999, relating to
Flextronics' offering of 6,000,000 ordinary shares;
11. participated in discussions with Flextronics management concerning
the operations, business strategy, financial performance and prospects for
Flextronics;
12. reviewed the recent reported closing prices and trading activity
for Parent Ordinary Shares;
13. discussed with Flextronics management its view of the strategic
rationale for the Merger;
14. compared certain aspects of the financial performance of
Flextronics with public companies we deemed comparable;
15. reviewed recent equity analyst reports covering Flextronics;
16. analyzed the anticipated effect of the Merger on the future
financial performance of the combined entity;
17. participated in discussions related to the Merger with Dii,
Flextronics and their respective advisors; and
18. conducted other financial studies, analyses and investigations as
we deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by Dii or
Flextronics. With respect to the financial projections examined by us, we have
assumed that they were reasonably prepared and reflected the best available
estimates and good faith judgments of the management of Dii as to the future
performance of Dii. We have neither made nor obtained an independent appraisal
or valuation of any of Dii's assets.
Based upon and subject to the foregoing, we are of the opinion that the
Exchange Ratio is fair, from a financial point of view, to Dii stockholders.
For purposes of this opinion, we have assumed that neither Dii nor
Flextronics is currently involved in any material transaction other than the
Merger, other publicly announced transactions, other preliminary discussions
confidentially disclosed to us, and those activities undertaken in the ordinary
course of conducting their respective businesses. Our opinion is necessarily
based upon market, economic, financial and other conditions as they exist and
can be evaluated as of the date of this opinion, and any change in such
conditions would require a reevaluation of this opinion. We
F-2
<PAGE> 239
express no opinion as to the price at which Flextronics Common Stock will trade
at any time in the future.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Dii in connection
with its consideration of the Merger and does not constitute a recommendation to
any Dii stockholder as to how such stockholder should vote on the Merger. This
opinion may not be published or referred to, in whole or part, without our prior
written permission, which shall not be unreasonably withheld. Broadview hereby
consents to references to and the inclusion of this opinion in its entirety in
the Proxy Statement/Prospectus to be distributed to Dii stockholders in
connection with the Merger.
Sincerely,
/s/ BROADVIEW INTERNATIONAL LLC
BROADVIEW INTERNATIONAL LLC
F-3
<PAGE> 1
[On the letterhead of Allen & Gledhill]
Flextronics International Ltd.
11 Ubi Road 1, #07-01/02,
Melban Industrial Building,
Singapore 408723. 28th February, 2000
Dear Sirs,
Registration Statement on Form S-4 of
Flextronics International Ltd. (the "Company")
We refer to amendment No. 1 to the Registration Statement on Form S-4
(the "Registration Statement") as filed by the Company with the Securities and
Exchange Commission on or about 28th February, 2000 in connection with the
registration under the Securities Act of 1933, as amended, of 65,293,672
ordinary shares of S$0.01 each in the capital of the Company (the "Registration
Shares").
We have assumed that the Registration Shares are to be allotted and
issued by the Company in consideration for the acquisition by statutory merger
(the "Merger") of The Dil Group, Inc. ("Dil") through the merger of Dil with
and into Slalom Acquisition Corp. ("Slalom"), a wholly-owned subsidiary of the
Company, pursuant to the Agreement and Plan of Merger dated 22nd November,
1999 entered into between the Company, Slalom and Dil (the "Agreement"), at the
effective time of the Merger (the "Effective Time").
In this connection, we are familiar with the corporate proceedings taken
by the Company in connection with the issuance and sale of its ordinary shares.
We have also reviewed the Registration Statement as filed with the Securities
and Exchange Commission on 19th January, 2000, and we have made such other
examinations of law and fact as we considered necessary in order to form a basis
for the opinion hereafter expressed.
Based on the foregoing and assuming that:
(i) the total issued and paid-up share capital of the Company
consequent upon the allotment and issue of the Registration
Shares at the Effective will not exceed the authorised share
capital of the Company at the Effective Time; and
(ii) there shall be subsisting a valid authority given pursuant to
Section 161 of the Singapore Companies Act, Chapter 50 in
respect of the allotment and issue of the Registration Shares at
the Effective Time.
We are of the opinion that the Registration Shares have been duly
authorized, and that upon the passing of the requisite resolutions to allot the
Registration Shares and the issue of the certificates representing the
Registration Shares in accordance with the Articles of Association of the
Company against full payment therefor at the Effective Time, the Registration
Shares will be validly issued and credited as fully-paid.
<PAGE> 2
2
This opinion only relates to the laws of general application of Singapore
as at the date hereof and as currently applied by the Singapore courts, and is
given on the basis that it will be governed by and construed in accordance with
the laws of Singapore. We have made no investigation of, and do not express or
imply any views on, the laws, rules or regulations of any country other than
Singapore. In respect of the issuance of the Registration Shares at the
Effective Time, we have in particular assumed that the Company has complied or
will comply with all matters of United States Federal and California laws,
rules and regulations prevailing from time to time.
We consent to the filing of this opinion as exhibit 5.1 to be filed by
amendment to the Registration Statement and to the reference to this firm under
the caption "Legal Matters" in the Prospectus which forms part of the
Registration Statement.
Yours faithfully,
/s/ Allen & Gledhill
<PAGE> 1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
Flextronics International Ltd.
11 UBI Road 1, #07-01/02
Meiban Industrial Building
Singapore 408723
February 28, 2000
Ladies and Gentlemen:
This opinion ("Opinion") is being furnished to you in connection with the Form
S-4 Registration Statement filed with the Securities and Exchange Commission
(which contains a prospectus and registration statement) (the "Registration
Statement") filed pursuant to the Agreement and Plan of Merger (the
"Reorganization Agreement") dated as of November 22, 1999, as amended, among The
DII Group, Inc. ("DII"), Flextronics International Ltd. ("Flextronics"), and
Slalom Acquisition Corp. ("Slalom"), a wholly owned subsidiary of Flextronics
formed solely to effect the acquisition of DII (together, the Registration
Statement and Reorganization Agreement are referred to as the "Agreements"). The
acquisition is expected to be completed on April 3, 2000 ("the Effective Time").
Reliance on Certain Facts, Assumptions, And Representations
In rendering our Opinion, we have relied upon the accuracy and completeness of
the facts, representations, and information as contained in the Agreements (in
each case, without regard to any limitation based on knowledge or belief)
including all exhibits attached thereto, and all related documents, including
the representation letters received from Flextronics and DII dated February 28,
2000 and; any and all documents submitted to the Securities Exchange Commission
bearing upon the Transaction. Flextronics and DII have represented that such
facts, assumptions, and representations are true, correct, and complete.
However, we have not independently audited or otherwise verified any of these
facts, assumptions, or representations. A misstatement or omission of any fact
or a change or amendment in any of the facts, assumptions, or representations
upon which we have relied may require a modification of all or a part of the
Opinion. In addition, the Opinion is based on such facts, assumptions, and
representations as represented to us as of the date of this Opinion. Any changes
in the facts, assumptions, or representations upon which we have relied between
the date of this Opinion and the actual closing of the Transaction may require a
modification of all or part of the Opinion. We have no responsibility to update
the Opinion for events, transactions, circumstances, or changes in any of such
facts, assumptions, or representations occurring after this date.
<PAGE> 2
We have assumed that original documents submitted to us (including signature
thereto) are authentic, documents submitted to us as copies conform to the
original documents, and that all such documents have been (or will be by the
Effective Time) duly and validly executed and delivered where due execution and
delivery are a prerequisite to the effectiveness thereof. Our opinion assumes
that the Transaction will be executed in accordance with the facts, assumptions,
and representations in the Agreement. We have assumed that all covenants
contained in the Agreements and the representations letters are performed
without waiver or breach of any material provisions thereof.
Premise of Opinion
Our Opinion is based solely on our interpretation of the Internal Revenue Code
of 1986, as amended (the "Code"); U.S. federal income tax regulations
promulgated thereunder ("Treasury Regulations"); relevant judicial decisions;
guidance issued by the Internal Revenue Service (the "Service") including
revenue rulings and revenue procedures; and other authorities that we deemed
relevant; in each case as of the date of this Opinion.
U.S. federal income tax laws and regulations, and the interpretations thereof,
are subject to change, which changes could adversely affect this Opinion. If
there is a change in the Code, the regulations thereunder, the administrative
guidance issued thereunder, or in the prevailing judicial interpretation of the
foregoing, the Opinion expressed herein would necessarily have to be reevaluated
in light of any such changes. If requested, we will update our Opinion as of the
date of the Transaction, and address therein any changes to the prevailing
authorities that occur between the date of this opinion and the date of the
Transaction. Otherwise, our Opinion is as of the date of this letter, and we
have no responsibility to update this Opinion for changes in applicable law or
authorities occurring after this date.
Our Opinion does not address the potential tax consequences of any transactions,
events, or circumstances other than the Transaction as described herein. In
addition, our Opinion is limited to the specific U.S. federal income tax
consequences set forth below. Our Opinion does not address any non-income,
state, local, or foreign tax consequences of the transaction. We also express no
opinion on non-income tax issues, such as corporate law or securities matters.
Further, the Opinion does not address the U.S. federal income tax consequences
of the Transaction to any DII common shareholder that has a special status,
including (without limitation) any of the persons listed as having a special
status in the "Material United States Federal Income Tax Consequences of the
Merger; Other United States and Singapore Estate Tax Matters" section of the
Registration Statement.
Our Opinion is not binding on the Service, and there can be no assurance that
the Service will not take positions contrary to such Opinion or will not be
successful in sustaining such contrary positions. However, should the Service
challenge the U.S. federal income tax treatment of the matters discussed below,
our Opinion reflects our assessment of the probable outcome of litigation based
solely on an analysis of the existing authorities relating to such matters.
<PAGE> 3
Opinion
Based upon all of the foregoing, including representations of Flextronics of
DII, it is our opinion with respect to the Transaction that:
1. For United States federal income tax purposes, the Merger will qualify as a
"reorganization" as defined in Section 368(a); and
2. The discussion entitled "Material United States Federal Income Tax
Consequences of the Merger; Other United States and Singapore Estate Tax
Matters" contained in the Registration Statement, insofar as it relates to
the U.S. federal income tax consequences of the Merger, is accurate in all
material aspects with respect to its conclusions in the subsections entitled
"Tax implications to DII stock holders" and "Tax implications to Flextronics
and DII," subject to the qualifications and limitations set forth therein.
* * * *
This Opinion is solely for the benefit of Flextronics and is not intended to be
relied upon by anyone other than Flextronics. You have our express consent to
inform DII and Flextronics shareholders of our Opinion by including copies of
this letter as an exhibit to the S-4 filing. In giving this consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. Except to the extent expressly permitted hereby, and
without the prior written consent of this firm, this letter may not be quoted in
whole or in part or otherwise referred to in any documents or delivered to any
other person or entity. Any such authorized other party receiving a copy of our
opinion must consult and rely upon the advice of their own counsel, accountant,
or other advisor.
Arthur Andersen LLP
<PAGE> 1
EXHIBIT 8.02
February 28, 2000
[CURTIS, MALLET-PREVOST, COLT & MOSLE LLP LETTERHEAD]
The DII Group, Inc.
6273 Monarch Park Place
Niwot, Colorado 80503
Ladies and Gentlemen:
This opinion ("Opinion") is being delivered to you in connection with
the Form S-4 Registration Statement filed with the Securities and Exchange
Commission (the "Registration Statement") pursuant to the Agreement and Plan of
Merger (the "Reorganization Agreement") dated as of November 22, 1999 by and
among Flextronics International Ltd., a Singapore company ("Flextronics"),
Slalom Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of
Flextronics ("Merger Sub") and The DII Group, Inc., a Delaware corporation
("DII").
Except as otherwise provided, capitalized terms used but not defined
herein shall have the meanings set forth in the Reorganization Agreement. All
section references, unless otherwise indicated, are to the Internal Revenue Code
of 1986, as amended (the "Code").
We have acted as counsel to DII in connection with the Merger. As such,
and for the purposes of rendering this Opinion, we have examined, and are
relying upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all exhibits and schedules attached thereto):
1. The Reorganization Agreement;
2. The Registration Statement;
3. Those certain Certificates of Officers delivered to us by Flextronics
and DII containing certain tax representations of Flextronics and DII
(the "Tax Representation Letters"); and
<PAGE> 2
[CURTIS, MALLET-PREVOST,
COLT & MOSLE LLP LETTERHEAD] Page 2 February 28, 2000
4. Such other instruments and documents related to the formation,
organization and operation of Flextronics, Merger Sub and DII and
related to the consummation of the Merger and the other transactions
contemplated by the Reorganization Agreement as we have deemed
necessary or appropriate.
In connection with rendering this Opinion, we have assumed (without any
independent investigation or review thereof) that:
1. Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the
original documents, and that all such documents have been (or will be
by the Effective Time) duly and validly executed and delivered where
due execution and delivery are a prerequisite to the effectiveness
thereof;
2. All representations, warranties and statements made or agreed to by
Flextronics, Merger Sub and DII, their managements, employees,
officers, directors and stockholders in connection with the Merger,
including, but not limited to, those set forth in the Reorganization
Agreement (including exhibits thereto) and the Tax Representation
Letters are true and accurate at all relevant times;
3. All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed
without waiver or breach of any material provisions thereof;
4. The Merger will be reported by Flextronics and DII on their
respective federal income tax returns in a manner consistent with the
Opinion set forth below; and
5. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
We have not independently audited or otherwise verified any of the
foregoing items. A misstatement or omission of any fact or a change or amendment
in any of the facts, assumptions, or representations upon which we have relied
may require a modification of all or a part of the Opinion. In addition, the
Opinion is based on such facts, assumptions, and representations as represented
to us as of the date of this Opinion. Any changes in the facts, assumptions, or
representations upon which we have relied between the date of this Opinion and
the actual closing of the Merger may require a modification of all or part of
the Opinion. We have no responsibility to update the Opinion for events,
transactions, circumstances, or changes in any of such facts, assumptions, or
representations occurring after this date. Our Opinion assumes that the Merger
will be effected in accordance with the facts, assumptions, and representations
in the Agreements.
<PAGE> 3
[CURTIS, MALLET-PREVOST,
COLT & MOSLE LLP LETTERHEAD] Page 3 February 28, 2000
Our Opinion is based solely on our interpretation of the Code; U.S.
federal income tax regulations promulgated thereunder ("Treasury Regulations");
relevant judicial decisions; guidance issued by the Internal Revenue Service
(the "Service"), including revenue rulings and revenue procedures; and other
authorities that we deemed relevant; in each case as of the date of this
Opinion.
U.S. federal income tax laws and regulations, and the interpretations
thereof, are subject to change, which changes could adversely affect this
Opinion. If there is a change in the Code, the regulations thereunder, the
administrative guidance issued thereunder, or in the prevailing judicial
interpretation of the foregoing, the Opinion expressed herein would necessarily
have to be reevaluated in light of any such changes. If requested, we will
update our Opinion as of the date of the Merger, and address therein any changes
to the prevailing authorities that occur between the date of this Opinion and
the date of the Merger. Otherwise, our Opinion is as of the date of this letter,
and we have no responsibility to update this Opinion for changes in applicable
law or authorities occurring after this date.
Our Opinion does not address the potential tax consequences of any
transactions, events, or circumstances other than the Merger as described
herein. In addition, our Opinion is limited to the specific U.S. federal income
tax consequences set forth below. Our Opinion does not address any non-income,
state, local, or foreign tax consequences of the transaction. We also express no
opinion on non-income tax issues, such as corporate law or securities matters.
Further, our Opinion does not address the U.S. federal income tax
consequences of the Merger to any DII shareholder who is subject to special
treatment under the Code, including, without limitation, those referred to in
the first paragraph of the discussion entitled "Material United States Federal
Income Tax Consequences of the Merger; Other United States Tax and Singapore
Estate Tax Matters" contained in the Registration Statement.
Our Opinion is not binding on the Service, and there can be no assurance
that the Service will not take positions contrary to such Opinion or will not be
successful in sustaining such contrary positions. However, should the Service
challenge the U.S. federal income tax treatment of the matters discussed below,
our Opinion reflects our assessment of the probable outcome of litigation based
solely on an analysis of the existing authorities relating to such matters.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, if the Merger is consummated in accordance with the
Reorganization Agreement (without any waiver, breach or amendment of any of the
provisions thereof) and the statements set forth in the Tax Representation
Letters are true and correct as of the Effective Time:
(a) for federal income tax purposes, the Merger will qualify as a
"reorganization" as defined in Section 368(a)(1)(B); and
<PAGE> 4
[CURTIS, MALLET-PREVOST,
COLT & MOSLE LLP LETTERHEAD] Page 4 February 28, 2000
(b) the discussion entitled "Material United States Federal Income Tax
Consequences of the Merger; Other United States Tax and Singapore Estate Tax
Matters" contained in the Registration Statement, insofar as it relates to the
statements of law and legal conclusions with respect to United States federal
income tax consequences, is correct in all material aspects with respect to its
conclusions in the subsections entitled "Tax implications to DII stockholders"
and "Tax implications to Flextronics and DII."
We have informed DII that any consideration paid for DII stock other
than Flextronics ordinary shares (i.e., voting stock) and cash in lieu of
fractional shares would cause the Merger to not qualify as a reorganization as
defined in Section 368(a)(1)(B), and we have been assured by DII and Flextronics
that no consideration other than Flextronics ordinary shares and cash in lieu of
fractional shares will be exchanged for DII shares.
This Opinion is being delivered solely in connection with the
Registration Statement. It is intended for the benefit of DII and may not be
relied upon or utilized for any other purpose or by any other person and may not
be made available to any other person without our prior written consent.
We hereby consent to the filing of this Opinion as an Exhibit to the
Registration Statement. We also consent to the reference to our firm name
wherever appearing in the Registration Statement with respect to the discussion
of the material federal income tax considerations of the merger, including the
joint proxy statement/prospectus constituting a part thereof. In giving this
consent, we do not thereby admit that we in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such registration statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/S/ CURTIS, MALLET-PREVOST, COLT & MOSLE, LLP
<PAGE> 1
Exhibit 15.01
February 25, 2000
The DII Group, Inc.
6273 Monarch Park Place
Niwot, Colorado
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of The DII Group, Inc. and subsidiaries for the periods ended April
4, 1999 and March 29, 1998, July 4, 1999 and June 28, 1998, and October 3, 1999
and September 27, 1998 as indicated in our reports dated May 12, 1999
(September 8, 1999 as to Note 13), August 13, 1999 (September 8, 1999 as to
Note 13) and November 12, 1999, respectively; because we did not perform an
audit, we expressed no opinion on that information. However, the reports dated
May 12, 1999 (September 8, 1999 as to Note 13) and August 13, 1999 (September
8, 1999 as to Note 13) include an explanatory paragraph referring to the
restatement discussed in Note 13.
We are aware that our reports referred to above, which were included in your
Quarterly Reports on Form 10-Q/A for the quarters ended April 4, 1999 and July
4, 1999 and Form 10-Q for the quarter ended October 3, 1999, are being used in
this Registration Statement.
We also are aware that the aforementioned reports, pursuant to Rule 436(c) under
the Securities Act of 1933, are not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Denver, Colorado
<PAGE> 1
Exhibit 23.01
[LETTERHEAD OF ARTHUR ANDERSEN]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated April 21, 1999
included in Flextronics International Ltd.'s Form 10-K for the year ended March
31, 1999 and to all references to our firm included in this registration
statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Jose, California
February 28, 2000
<PAGE> 1
Exhibit 23.02
[LETTERHEAD OF MOORE STEPHENS]
Our Reference: 85/25725
Date: 28 February 2000
Flextronics International Limited
2241 Fortune Drive
San Jose
CA 95131
USA
FLEXTRONICS INTERNATIONAL LIMITED
S-4 (PROXY STATEMENT)
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Moore Stephens
Moore Stephens
<PAGE> 1
EXHIBIT 23.03
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-94939 of Flextronics International, Ltd. on Form
S-4 of our report dated January 28, 1999 (February 8, 1999 as to the redemption
of convertible subordinated notes described in Note 6 and September 8, 1999 as
to Note 15), which expresses an unqualified opinion and includes an explanatory
paragraph relating to the restatement discussed in Note 15, and of our report
dated January 28, 1999 relating to the financial statement schedules, included
and incorporated by reference in the Annual Report on Form 10-K/A of the DII
Group, Inc. for the year ended January 3, 1999. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 25, 2000
<PAGE> 1
EXHIBIT 23.04
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The DII Group, Inc.:
We consent to the use of our reports dated January 28, 1997, incorporated by
reference herein and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
February 25, 2000
<PAGE> 1
EXHIBIT 24.02
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael E. Marks and Robert R.B. Dykes,
and each or any one of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule 462
promulgated under the Securities Act, and all post-effective amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Patrick Foley Director January 20, 2000
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Patrick Foley
