<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21374
THE DII GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1224426
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6273 Monarch Park Place
Suite 200
Niwot, Colorado 80503
(Address and zip code of principal executive offices)
(303) 652-2221
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS May 9, 1997
----- --------------
<S> <C>
Common Stock, Par Value $0.01 12,186,897
</TABLE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except earnings per share)
<TABLE>
<CAPTION>
FOR THE FIRST QUARTER ENDED
----------------------------------
MAR. 30, 1997 MAR. 31, 1996
--------------- ---------------
<S> <C> <C>
Net sales:
Contract electronics manufacturing $ 85,001 72,765
Other 52,079 40,211
--------------- ---------------
Total net sales 137,080 112,976
Cost of sales 110,900 92,406
--------------- ---------------
Gross profit 26,180 20,570
Selling, general and administrative expenses 16,137 11,791
Interest income (242) (580)
Interest expense 1,700 1,539
Amortization of intangibles 800 740
Other, net 93 (284)
--------------- ---------------
Income before income taxes 7,692 7,364
Income tax expense 2,615 2,297
--------------- ---------------
Net income $ 5,077 5,067
=============== ===============
Earnings per share:
Primary $ 0.40 0.42
Fully diluted $ 0.40 0.40
Weighted average number of common shares and equivalents outstanding:
Primary 12,561 12,173
Fully diluted 14,865 14,676
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 3
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value data)
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 29,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,447 25,010
Accounts receivable, net 90,443 79,851
Inventories 55,285 47,008
Other 8,665 8,829
------------ ------------
Total current assets 171,840 160,698
Property, plant and equipment, net 117,053 106,977
Intangible assets, net 65,298 66,207
Other 2,347 1,969
------------ ------------
$ 356,538 335,851
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61,106 46,748
Accrued expenses 18,203 14,729
Accrued interest payable 2,464 1,116
Current installments of long-term financing obligations 7,286 10,572
Notes payable to sellers of businesses acquired 415 826
------------ ------------
Total current liabilities 89,474 73,991
Convertible subordinated notes payable 86,250 86,250
Long-term financing obligations, excluding current installments 11,419 12,938
Notes payable to sellers of businesses acquired 1,571 1,262
Other 1,944 2,373
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
none issued -- --
Common stock, $0.01 par value; 45,000,000 shares
authorized; 12,056,760 and 11,964,415 shares issued and outstanding 121 120
Additional paid-in capital 94,985 91,976
Retained earnings 79,860 74,783
Cumulative foreign currency translation adjustments (4,001) (3,849)
Deferred stock compensation (5,085) (3,993)
------------ ------------
Total stockholders' equity 165,880 159,037
------------ ------------
$ 356,538 335,851
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 4
THE D I I GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
FOR THE FIRST QUARTER ENDED
--------------------------------------
MAR. 30, 1997 MAR. 31, 1996
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 11,090 4,033
------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment (14,293) (5,772)
Proceeds from sales of equipment 131 114
------------- -------------
Net cash used by investing activities (14,162) (5,658)
------------- -------------
Cash flows from financing activities:
Debt issuance costs -- (138)
Repayments of long-term financing obligations (4,805) (2,542)
Repayments of notes payable to sellers of businesses acquired (411) (10,133)
Proceeds from stock issued under stock plans 676 481
------------- -------------
Net cash used by financing activities (4,540) (12,332)
------------- -------------
Effect of exchange rate changes on cash 49 (10)
------------- -------------
Net decrease in cash and cash equivalents (7,563) (13,967)
Cash and cash equivalents at beginning of year 25,010 55,533
------------- -------------
Cash and cash equivalents at end of period $ 17,447 41,566
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 5
THE DII GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Financial information as of December 29, 1996 has been
derived from the audited consolidated financial statements of The DII Group,
Inc. and subsidiaries (the "Company" or "DII").
The condensed consolidated financial statements do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to the consolidated
financial statements as of and for the year ended December 29, 1996 included in
the annual report on Form 10-K previously filed with the SEC. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included in the
accompanying condensed consolidated financial statements. Operating results for
the three-month period ended March 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 28, 1997.
On August 22, 1996, the DII Group changed its fiscal year end from December 31
to the Sunday nearest to December 31, beginning with the fiscal year ended
December 29, 1996. The accompanying condensed consolidated financial statements
are therefore presented as of and for the three month period ended March 30,
1997 and March 31, 1996.
(2) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 29,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials $ 37,422 34,099
Work-in-process 21,652 15,721
Finished goods 2,786 2,580
------------ ------------
61,860 52,400
Allowance for inventory (6,575) (5,392)
------------ ------------
$ 55,285 47,008
============ ============
</TABLE>
The Company made provisions for the allowance for inventory impairment of
$1,389 and $127 during the three months ended March 30, 1997 and March 31,
1996, respectively.
<PAGE> 6
THE DII GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(3) COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation and environmental matters
described in the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996. The ultimate outcome of these matters cannot, at this time,
be predicted in light of the uncertainties inherent in these matters. Based
upon the facts and circumstances currently known, management cannot estimate
the most likely loss or the maximum loss for these matters. The Company has
accrued the minimum estimated costs, which amounts are immaterial, associated
with these matters in the accompanying condensed consolidated financial
statements.
The Company determines the amount of its accruals for environmental matters by
analyzing and estimating the range of possible costs in light of information
currently available. The imposition of more stringent standards or requirements
under environmental laws or regulations, the results of future testing and
analysis undertaken by the Company at its operating facilities, or a
determination that the Company is potentially responsible for the release of
hazardous substances at other sites, could result in expenditures in excess of
amounts currently estimated to be required for such matters. No assurance can
be given that actual costs will not exceed amounts accrued or that costs will
not be incurred with respect to sites as to which no problem is currently
known. Further, there can be no assurance that additional environmental matters
will not arise in the future.
The Company has approximately $614 of capital commitments as of March 30, 1997.
As of March 30, 1997, the Company has a $60,000 senior secured revolving
line-of-credit which expires in June 1998. This credit facility requires
compliance with certain financial covenants and is secured by substantially all
of the Company's assets. As of March 30, 1997, there were no borrowings
outstanding under the line-of-credit, and the Company was in compliance with
all financial covenants.
<PAGE> 7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands)
CERTAIN FORWARD-LOOKING INFORMATION:
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements include, but are not limited
to, statements regarding contingencies, litigation, environmental matters and
capital expenditures under "Part I Financial Information - Item 2 Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below.
A. OVERVIEW
The Company is a value-added electronics design, engineering and manufacturing
service provider which operates through a global network of companies in North
America, Europe and Southeast Asia. These companies are uniquely integrated to
provide a broad range of related products and services, including semiconductor
design and manufacturing of customer specific integrated circuits; initial
printed circuit board design; manufacturing of prototype printed circuit
boards; assembly of printed circuit boards; process tooling; machine tools;
in-circuit and functional test hardware and software; and final system
configuration. By being the fastest and most comprehensive provider of custom
quick-turn design, engineering and manufacturing services for OEM customers,
from microelectronics circuits through the final assembly of finished products,
the Company believes it is better able to develop long-term relationships with
its customers, expand into new markets and enhance its profitability.
The Company provides the following products and services to the global
electronics outsourcing industry:
Custom Semiconductors--The Company designs and manufactures customer
specific integrated circuits on a quick-turn basis through Orbit
Semiconductor ("Orbit").
High Performance Printed Circuit Boards--The Company designs and
manufactures high density, complex multilayer printed circuit boards
on a quick-turn basis through Multilayer Technology ("Multek").
Systems Assembly and Distribution--The Company assembles complex
electronic circuits and final system configuration (contract
electronics manufacturing or "CEM") on a high and low volume contract
basis through Dovatron International ("Dovatron").
Process Technologies--The Company manufactures surface mount printed
circuit board solder cream stencils on a quick-turn basis through IRI
International ("IRI"); designs and manufactures in-circuit and
functional test software and hardware on a quick-turn basis through
TTI Testron ("TTI Testron") and manufactures depaneling systems that
route individual printed circuit boards from an assembled master panel
in the final step of the electronics assembly process through Cencorp.
Operating results may be affected by a number of factors including the economic
conditions in the markets the Company serves; price and product competition;
the level of volume and the timing of orders; product mix; the amount of
automation existing on specific manufacturing projects; efficiencies achieved
by inventory management; fixed asset utilization; the level of experience in
manufacturing a particular product; customer product delivery requirements;
shortages of components or experienced labor; start-up
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands)
A. OVERVIEW, CONTINUED
costs associated with adding new geographical locations; expenditures required
for research and development; and failure to introduce, or lack of market
acceptance of, new processes, services, technologies and products on a timely
basis. In addition, the level of sales can greatly shift based on whether
certain projects are contracted on a turnkey basis where the Company purchases
materials, versus a consignment basis where materials are provided by the
customer.
A majority of the Company's sales are to customers in the electronics industry,
which is subject to rapid technological change, product obsolescence and price
competition. The factors affecting the electronics industry (especially the
semiconductor sector) in general, or any of the Company's major customers, in
particular, could have a material adverse affect on the Company's operating
results. The electronics industry (especially the semiconductor sector) has
historically been cyclical and subject to significant economic downturns at
various times, characterized by diminished product demand, accelerated erosion
of average selling prices and overcapacity. The Company seeks a well-balanced
customer profile across most sectors of the electronics industry in order to
reduce exposure due to a downturn in any particular sector. The primary sectors
within the electronics industry served by the Company are data communications,
computer and peripherals, telecommunications, industrial, instrumentation, and
medical. The Company offers outsourcing capabilities in three major electronics
markets of the world (North America, Europe and Southeast Asia). The Company's
international operations subject the Company to the risks of doing business
abroad, including currency fluctuations, export duties, import controls and
trade barriers, restrictions on the transfer of funds, greater difficulty in
accounts receivable collection, burdens of complying with a wide variety of
foreign laws and, in certain parts of the world, political instability.
From time to time, some of the Company's customers have terminated their
manufacturing arrangements with the Company, and other customers have
significantly reduced or delayed the volume of design, engineering and
manufacturing services from the Company. Any such termination of a
manufacturing relationship or change, reduction or delay in orders could have a
material adverse affect on the Company's operating results. Although management
believes the Company has a broad diversification of customers and markets, the
Company has no material firm long-term commitments or volume guarantees from
its customers. In addition, customer contracts can be canceled and volume
levels can be changed or delayed. The timely replacement of canceled, delayed
or reduced contracts with new business cannot be assured.
At any given time, certain customers may account for significant portions of
the Company's business. No customer accounted for more than 10% of net sales
during the three months ending March 30, 1997 or March 31, 1996. The Company's
top ten customers accounted for 46% and 50% of net sales for the three months
ending March 30, 1997 and March 31, 1996, respectively. The percentage of the
Company's sales to its major customers may fluctuate from period to period.
Significant reductions in sales to any of these customers could have a material
adverse effect on the Company's operating results.
The DII Group has actively pursued acquisitions in furtherance of its strategy
to be the fastest and most comprehensive provider of custom quick-turn design,
engineering and manufacturing services for OEM customers, from microelectronics
circuits through the final assembly of finished products. Moreover, the
Company's acquisitions enable the DII Group to provide more integrated
outsourcing technology solutions with time-to-market and lower cost advantages,
thereby enhancing its position as a leading provider of value-added design,
engineering and manufacturing solutions. These acquisitions have played an
important part in broadening the Company's presence in the global electronics
marketplace, thereby enhancing the DII Group's capability to provide a
comprehensive outsourcing technology solution and global electronics design,
engineering and manufacturing services to a market increasingly dependent on
outsourcing providers.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands)
A. OVERVIEW, CONTINUED
Acquisitions involve numerous risks including difficulties in the assimilation
of the operations, technologies, and products and services of the acquired
companies, the diversion of management's attention from other business
concerns, risks of entering markets in which the DII Group has no or limited
direct prior experience and where competitors in such markets have stronger
market positions, and the potential loss of key employees of the acquired
company. The integration of certain operations following an acquisition will
require the dedication of management resources that may distract attention from
the day-to-day business of the Company.
B. RESULTS OF OPERATIONS
Net sales for the three months ended March 30, 1997 increased $24,104 (21%) to
$137,080 from $112,976 for the comparable period in 1996. Contract electronics
manufacturing, which represented 62% of net sales for the three months ended
March 30, 1997, increased $12,236 (17%) to $85,001 from $72,765 for the
comparable period in 1996. This increase is attributable to increased sales to
existing customers; an expanding customer base, which includes the start-up of
the high volume, multi-site Hewlett-Packard order; off-set by the planned
phase-out of Dovatron Malaysia's largest customer (Seagate).
Net sales for the Company's other products and services, which represented 38%
of net sales for the three months ended March 30, 1997, increased $11,868 (30%)
to $52,079 from $40,211 for comparable period in 1996. This increase is
attributable to increased sales to existing customers, an expanding customer
base and production generated at the Multek facility located in Roseville,
Minnesota, which began limited production in April 1996.
Gross profit for the three months ended March 30, 1997, increased $5,610 to
$26,180 from $20,570 for the comparable period in 1996. The gross margin
increased to 19.1% for the three months ended March 30, 1997 as compared to
18.2% for the comparable period in 1996. This increase is attributable to the
slight shift in mix to the Company's other products and services which generate
higher margins than contract electronics manufacturing services.
Selling, general and administrative (SG&A) expense increased $4,346 to $16,137
for the three months ended March 30, 1997 from $11,791 for the comparable
period in 1996. The percentage of SG&A expense to net sales was 11.8% and 10.4%
for the three months ended March 30, 1997 and March 31, 1996, respectively.
This increase is attributable to additional costs associated with the start-up
of Orbit's newly acquired wafer fabrication facility while winding down its old
wafer fabrication facility combined with the building of the Company's sales
and marketing, finance, and other general and administrative infrastructure
necessary to support the Company's projected sales growth in fiscal 1997. In
addition, the Company recognized incentive-based stock plan compensation of
$995 in the three-months ended March 30, 1997 versus $312 in the three months
ended March 31, 1996. Recognition of such expense is based upon expected
achievement of certain earnings per share targets established by the
Compensation Committee of the Board of Directors.
Interest income decreased $338 to $242 for the three months ended March 30,
1997 from $580 for the comparable period in 1996. This decrease is attributable
to the earnings generated on the invested cash and cash equivalents. Interest
expense increased $161 to $1,700 for the three months ended March 30, 1997 from
$1,539 for the comparable period in 1996. This increase is associated with the
increase in long-term financing obligations in connection with equipment
additions related to Orbit's transition to its new 6-inch, 0.6 micron process
facility.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands)
B. RESULTS OF OPERATIONS, CONTINUED
Amortization of intangibles increased $60 to $800 for the three months ended
March 30, 1997 from $740 for the comparable period in 1996. This increase is
attributable to the amortization of the goodwill associated with the Chemtech
acquisition, which occurred in April 1996. Other expenses (net) increased $377
for the three months ended March 30, 1997 from the comparable period in 1996.
This increase was due mainly to the Company realizing a gain on the early
extinguishment of long-term financing obligations in the three months ended
March 31, 1996.
The estimated effective income tax rate for the three months ended March 30,
1997 was 34% compared to 31% for the comparable period in 1996. The effective
tax rate used to compute the income tax provision for each quarter was based on
the Company's estimate of its domestic and foreign operating income for each
respective year. The Company's estimated effective income tax rate differs from
the U.S. statutory rate primarily due to lower effective income tax rates on
foreign earnings considered permanently invested. The effective tax rate for a
particular year will vary depending on the mix of foreign and domestic
earnings. As foreign earnings considered permanently invested increase, as a
percentage of consolidated earnings, the overall consolidated effective income
tax rate will decrease as the foreign earnings are usually taxed at a lower
rate than domestic earnings.
C. FOREIGN CURRENCY EXPOSURE
The Company conducts a significant amount of its business and has a number of
operating facilities in countries outside of the United States. As a result,
the Company may experience transaction and translation gains and losses because
of currency fluctuations. In order to minimize foreign exchange transaction
risk, the Company selectively hedges certain of its foreign exchange exposures
through forward exchange contracts, principally relating to nonfunctional
currency monetary assets and liabilities. To date, the Company's hedging
activity has been immaterial. The strategy of selective hedging can reduce the
Company's vulnerability to certain of its foreign currency exposures, and the
Company expects to continue this practice in the future.
D. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS
At March 30, 1997, the Company had working capital of $82,366 and a current
ratio of 1.9 compared to working capital of $95,195 and a current ratio of 2.3
at March 31, 1996. Cash and cash equivalents at March 30, 1997 were $17,447, a
decrease of $7,563 from $25,010 at December 29, 1996. This decrease resulted
from cash used by investing and financing activities of $14,162 and $4,540,
respectively, offset by cash provided by operating activities of $11,090.
The Company's net cash flows used by investing activities amounted to $14,162
and $5,658 for the three months ended March 30, 1997 and March 31, 1996,
respectively. Capital expenditures amounted to $14,293 and $5,772 for the
three-month periods ending March 30, 1997 and March 30, 1996, respectively. The
increase in the first quarter of 1997 is attributable mainly to the Company's
continued investment in state-of-the-art, high-technology equipment for its
Multek and Dovatron operating companies which enables the Company to accept
increasingly complex orders. Additionally, Orbit acquired capital equipment
necessary for its new 6-inch, 0.6 micron process facility.
The Company's net cash flows used by financing activities amounted to $4,540
and $12,332 in the first quarter of 1997 and 1996, respectively. The Company
repaid $4,805 and $2,542 in long-term financing obligations in the three months
ended March 30, 1997 and March 31, 1996, respectively. The Company
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands)
D. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS, CONTINUED
also repaid $411 and $10,133 of notes payable to sellers of various businesses
acquired during the three months ended March 30, 1997 and March 31, 1996,
respectively.
Management believes that cash generated from operations, existing cash
reserves, leasing capabilities, and the line-of-credit availability will be
adequate to fund the Company's current capital commitments.
The Company's operations are subject to certain federal, state and local
regulatory requirements relating to the use, storage, discharge and disposal of
hazardous chemicals used during its manufacturing processes. The Company
believes that it is currently operating in compliance with applicable
regulations and does not believe that costs of compliance with these laws and
regulations will have a material effect upon its capital expenditures, earnings
or competitive position.
The Company determines the amount of its accruals for environmental matters by
analyzing and estimating the range of possible costs in light of information
currently available. The imposition of more stringent standards or requirements
under environmental laws or regulations, the results of future testing and
analysis undertaken by the Company at its operating facilities, or a
determination that the Company is potentially responsible for the release of
hazardous substances at other sites, could result in expenditures in excess of
amounts currently estimated to be required for such matters. No assurance can
be given that actual costs will not exceed amounts accrued or that costs will
not be incurred with respect to sites as to which no problem is currently
known. Further, there can be no assurance that additional environmental matters
will not arise in the future.
See Note 3 to the condensed consolidated financial statements for a description
of commitments, contingencies and environmental matters.
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A class action complaint for violations of federal securities law was filed
against Orbit and three of its officers in 1995. The amended complaint alleges
that Orbit and the named officers misled the market for Orbit's then existing
public common stock, by issuing a number of allegedly false or misleading
statements. The amended complaint alleges claims under Section 10(b) and 20(a)
of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated
thereunder. The Company believes that the claims asserted in the amended
complaint are without merit and intends to defend against such claims
vigorously. Third party discovery is ongoing and the court has not yet set a
trial date.
In addition to the above matter, the Company is involved in certain other
litigation arising in the ordinary course of business. Although management is
of the opinion that these matters will not have a material adverse effect on
the consolidated financial position or results of operations of the Company,
the ultimate outcome of these matters cannot, at this time, be predicted in
light of the uncertainties inherent in litigation. See Note 10 of the Company's
1996 Consolidated Financial Statements included in Part II, Item 8 of Form 10-K
for the Company's contingencies and environmental matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the first quarter of 1997, there were no matters submitted to a vote of
security holders.
ITEM 6(a). EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1 Amendment to the $60,000,000 Revolving Line of Credit dated April 4,
1996 between The DII Group, Inc. and Norwest Bank Colorado, N.A., The
Chase Manhattan Bank, N.A., Harris Trust and Savings Bank, and NBD
Bank.
*10.2 Agreement dated as of February 17, 1997, by and between
Hewlett-Packard and Dovatron International, Inc.
+10.3 The DII Group, Inc. Deferred Compensation Plan
+10.4 The DII Group, Inc. Performance Share Agreement
+10.5 Employment Agreement dated as of January 1, 1997 between The DII
Group, Inc. and Ronald R. Budacz.
+10.6 Employment Agreement dated as of January 1, 1997 between The DII
Group, Inc. and Carl R. Vertuca, Jr.
+10.7 Employment Agreement dated as of January 1, 1997 between The DII
Group, Inc. and Ronald R. Snyder.
+10.8 Employment Agreement dated as of January 1, 1997 between The DII
Group, Inc. and Dermott O'Flanagan.
<PAGE> 13
ITEM 6(A). EXHIBITS, CONTINUED
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
+10.9 Amendment to the Senior Executive Severance Agreement dated as of
January 1, 1997 between The DII Group, Inc. and Ronald R. Budacz.
+10.10 Amendment to the Senior Executive Severance Agreement dated as of
January 1, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr.
+10.11 Amendment to the Senior Executive Severance Agreement dated as of
January 1, 1997 between The DII Group, Inc. and Ronald R. Snyder.
+10.12 Amendment to the Senior Executive Severance Agreement dated as of
January 1, 1997 between The DII Group, Inc. and Dermott O'Flanagan.
11.1 Statement regarding computation of per share earnings.
27 Financial Data Schedule
- -------------
* Confidential treatment has been granted as to portions of this exhibit.
The omitted material has been separately filed with the Securities and
Exchange Commission.
+ Management contract or compensatory plan.
ITEM 6(b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter for which this report is
filed.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE DII GROUP, INC.
Date: May 12, 1997 By: /s/Ronald R. Budacz
-------------- ----------------------------------
Ronald R. Budacz
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 1997 By: /s/Carl R. Vertuca, Jr.
-------------- ----------------------------------
Carl R. Vertuca, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 1997 By: /s/Thomas J. Smach
-------------- ----------------------------------
Thomas J. Smach
Vice President and Corporate
Controller (Principal Accounting
Officer)
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C>
10.1 Amendment to the $60,000,000 Revolving Line of Credit dated April 4,
1996 between The DII Group, Inc. and Norwest Bank Colorado, N.A., The
Chase Manhattan Bank, N.A., Harris Trust and Savings Bank, and NBD
Bank.
*10.2 Agreement dated as of February 17, 1997, by and between
Hewlett-Packard and Dovatron International, Inc.
+10.3 The DII Group, Inc. Deferred Compensation Plan
+10.4 The DII Group, Inc. Performance Share Agreement
+10.5 Employment Agreement dated as of January 1, 1997 between The DII
Group, Inc. and Ronald R. Budacz.
+10.6 Employment Agreement dated as of January 1, 1997 between The DII
Group, Inc. and Carl R. Vertuca, Jr.
+10.7 Employment Agreement dated as of January 1, 1997 between The DII
Group, Inc. and Ronald R. Snyder.
+10.8 Employment Agreement dated as of January 1, 1997 between The DII
Group, Inc. and Dermott O'Flanagan.
+10.9 Amendment to the Senior Executive Severance Agreement dated as of
January 1, 1997 between The DII Group, Inc. and Ronald R. Budacz.
+10.10 Amendment to the Senior Executive Severance Agreement dated as of
January 1, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr.
+10.11 Amendment to the Senior Executive Severance Agreement dated as of
January 1, 1997 between The DII Group, Inc. and Ronald R. Snyder.
+10.12 Amendment to the Senior Executive Severance Agreement dated as of
January 1, 1997 between The DII Group, Inc. and Dermott O'Flanagan.
11.1 Statement regarding computation of per share earnings.
27 Financial Data Schedule
</TABLE>
- -------------
* Confidential treatment has been granted as to portions of this exhibit.
The omitted material has been separately filed with the Securities and
Exchange Commission.
+ Management contract or compensatory plan.
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment") executed
December 20, 1996 but effective as of the Effective Date, is among THE DII
GROUP, INC., a Delaware corporation, formerly known as DOVatron International,
Inc. ("DII"), DOVATRON INTERNATIONAL, INC., a Delaware corporation, formerly
known as DOVatron, Inc., CENCORP INC., a Delaware corporation, MULTILAYER
TECHNOLOGY, INC., a California corporation, and TTI TESTRON, INC., a Delaware
corporation, formerly known as TTI Merger Corporation, as successor to TTI
Testron, Inc., a Rhode Island corporation, by virtue of its merger with TTI
Merger Corporation (collectively, "Existing Borrowers"), and Orbit
Semiconductor, Inc., a Delaware corporation ("OSI"), and NORWEST BANK COLORADO,
NATIONAL ASSOCIATION, a national banking association ("Norwest"), THE CHASE
MANHATTAN BANK, a New York state bank, as successor to The Chase Manhattan
Bank, N.A., a national banking association, HARRIS TRUST AND SAVINGS BANK, an
Illinois state bank, and NBD BANK, a Michigan banking corporation (together
with their respective successors and permitted assigns, if any, from time to
time, individually, a "Lender" and collectively, the "Lenders"), and Norwest,
as agent for the Lenders (in such capacity, the "Agent").
RECITALS
A. Existing Borrowers, the Lenders and the Agent are parties to
the Loan Agreement, dated as of April 4, 1996 (as amended, and as it may
hereafter be amended, restated or supplemented from time to time, the "Loan
Agreement"), providing for a Loan from the Lenders to Existing Borrowers.
Capitalized terms that are used but not defined herein have the meanings set
forth in the Loan Agreement.
B. Pursuant to a letter agreement dated June 5, 1996 (the "OSI
Letter Agreement"), Existing Borrowers, the Lenders and the Agent agreed to
modify the Loan Agreement, subject to satisfaction of certain conditions, if
DII elected to proceed with the acquisition (the "OSI Acquisition") of OSI.
DII has now completed the OSI Acquisition, and the parties desire to enter into
this Amendment to give effect to their agreement.
C. Pursuant to a letter agreement dated November 14, 1996 (the
"Paradigm Letter Agreement"), Existing Borrowers, OSI, the Lenders and the
Agent agreed to modify the Loan Agreement, subject to satisfaction of certain
conditions, if OSI elected to proceed with the purchase of the assets (the
"Paradigm Asset Acquisition") of Paradigm Technology, Inc., a Delaware
corporation ("Paradigm"). OSI has now completed the Paradigm Asset
Acquisition, and the parties desire to enter into this Amendment to give effect
to their agreement.
<PAGE> 2
AGREEMENT
IN CONSIDERATION of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Existing Borrowers, OSI, the Lenders and the Agent agree as follows:
1. Capitalized Terms. Capitalized terms that are used but not
defined in this Amendment have the meanings given to them in the Loan
Agreement.
2. Addition of OSI as Co-Borrower.
(a) OSI is hereafter a co-borrower with respect to the
Loan, jointly and severally liable with the Existing Borrowers pursuant to the
terms of the Loan Agreement, as amended by this Amendment, the Note (as made by
OSI and amended concurrent herewith) and the other Loan Documents (as amended
concurrent herewith). Accordingly, all references in this Amendment and the
Loan Agreement to the term "Borrower" hereafter mean and refer to OSI as well
as to each of the Existing Borrowers, and to the term "Borrowers" hereafter
mean and refer to OSI and the Existing Borrowers, collectively.
(b) OSI hereby represents that there is nothing
preventing OSI from entering into this Amendment or assuming all obligations of
co-Borrower under the Loan Documents and co-Maker of the Notes. OSI further
represents and warrants that all representations and warranties of "Borrowers"
set forth in the Loan Documents are true and correct with respect to OSI as of
the Effective Date as if such representations and warranties were being made by
OSI.
3. Definitional and Other Amendments.
(a) The definition of the term "EBITDA" in Section 1.1 of
the Loan Agreement is hereby amended and restated to read in its entirety as
follows:
"EBITDA" means earnings before interest expense,
income taxes, extraordinary expenses related to (a) the
repayment of the Revenue Bonds, (b) the repayment of the Prior
Loans, (c) the acquisition of OSI (provided that such expenses
do not exceed $4,649,000.00) and (d) the Paradigm Asset
Acquisition (provided that such expenses do not exceed
$11,300,000.00), depreciation and amortization expense for
Borrowers and their Subsidiaries, calculated on a Consolidated
basis in accordance with GAAP, calculated in each case on the
basis of the four Quarters immediately preceding the date of
calculation.
(b) The definition of the term "Fixed Charge Coverage
Ratio" in Section 1.1 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:
2
<PAGE> 3
"Fixed Charge Coverage Ratio" means the ratio of
EBITDA (for the most recent four Quarters including the
Quarter in which the determination is being made and the
preceding three Quarters) to Fixed Charges.
(c) Section 7.2(b) of the Loan Agreement is hereby
amended by deleting the words "calendar month" the first line thereof, and
substituting in its place the word "Quarter" and deleting the word "monthly" in
the second line thereof, and substituting in its place the word "quarterly,"
and deleting the word "month" in the third line thereof, and substituting in
its place the word "Quarter."
(d) Section 7.11(b) of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
(b) Fixed Charge Coverage Ratio. Borrowers shall
maintain a Fixed Charge Coverage Ratio not less than the ratio
set forth below for the four Quarters ending with the
applicable Quarter end set forth below:
<TABLE>
<CAPTION>
Four-Quarter
Period Ending: Ratio
-------------- -----
<S> <C>
6/30/96 2.0 to 1
9/30/96 2.0 to 1
12/31/96 2.10 to 1
3/31/97 2.20 to 1
6/30/97 2.20 to 1
9/30/97 2.20 to 1
12/31/97 2.20 to 1
3/31/98 2.30 to 1
</TABLE>
(e) Section 7.11(e) of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
(e) Minimum Tangible Net Worth. Borrowers'
minimum Tangible Net Worth at all times after January 1, 1997
shall be not less than (i) an amount equal to the greater of:
(A) $87,500,000 and (B) Borrowers' Tangible Net Worth at
December 31, 1996, plus (ii) an amount equal to 50 percent of
net income (but not net loss) for the period from January 1,
1997 to the date of determination, plus (iii) 75 percent of
new equity proceeds (excluding the OSI Acquisition).
Borrowers' minimum Tangible Net Worth at all times prior to
and including December 31, 1996 shall be not less than (i) an
amount equal to $46,618,000 plus (ii) an amount equal to fifty
percent (50%) of net income (but not loss) for the period from
December 31, 1995 to the date of
3
<PAGE> 4
determination, plus (iii) seventy-five percent (75%) of new
equity proceeds.
(f) Sections 8.1(d) and 8.1(e) of the Loan Agreement are
hereby amended and restated in their entirety to read as follows:
(d) during the period expiring on September 30,
1996, Indebtedness (which may include Accommodation
Obligations for the benefit of Affiliates and related parties
but no other Accommodation Obligations), not exceeding
$14,000,000 in the aggregate outstanding at any one time
(including (c) above, but excluding (a) and (b) above); and
(e) during the period commencing on October 1,
1996 and expiring on the date of expiration or termination of
this Agreement, Indebtedness (which may include Accommodation
Obligations for the benefit of Affiliates and related parties
but no other Accommodation Obligations) in the aggregate
outstanding at any one time (including (c) above, but
excluding (a) and (b) above) not exceeding the amount set
forth below at any time during such period:
<TABLE>
<CAPTION>
Period Indebtedness
------ ------------
<S> <C>
October 1, 1996-December 31, 1996 $35,000,000
January 1, 1997-March 31, 1997 $35,000,000
April 1, 1997-June 30, 1997 $30,000,000
July 1, 1997-September 30, 1997 $30,000,000
October 1, 1997-December 31, 1997 $25,000,000
January 1, 1998-June 30, 1998 $25,000,000
</TABLE>
(g) Section 8.2 of the Loan Agreement is hereby amended
by adding a new Section 8.2(e) reading in its entirety as follows:
(e) liens encumbering the property described on
EXHIBIT A attached to the First Amendment to Loan Agreement,
dated December 20, 1996, securing the Indebtedness described
on EXHIBIT A attached to such First Amendment to Loan
Agreement; to the extent, but only to the extent, that such
liens encumber equipment or other assets acquired with the
proceeds of such Indebtedness.
(h) Section 8.4 of the Loan Agreement is hereby amended
and restated in its entirety to read as follows:
4
<PAGE> 5
8.4 Capital Expenditures.
Make or incur, directly or indirectly, any
capital expenditures (as such term is defined in accordance
with GAAP, but excluding capital expenditures for investment
in new businesses, which are the subject of the limitations in
Section 8.5 below), exceeding the aggregate limit set forth
below for any four Quarter period (based on the Quarter in
which the determination is being made and the preceding three
Quarters).
<TABLE>
<CAPTION>
Four-Quarter
Period Ending: Amount
-------------- ------
<S> <C>
6/30/96 $20,000,000
9/30/96 $35,000,000
12/31/96 $55,000,000
3/31/97 $57,000,000
6/30/97 $57,000,000
9/30/97 $55,000,000
12/31/97 $35,000,000
3/31/98 $35,000,000
</TABLE>
4. Exclusion from Acquisition Limitation. Lenders hereby agree
that the OSI Acquisition constitutes an exception to the limitations on
acquisitions contained in Section 8.5 of the Loan Agreement, such that (a) the
payment of consideration exceeding $15,000,000 in connection with the OSI
Acquisition shall not be deemed a violation of Section 8.5, and (b) the
consideration paid for and the costs of acquiring OSI shall not be considered
for purposes of determining whether Borrower has exceeded the aggregate ceiling
on acquisition costs of $50,000,000 as specified in Section 8.5 of the Loan
Agreement.
5. Waiver of Merger Restriction. Lenders hereby waive the
restrictions contained in Section 8.6 of the Loan Agreement regarding merger
with respect to the merger of OSI into DII for the sole purpose of effecting
the OSI Acquisition.
6. Conditions Precedent. All of Lenders' obligations under this
Amendment and the effectiveness of the amendments, agreements and waivers
stated in Sections 2 through 5 above are conditioned upon and subject to
satisfaction of all of the following conditions precedent in a manner
acceptable to Agent on or before December 24, 1996:
(a) Borrowers' pledge to Agent, as agent for Lenders, as
additional security for the Loan, of all of the assets of OSI (including all of
the assets of Paradigm acquired by OSI), subject to only those liens and
encumbrances listed on EXHIBIT A, which may secure only the Indebtedness listed
on EXHIBIT A to the extent, but only to the extent that the subject assets were
5
<PAGE> 6
acquired using the proceeds of such Indebtedness (the "Permitted Orbit
Encumbrances");
(b) Borrower's pledge to Agent, as Agent for Lenders, as
additional security for the Loan all of the outstanding stock of OSI, subject
to no liens or encumbrances.
(c) Borrowers' execution and delivery to Agent of the
following documents, in form and substance satisfactory to Agent, to effect the
pledges contemplated by paragraphs (a) and (b) above, together with such other
documents as Agent may reasonably request: (1) General Security Agreement and
UCC-1 financing statements, (2) Pledge Agreement, (3) original stock
certificates representing 100 percent of the capital stock of OSI, together
with stock powers, and (4) copy of the corporate resolutions authorizing the
merger and the pledges contemplated hereby, articles of incorporation, bylaws,
certificate of good standing and merger documents, certified as true, complete
and correct by authorized officers of OSI and DII;
(d) Receipt by the Agent, as agent for the Lenders, of a
copy of the Merger Agreement governing DII's acquisition of OSI.
(e) Execution and delivery by OSI and Existing Borrowers
and their affiliates (as the case may be) of amendments to the Note and the
other Loan Documents, to give effect to the amendments effected by this
Amendment, and the execution and delivery by OSI, as co-maker, of the Note;
(f) Receipt by the Agent, as agent for the Lenders, of a
copy of the agreements governing the Paradigm Asset Acquisition.
(g) Receipt by the Agent, as agent for the Lenders, of an
opinion of counsel with respect to the loan modifications effected by this
Amendment and the amendments executed concurrent herewith, the addition of OSI
as a co-borrower and co-maker, and the pledges contemplated by the foregoing,
which opinion must be acceptable in form and substance to Agent, in Agent's
reasonable discretion;
(h) Borrowers shall pay all Loan Expenses incurred by the
Agent and the Lenders in connection with the transactions contemplated by this
Amendment; and
(i) As of the date of this Amendment, and as of the
Effective Date, there was and is no Default or Unmatured Event of Default,
except as specifically set forth in Section 4 and Section 5 above.
7. Repayment of Existing Financing. Borrowers represent and
warrant to the Lenders that, as of the execution date hereof, (i) the
Indebtedness identified on EXHIBIT A is the only Indebtedness of OSI or
Indebtedness of Paradigm (A) assumed by OSI or (B) secured by any assets of
Paradigm acquired by OSI, and (ii) the terms and conditions of such
Indebtedness are not more restrictive than the terms and conditions of the Loan
and do not contain any covenants or place any obligations on Borrower that are
more restrictive than the covenants and
6
<PAGE> 7
obligations set forth in the Loan Document (as amended hereby and concurrent
herewith), and (iii) no term, condition or requirement governing or relating to
such Indebtedness violates or conflicts with any of the terms, conditions or
requirements of the Loan Agreement (as amended hereby) and the other Loan
Documents (as amended concurrent herewith).
8. Further Assurances. Borrowers shall execute all documents and
instruments and take all actions, and shall use its best efforts to cause any
other party (including without limitation, Paradigm), to execute all documents
and instruments and take all actions as the Agent may reasonably require to
effect the transactions contemplated by this Amendment. Without limiting the
generality of the foregoing, within sixty days of the date hereof, Borrowers
shall provide to the Agent original stock certificates in the name of TTI
TesTron, a Delaware corporation (formerly known as TTI Merger Corporation, a
Delaware corporation), and Orbit Semiconductor, Inc. (formerly known as Orbit
Merger, Inc.), to replace the existing stock certificates currently held by the
Agent in the name of TTI Merger Corporation and DII Merger, Inc., respectively
and execute all documents required by Agent in connection therewith.
9. Representations and Warranties.
(a) Borrowers hereby certify to the Lenders that as of
the date of this Amendment (taking into consideration the transactions
contemplated by this Amendment), all of Borrowers' representations and
warranties contained in the Loan Documents are true, accurate and complete in
all material respects, and no Event of Default or Unmatured Event of Default
has occurred under any Loan Document (as amended concurrent herewith). Without
limiting the generality of the foregoing, Borrowers represent and warrant to
the Lenders that the execution and delivery of this Amendment has been
authorized by all necessary action on the part of Borrowers, that each person
executing this Amendment on behalf of Borrowers is duly authorized to do so,
and that this Amendment constitutes the legal, valid, binding and enforceable
obligation of Borrowers.
(b) Each of the Borrowers, on their own behalf and on
behalf of OSI, represent and warrant that (i) there are no effective financing
statements of record (A) against any assets of Orbit (including the assets
acquired from Paradigm) other than the assets described in Exhibit A attached
hereto or (B) securing any Indebtedness of Orbit (including Indebtedness of
Paradigm acquired by Orbit) other than the Indebtedness described in Exhibit A
attached hereto.
10. Loan Documents.
(a) The Lenders, the Agent, and Borrowers agree that all
of the Loan Documents shall be amended to reflect the amendments set forth
herein.
(b) All references in any document to the Loan Agreement
hereafter refer to the Loan Agreement as amended pursuant to this Amendment.
7
<PAGE> 8
(c) All references in the Loan Agreement to the Loan
Documents, or any particular Loan Document, hereby refer to such Loan Documents
as amended pursuant to the amendments executed concurrent herewith.
11. Continuation of the Loan Agreement Except as specified in
this Amendment, the provisions of the Loan Agreement remain in full force and
effect, and if there is a conflict between the terms of this Amendment and
those of the Loan Agreement, the terms of this Amendment control.
12. Miscellaneous.
(a) This Amendment shall be governed by and construed
under the laws of the State of Colorado and shall be binding upon and inure to
the benefit of the parties hereto and their successors and permissible assigns.
(b) This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(c) This Amendment and all documents to be executed and
delivered hereunder may be delivered in the form of a facsimile copy,
subsequently confirmed by delivery of the originally executed document.
(d) Time is of the essence hereof with respect to the
dates, terms and conditions of this Amendment and the documents to be delivered
pursuant hereto.
(e) This Amendment constitutes the entire agreement
between Borrowers, the Agent, and the Lenders concerning the subject matter of
this Amendment. This Amendment may not be amended or modified orally, but only
by a written agreement executed by Borrowers, the Agent and the Lenders and
designated as an amendment or modification of the Loan Agreement.
(f) If any provision of this Amendment is held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Amendment shall not be impaired thereby.
(g) The section headings herein are for convenience only
and shall not affect the construction hereof.
(h) Execution of this Amendment is not intended to and
shall not constitute a waiver by the Lenders of any Event of Default or
Unmatured Event of Default, except as expressly contemplated by Sections 4 and
5 (subject to the conditions precedent stated in Section 6).
(i) This Agreement is effective as of the Effective Date.
Effective Date as used here means August 22, 1996, which is the date that The
DII Group, Inc. completed the acquisition of Orbit Semiconductor, Inc.
("Orbit"); except that with respect to any matters
8
<PAGE> 9
relating to the acquisition of the assets of Paradigm Technology, Inc.
("Paradigm") by Orbit (including, but without limitation, the pledge by Orbit
of all of the assets of Paradigm acquired by Orbit), Effective Date shall mean
November 18, 1996, which is the date Orbit acquired the assets of Paradigm.
EXECUTED as of the date first set forth above.
LENDERS: NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By:
------------------------------------------
David S. Mazar
Vice President
THE CHASE MANHATTAN BANK, a New York state
bank, as successor to The Chase Manhattan
Bank, N.A., a national banking association
By:
-----------------------------------------
Michael Brunner
Vice President
HARRIS TRUST AND SAVINGS BANK, an Illinois
state bank
By:
-----------------------------------------
James H. Colley
Vice President
NBD BANK, a Michigan banking corporation
By:
-----------------------------------------
Timothy O'Neil
Vice President
9
<PAGE> 10
AGENT: NORWEST BANK COLORADO, NATIONAL ASSOCIATION,
a national banking association
By:
-----------------------------------------
David S. Mazar
Vice President
BORROWERS:
THE DII GROUP, INC. (formerly known as
DOVatron International, Inc.), a
Delaware corporation
By:
------------------------------------
Carl R. Vertuca Jr.
Senior Vice President and
Chief Financial Officer
DOVATRON INTERNATIONAL, INC.,
(formerly known as DOVatron, Inc.),
a Delaware corporation
By:
------------------------------------
Carl R. Vertuca Jr.
Senior Vice President and
Chief Financial Officer
CENCORP INC., a Delaware corporation
By:
------------------------------------
Carl R. Vertuca Jr.
Senior Vice President and
Chief Financial Officer
MULTILAYER TECHNOLOGY, INC., a
California corporation
By:
------------------------------------
Carl R. Vertuca Jr.
Senior Vice President and
Chief Financial Officer
10
<PAGE> 11
TTI TESTRON, INC., (formerly known as
TTI Merger Corporation), a Delaware corporation,
as successor to TTI TesTron, Inc., a
Rhode Island corporation
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
ORBIT SEMICONDUCTOR, INC.,
a Delaware corporation (formerly known as
DII Merger, Inc.
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
11
<PAGE> 12
EXHIBIT A
Attached to and forming a part of the First Amendment to Loan Agreement, dated
December __, 1996, among The DII Group, Inc.; DOVatron International, Inc.;
CENCORP Inc.; Multilayer Technology, Inc.; TTI TesTron, Inc.; Orbit
Semiconductor, Inc.; Norwest Bank Colorado, National Association; The Chase
Manhattan Bank; Harris Trust and Savings Bank; and NBD Bank
(See Attached)
12
<PAGE> 1
EXHIBIT 10.2
MASTER MANUFACTURING AGREEMENT
This Master Agreement ("Agreement") is effective as of 2/17/97 ("the Effective
Date") between Hewlett Packard Company ("HP") and Dovatron International
("Dovatron"). The term "Agreement" includes all Exhibits, Agenda, and
References.
1.0 EXHIBITS
1.1 These Exhibits are attachments that support this Agreement, and are
incorporated by reference.
E.1.0 Product Description and Assembly Requirements
E.2.0 Quality Yield Expectations
E.3.0 Quality Reference Standards
E.4.0 Pricing of Assemblies
E.5.0 Material and Supplier Management Procedure and Responsibilities
E.6.0 HP-SDD Standard Confidential Disclosure Agreement
2.0 ADDENDA
2.1 The referenced Addendum A.1.0 is the sub-Agreement that defines the
specific working relationship between the HP Mexico International
Procurement Organization and Dovatron Mexico (HP-MIPO and DMEX). The
referenced Addendum A.2.0 is the sub-Agreement that defines the specific
working relationship between HP Asia Hardcopy Manufacturing Organization
and Dovatron Malaysia (HP-AHMO and DMAL). Both Addenda are incorporated
by reference.
3.0 REFERENCES
3.1 The following References summarize the processes, procedures and
operating guidelines for the Denali project which are incorporated by
reference.
R.1.0 Quality Reporting
R.2.0 ICT and FCT Plans
R.3.0 RMA
R.4.0 Corrective Action Procedure
R.5.0 PCO Process and AVL Control
<PAGE> 2
R.6.0 T (Technology), Q (Quality), R (Responsiveness), D (Delivery),
C (Cost), and E (Environmental) Review
4.0 SCOPE OF WORK
4.1 This Agreement covers the Denali Project of Printed Circuit Assemblies,
("PCAs"), as outlined in the attached EXHIBIT 1, PRODUCT DESCRIPTION AND
ASSEMBLY REQUIREMENTS, ON BEHALF OF HP'S SAN DIEGO DIVISION ("HP SDD).
4.2 Dovatron shall support the project by installing two dedicated
manufacturing lines for the main PCA (one line in Mexico and an identical
manufacturing line in Malaysia) with projected initial manufacturing
capacity of 60k to 75k PCA's per month per facility. In addition,
Dovatron will install a dedicated manufacturing line to support the North
American LIU in Mexico with a projected initial manufacturing capacity of
120k to 150k per month. At each given current run rate, a 20% surge
capability will be available within twelve weeks of receipt of written
notice by Dovatron for HP-SDD. HP-SDD agrees to initiate one 20% surge
within a six month period.
5.0 QUALITY
5.1 The specific quality guidelines and yield expectations are outlined in
EXHIBIT 2, QUALITY YIELD EXPECTATIONS for each PCA.
5.2 Achieving and maintaining the highest level of quality is a strategic
objective for HP-SDD. Dovatron shall be committed to implementing and
continuously improving the manufacturing processes and quality systems in
accordance with the expectations set forth in EXHIBIT 2, QUALITY YIELD
EXPECTATIONS.
5.3 Dovatron shall materially meet the requirements of all HP-SDD conducted
ESD audits. These surveys will use the HP-SDD "Workmanship Specification
for Electrostatic Discharge Control," Drawing No. A-5951-1589-1, Revision
F as the basis of the reviews. Dovatron shall also conduct at a minimum
monthly self audits at all locations which manufacture products for
HP-SDD.
5.4 Dovatron shall properly monitor, identify and provide prompt notification
to HP-SDD of any significant or consequential component or process
quality problems. Each party will demonstrate due diligence to remedy
such problems as required to effect a full and complete corrective
action.
5.5 Dovatron shall to provide to HP-SDD production yield data, failure
analysis reports and defect yield data as specified in REFERENCE R.1.0,
QUALITY REPORTING.
5.6 Dovatron shall to follow the ICT and FCT plans and requirements as
outlined in REFERENCE R.2.0, CT AND FCT PLANS.
<PAGE> 3
5.7 The listed IPC documents as identified in EXHIBIT E.3.0, QUALITY
REFERENCE STANDARDS will be used in the acceptance or rejection of
assembly workmanship by both HP-SDD and Dovatron.
5.9 Dovatron shall to follow the requirements as specified in REFERENCE
R.2.0, RETURN MATERIAL AUTHORIZATION (RMA) for all returned PCA's.
5.10 Dovatron shall to follow the corrective action process as outlined in
REFERENCE R.4.0, CORRECTIVE ACTION PROCEDURE in resolving quality issues.
6.0 PRICING AND COST LEADERSHIP.
6.1 Dovatron and HP-SDD mutually agree to aggressively and proactively seek
to reduce the overall product cost and HP-SDD's price where appropriate.
Dovatron will reduce its cost through pro-active efforts to include:
process improvements, material cost reductions, improved quality and
reduce the overall supply chain. HP-SDD shall provide assistance and
information to aid Dovatron in the reduction of its costs, where
appropriate.
6.2 HP-SDD and Dovatron will meet once per quarter to review volume, assembly
and procurement pricing, materials management and other pertinent
business issues during the TQRDC reviews. The price review shall include
a costed Bill of Materials (BOM), any proposed material and or cost
changes and any process/test/yield improvements. The materials
management review will include: component lead-times, supplier
performance on quality and delivery, suggested Approved Vendor List
changes, and component material exposure.
6.3 The pricing structures are identified in EXHIBIT E.4.0, PRICING OF
ASSEMBLIES.
6.4 Purchase price variance (PPV) will be addressed as follows: All MIPO and
SIPO procured components and any specific and previously negotiated
component by HP-SDD for price adjustment ***
6.5 All other components with a price change from the current standard will
be reflected in the standard costed BOM at the end of the current
quarter ***
6.6 Both Companies agree to meet April 1st and October 1st to review
pricing. The reviewed pricing will be effective May 1st and November 1st
respectively.
- -------------------------
*** MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE
COMMISSION.
<PAGE> 4
7.0 PURCHASE ORDERS AND FORECAST
7.1 DMEX will receive its firm purchase orders for PCAs through HP-MIPO.
Reference ADDENDUM A.1.0 for details of purchase order management.
7.2 DMAL will receive its firm purchase orders for PCAs through HP-AHMO.
Reference ADDENDUM A.2.0 for details of purchase order management.
7.3 HP-SDD will provide Dovatron with a 12 month rolling forecast for
production builds every month.
7.4 HP-SDD may postpone or decrease any purchase order by written notice to
Dovatron at least five work days prior to the delivery date. HP-SDD may,
without charge, extend the delivery date by up to thirty days from the
original delivery date. For any reschedule beyond thirty days of the
original delivery date, HP-SDD will be responsible for a 1.5% per month
carrying charge on material acquired pursuant to the original delivery
date.
7.5 The preprinted standard purchase order terms and conditions of both
HP-MIPO and HP-AHMO are incorporated by reference, and shall govern
transactions between Dovatron and those HP sites, respectively.
8.0 DELIVERY
8.1 HP-SDD expects 100% on time delivery unless delivery commitments are
impacted by actions taken by HP-SDD, defined as receipt of product by
HP-SDD within a window of three days early and zero days late of the
mutually agreed upon committed delivery date.
8.2 Dovatron shall immediately notify HP-SDD of any prospective failure to
deliver the specified quantities on the specified delivery date. Should
only a portion of the products be available on the delivery date,
Dovatron may ship the partial amount only after receiving prior approval
from HP-MIPO or HP-AHMO.
8.3 Dovatron is responsible for any expedition fees that may result in
ensuring that a shipment meets the committed delivery date, if the
lateness is attributed to Dovatron. Likewise, if a delay in shipment is
prompted by HP-SDD, expedition fees will by paid by HP-SDD.
8.4 Delivery requirements for DMEX are detailed in ADDENDUM A.1.0
8.5 Delivery requirements for DMAL are detailed in ADDENDUM A.2.0
9.0 MATERIALS AND INVENTORY MANAGEMENT
<PAGE> 5
9.1 In order to insure fulfillment of HP-SDD schedule requirements, all
quantities of parts planned and ordered by Dovatron in support of the
Denali Project are to be used exclusively for Denali, unless otherwise
authorized by HP-SDD in writing.
9.2 Dovatron shall follow prudent purchasing practices in order to meet
HP-SDD's demand flexibility as outlined in the respective ADDENDUM A.1.0,
A.2.0 while minimizing total inventory exposure. Dovatron shall
implement a comprehensive purchasing system that ensures that HP-SDD's
purchase orders will be fulfilled. The purchasing system must utilize a
rolling forecast to the component suppliers and allow for accurate
percentage award allocations.
9.3 Dovatron shall buy all components according to HP-SDD's approved vendor
list ("AVL") and any sourcing plans.
9.4 Dovatron shall maintain a supplier database for all the purchased
components on the AVL. Dovatron is required monthly to supply to HP-SDD
a report highlighting any supplier that falls outside the required
lead-time and that affects the purchase order requirements and demand
flexibility requirements as outlined this Agreement and in the respective
ADDENDUM A.1.0, A.2.0.
9.5 Dovatron shall provide HP-SDD, once per quarter, a report statistically
showing the quality, delivery, lead-time and cost trends for the
component suppliers. This report will be broken down geographically and
consolidated for both manufacturing facilities as outlined in EXHIBIT
E.5.0, MATERIAL AND SUPPLIER MANAGEMENT PROCEDURE AND RESPONSIBILITIES.
9.6 As referenced in EXHIBIT 5.0 SECTION 5.0.2 Both Companies agreed on the
issuance by Dovatron of a monthly report on component inventory
exposure.
10.0 MATERIAL LIABILITY
10.1 In the event of an engineering change pursuant to Section 12.2 below, or
complete or partial termination/cancellation, (including a severe volume
drop, or discontinuance of an HP-MIPO or of an HP-AHMO purchase order),
HP-SDD shall be liable for Dovatron's actual termination inventory in
accordance with the following conditions:
a) HP-SDD SHALL PURCHASE DOVATRON'S on hand inventory and material ordered
within the reported cancellation window as defined in EXHIBIT E.5.0,
MATERIAL AND SUPPLIER MANAGEMENT PROCEDURE AND RESPONSIBILITIES, that is
required to support the scheduling, safety stock and flexibility
requirements described in the respective ADDENDA A.1.0 AND A.2.0.
HP-SDD will acknowledge the document found within Exhibit E5.4. within
five working days from the date submitted to HP-SDD.
b) Dovatron shall demonstrate best efforts to cancel its purchase order
commitments or return for credit or find other uses for the materials
intended for use in the HP-SDD product provided that HP-SDD shall be
liable for any cancellation charges and penalties.
<PAGE> 6
c) Dovatron will cancel all possible pending orders to component suppliers.
d) HP-SDD will purchase the liable inventory as follows:
1) For all raw material, *** as quoted and within agreed to
inventory amounts for all material on-hand in the stockroom, all
material on-order inside the suppliers stated cancellation lead time
as outlined in EXHIBIT E.5.0, MATERIAL AND SUPPLIER MANAGEMENT
PROCEDURE AND RESPONSIBILITIES., and for any supplier stated buffer
and safety stock that is non cancelable also outlined in EXHIBIT
E.5.0, MATERIAL AND SUPPLIER MANAGEMENT PROCEDURE AND
RESPONSIBILITIES.
2) For work-in-process, ***
3) For finished product, ***
11.0 PAYMENT TERMS
11.1 HP-SDD and Dovatron shall pay NET 30 days upon proof of shipment of
product from Dovatron. Reconciliation of discrepant receipts are
outlined in the respective ADDENDA A.1.0 AND A.2.0
11.2 Currency will be in U.S. dollars.
11.3 Dovatron shall pay all HP-SDD component suppliers based on the terms
and conditions outlined on Dovatron purchase orders.
12.0 WARRANTIES:
12.1 WARRANTY. DOVATRON warrants to HP-SDD that items assembled or
manufactured by DOVATRON will conform to mutually agreed upon
specifications and be free from defects in workmanship under normal use
and service for a period of one year after shipment by DOVATRON.
DOVATRON's responsibility shall be limited to procurement of materials,
incoming inspection, and safe handling of the components while in-house
at DOVATRON. HP-SDD is responsible for the selection of all materials,
as well as ensuring the quality of the vendors and the compatibility of
the components. HP-SDD is also responsible for designing a product which
does not unduly stress the components being used. DOVATRON's obligation
under this warranty is limited to replacing, repairing, or issuing credit
for any said items that after inspection are deemed defective by
DOVATRON. All
- -------------------------
*** MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE
COMMISSION.
<PAGE> 7
defective products shall be returned to DOVATRON manufacturing facility,
F.O.B. HP-SDD, with reference to a DOVATRON supplied Returned Materials
Authorization number ("RMA"). No products inspected by DOVATRON shall be
returned without the prior written consent of DOVATRON unless the cause
for the rejection or defect is mutually determined to be the
responsibility of DOVATRON. A shipping and handling charge will be
assessed for invalid returns or those where no defect is found.
THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES WHETHER STATUTORY,
EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR PARTICULAR PURPOSE AND FOR ALL OTHER OBLIGATIONS OR
LIABILITIES ON DOVATRON'S PART.
12.2 DOVATRON neither assumes nor authorizes any other person to assume for
DOVATRON any other liability in connection with the sale of the said
items. This warranty shall not apply to any of such products which shall
have been repaired or altered except by DOVATRON or which shall have been
subject to misuse, negligence, or accident. A prior written
authorization must be obtained from DOVATRON before any items can be
returned to DOVATRON pursuant to a warranty claim. DOVATRON is not
liable for incidental, consequential or special damage of any kind or for
personal injury resulting directly or indirectly from the design,
material, workmanship, operation or installation of the items being
assembled under this agreement.
12.3 PRODUCT RECALL. Dovatron shall reimburse HP-SDD for reasonable and
mutually agreed to recall costs incurred by HP-SDD for recall campaigns
[related to] that are the direct result of workmanship defects in the
Products [provided thereunder] manufactured by Dovatron hereunder in
order to remedy a breach of Dovatron's warranty provided in Section 11.1
hereof. In the event of any dispute between Dovatron and HP-SDD with
respect to such recall costs, the "Dispute Resolution Process" specified
in Section 15.4 hereof shall apply.
13.0 PROCESS OR ENGINEERING CHANGES
13.1 Dovatron shall not undertake any significant process changes affecting
performance, form, fit or function, or life reliability without the
prior written notice to and concurrence of HP-SDD.
13.2 HP-SDD may, effective upon notice to Dovatron, change HP-SDD's design,
specification or process requirements at any time. If any such change
directly affects the price, delivery or quality performance of product,
an equitable impact proposal shall be presented to HP-SDD for approval
prior to Dovatron initiating any change.
13.3 Dovatron shall follow the requirements as specified in REFERENCE R.5.0,
PCO PROCESS AND AVL CONTROL.
14.0 TECHNICAL, QUALITY, RESPONSIVENESS, DELIVERY, COST (TQRDC)
<PAGE> 8
REVIEW
14.1 Dovatron will be evaluated quarterly by means of HP-SDD's supplier
performance expectations as outlined in REFERENCE R.6.0, TQRDC REVIEW.
14.2 HP-SDD will collect feedback from both MIPO and AHMO to prepare a TQRDC
review with Dovatron. Where objectives are not met, both parties will
establish a mutually agreed upon corrective action plan.
14.3 HP-MIPO and HP-AHMO may elect to establish their own TQRDC schedule and
will be highlighted in the respective ADDENDUM A.1.0 AND A.2.0. If
referenced in an Addendum, the Addendum will take precedence over the
terms of this Agreement.
15.0 TERMINATION
15.1 All orders issued prior to the effective date of any termination shall
be fulfilled pursuant to the terms of this Agreement, even if the
delivery dates of the products of this Agreement under such orders are
after the effective date of the expiration or termination.
15.2 If Dovatron fails to perform this Agreement HP-SDD and Dovatron shall
immediately initiate a senior management meeting to resolve the related
issues, concerns, or deviance. If Dovatron is unable to remedy the
problem, a one month written notice of cure will be issued by HP-SDD to
serve as notice of the need for final resolution. HP-SDD reserves the
right to terminate this Agreement (in whole or part) by furnishing
Dovatron with six months written notice of termination. Dovatron
reserves the right to terminate this Agreement, (in whole or part), by
furnishing HP-SDD six months written notice of termination
15.3 Termination for any other reason by either party will require a senior
level management meeting between HP-SDD and Dovatron to discuss the
reasons relating to termination. This meeting will focus on reviewing
the reasons for termination and, in good faith, attempt to resolve the
issues through exploring other alternatives to negate the need to
terminate this Agreement. If a resolution cannot be obtained, HP-SDD will
use best efforts to provide Dovatron with a six month phase out plan. In
addition, all remaining inventory will follow the Material Liability
Process outlined on 9.0.
15.4 DISPUTE RESOLUTION PROCESS. It is the intent of the parties that any
dispute be resolved informally and promptly through good faith and
negotiations between HP-SDD and Dovatron. Either party may initiate the
proceedings by written notice to the other party setting forth the
particulars of the dispute. The parties shall meet in good faith to
jointly define the scope of the problem and a method to remedy the
dispute. If these meetings are not productive of a resolution, then the
mutually agreed to assigned representatives of HP-SDD and Dovatron will
meet and confer in a bona fide attempt to resolve the matter. If
<PAGE> 9
complete Agreement cannot be reached by the parties within 30 days of
initiation of this process either party may seek to have the dispute
redressed by litigation.
15.5 This Agreement shall be interpreted and governed by the laws of the State
of California. Dovatron and HP hereby consent to the jurisdiction and
venue of such courts.
16.0 PROPRIETY INFORMATION
16.1 HP-SDD owns all rights, titles, and interests with respect to the
intellectual property of the Product.
16.2 HP- SDD and Dovatron shall execute as part of this Agreement the E.6.0,
HP-SDD Standard Confidential Disclosure Agreement. The term "confidential
information" shall include:
a) HP-SDD furnished drawings, specifications, software, photographs and
other engineering or manufacturing information shall remain proprietary
property and when no longer required for the performance of the PCAs to
be manufactured, shall be returned to HP-SDD. This property shall only
be duplicated as authorized in writing by the disclosing party and shall
be returned to the disclosing party upon request.
b) All information or data concerning or relating to HP-SDD's products
(including the discovery, invention, research, improvement, development,
or sale of HP-SDD products) or business operations of either party
(including sales costs, profits, pricing methods, materials pricing,
organization, employee or customer lists and processes).
c) All procurement information including component contract pricing of
the disclosing party, including supplier names/AVL, HP-SDD part numbers,
production schedules, component and assembly lead-times, forecast data,
order quantities and other terms and conditions, including fully costed
(BOMs).
16.3 ALL HP CONFIDENTIAL INFORMATION SHALL BE USED ONLY IN THE PERFORMANCE OF
THIS AGREEMENT AND SHALL BE RETURNED TO HP UPON ANY EXPIRATION OR
TERMINATION OF THIS AGREEMENT.
170 EQUIPMENT AND INVENTORY
17.1 Dovatron shall be solely liable and responsible for any loss of or damage
to HP-SDD equipment, test fixtures or inventory in the care, custody and
control of Dovatron.
18.0 PRODUCT SUPPORT
18.1 Discontinuance leading to a lifetime buy requirement shall be used by
Dovatron as a last resort, and only under extreme circumstances where
Dovatron is unable to support an HP Product through the life of this
Agreement. In the exceptional case where Product will not be available
from Dovatron after the conclusion of this Agreement, Dovatron shall give
a
<PAGE> 10
minimum of one year's notice in advance of the last order date that
Dovatron will accept an order for the Product(s).
19.0 MISCELLANEOUS
19.1 SURVIVAL. The following terms and conditions of this Agreement shall
survive termination of this Agreement for any reason: Section 11
(Warranties), Section 14.2 (Dispute Resolution Process), and section 15
(Proprietary Information).
19.2 SEVERABILITY. In the event that any provision of this Agreement shall be
unenforceable or invalid under any applicable law or be so held by
applicable court decision, such unenforceability or invalidity shall not
render this Agreement unenforceable or invalid as a whole, and in such
event, such provision shall be changed and interpreted so as to best
accomplishes the objectives of such unenforceable or invalid provision
within the limits of applicable law or applicable court decisions.
19.3 RIGHTS AND REMEDIES CUMULATIVE. Except as expressly provided herein, the
rights and remedies provided in this Agreement shall be cumulative and
not exclusive of any other rights and remedies provided by law or
otherwise.
19.4 THIRD PARTIES. Nothing in this Agreement is intended, nor shall be
deemed to confer any rights or remedies upon any person or legal entity
not a party hereto.
19.5 ASSIGNMENT. The rights, duties and obligations under this Agreement
shall not be assignable by any party without the prior written consent of
the other parties, except as provided by this Agreement. Any attempted
assignment without the required consent will be void. Notwithstanding the
foregoing, all rights, duties and obligations under this Agreement may be
assigned to an affiliate of a party ("affiliate" is identified as a
company in which a party owns 50% or more of that company) without the
prior written consent of the other parties.
19.6 ENTIRE AGREEMENT, AMENDMENT. This Agreement, along with the exhibits,
addenda and references, attached hereto, embodies the final, complete and
exclusive understanding between the parties, and replaces and supersedes
all previous agreements, understandings or arrangements between the
parties with respect to the subject matter contained herein. No
modifications or waiver of any terms or conditions hereof nor any
representations or warranties shall be of any force or effect unless such
modification or waiver is in writing and signed by an authorized officer
of each party hereto.
19.7 FORCE MAJEURE. No party shall be liable to any other party for its
failure to perform any of its obligations under this Agreement, other
than the failure to pay any sums where due, during any period in which
such performance is delayed because rendered impracticable of impossible
due to circumstances beyond its reasonable control, provided that the
party e experiencing the delay promptly notifies the other parties of the
delay.
19.8 NOTICES. All notices, consents, agreements, communications, requests
and the like required
<PAGE> 11
or permitted under this Agreement will be writing and will be deemed
given and received (a) when delivered personally, (b) when sent by
confirmed telecopy, (C) three days after having been duly mailed by first
class, registered or certified mail, postage prepaid, or (d) two days
after deposit with a commercial overnight carrier, with written
verification of receipt. All notices will be addressed as follows:
If to Dovatron:
4076 Specialty Place
Longmont, CO 80504
Attention: Carl Plichta
Phone: (303) 772 2954
Fax: (303) 684 0909
If to HP-SDD:
16399 West Bernardo Drive
San Diego, California 92127-1899
Attention: Nancy Huelsmann
Phone: (619) 655 8651
Fax: (619) 675 7004
or to such other address as the person to whom notice is to be given may
have furnished to the other in writing in accordance herewith.
19.9 WAIVER. The failure of any party to enforce the provisions of this
Agreement shall not be deemed a waiver of such provisions or of the right
of such party thereafter to enforce such provisions.
19.10 COUNTERPARTS. This Agreement may be executed in counterparts with the
same force and effect as if each of the signatories had executed the same
instrument.
19.11 HP-SDD will defend, at is expense, any action brought against Dovatron to
the extent that such action is based on the claim that a PCA manufactured
by Dovatron in conformance with HP-SDD's specifications directly infringe
the intellectual property rights of any third party, provided that HP-SDD
is promptly notified in writing of the commencement of such action and is
given the authority, information and reasonable assistance ( at HP-SDD
expense) necessary to defend or settle such action. In addition, HP-SDD
shall pay all damages and costs finally awarded in such action.
19.12 ORDER OF PRECEDENCE. In the event of any conflict with or inconsistency
between any of the terms of this Agreement, any Addendum hereto or the
purchase order terms and conditions, the following order of precedence
shall apply: (1) this Agreement; (2) any Addendum; and (3) the purchase
order terms and conditions.
19.13 LIMITATION OF LIABILITY. In no event shall either party hereto be liable
for any incidental, consequential, indirect, or special damages,
including (without limitation) damages for lost
<PAGE> 12
profits, loss of revenue, cost of capital, claims or customers for
service interruptions. The total liability of Dovatron (including its
subcontractors and suppliers) for all claims, whether in contract, tort
(including negligence and product liability) or otherwise, arising out of
or connected with this Agreement shall not exceed the total amounts
received by Dovatron from HP-SDD with respect to any Products that give
rise to such claim or claims.
-------------------- ----------------------
Robert Mc Cline Carl Plichta
Global Procurement Senior Vice President
Hewlett-Packard, SDD Dovatron International
<PAGE> 13
EXHIBIT 1.0 PRODUCT DESCRIPTION
THE FOLLOWING ASSEMBLIES ARE COVERED BY THIS AGREEMENT:
MAIN DENALI PCA ASSEMBLY C3801-60104
MAIN KODIAK PCA ASSEMBLY C5316-60101
N.A. LIU TOP ASSEMBLY C3801-60028-1
N.A. LIU PCA ASSEMBLY C3801-6015
<PAGE> 14
EXHIBIT 2.0: QUALITY YIELD EXPECTATIONS
THE FOLLOWING ARE THE FINAL ASSEMBLY TARGET YIELDS AT SDD & HMO:
Q1 after MR less than or equal to 5000ppm
Q2 after MR less than or equal to 2000ppm
Q3 after MR less than or equal to 1500ppm
One year After MR less than or equal to 500ppm
<PAGE> 15
EXHIBIT 3.0 QUALITY REFERENCE
The following listed IPC documents will be used for reference in the acceptance
or rejection of assembly workmanship by both Dovatron and HP.
IPC-T-50 Terms and Definitions
IPC-CH-65 Guidelines for Cleaning Printed Boards and Assemblies
IPC-RB-276 Quality and Performance Specification for Rigid Printed Boards
IPC-A-600D Acceptability of Printed Board
IPC-QE-605 Printed Board Quality Evaluation Handbook
IPC-A-601A Acceptability of Electronic Assemblies
IPC-R-700G Guidelines for Modification, Rework, and Repair of Printed
Board and Assemblies
NOTE: These are nonattached references.
<PAGE> 16
Exhibit 4.0
***
*** EXHIBIT (1 PAGE) OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 17
Exhibit 5
***
*** EXHIBIT (23 PAGES) OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. THE OMITTED MATERIAL IS FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 18
EXHIBIT 6
CONFIDENTIAL DISCLOSURE AGREEMENT
- --------------------------------------------------------------------------------
Effective Date: January 31, 1997
In order to protect certain confidential information, Hewlett-Packard Company
and its corporate affiliates ("HP"), and the "Participant" identified below,
agree that:
1. DISCLOSING PARTY: The party disclosing confidential information
("Disclosure") is both parties (Note: Fill in "HP", "Participant", or "both
parties".)
2. PRIMARY REPRESENTATIVE: Each party's representative for coordinating
disclosure or receipt of confidential information is:
HP: HEWLETT-PACKARD SAN DIEGO DIVISION
-------------------------------------------------------------------------
PARTICIPANT: ERNESTO LOPEZ
-----------------------------------------------------------------
3. DESCRIPTION OF CONFIDENTIAL INFORMATION: The confidential information
disclosed under this Agreement is described as:
HP: ALL NECESSARY INFORMATION TO MANUFACTURE
--------------------------------------------------------------------------
PCAS FOR DENALI & KODIAK PRODUCTS.
- -----------------------------------------------------------------------------
PARTICIPANT: ALL PROCESS PROCEDURES TO ENSURE
-----------------------------------------------------------------
QUALITY AND DELIVERY. ALSO FINANCIAL INFORMATION.
- -----------------------------------------------------------------------------
(Note: Be specific; for example, individually list materials provided.
Attached additional sheets if needed.)
4. USE OF CONFIDENTIAL INFORMATION: The party receiving confidential
information ("Recipient") shall make use of the confidential information only
for the following purpose (e.g., "evaluation and testing for a make/buy
decision on project xyz"):
HP: TRACK PERFORMANCE OF DOVATRON INTERNATIONAL
--------------------------------------------------------------------------
PARTICIPANT: MANUFACTURE PCAS FOR HP-SDD
-----------------------------------------------------------------
5. CONFIDENTIALITY PERIOD: This Agreement and Recipient's duty to hold
confidential information in confidence expire on:
DECEMBER 31, 1999
- -----------------------------------------------------------------------------
(Note: This is the period of protection of confidential information.)
6. DISCLOSURE PERIOD: This Agreement pertains to confidential information
that is disclosed between the Effective Date and
DECEMBER 31, 1999
- -----------------------------------------------------------------------------
(Note: This is the period during which confidential information is going to be
disclosed.)
7. STANDARD OF CARE: Recipient shall protect the disclosed confidential
information by using the same degree of care, but no less than a reasonable
degree of care, to prevent the unauthorized use, dissemination, or publication
of the confidential information as Recipient uses to protect its own
confidential information of a like nature.
8. MARKETING: Recipient's obligations shall only extend to confidential
information that is described in paragraph 3, and that: (a) comprises specific
materials individually listed in paragraph 3; or, (b) is marked as confidential
at the time of disclosure, or, (c) is unmarked (e.g. orally disclosed) but
treated as confidential at the time of disclosure, and is designated as
confidential in a written memorandum sent to Recipient's primary representative
within thirty days of disclosure summarizing the confidential information
sufficiently for identification.
9. EXCLUSIONS: This Agreement imposes no obligation upon Recipient with
respect to information that: (a) was in Recipient's possession before receipt
from Disclosure; (b) is or becomes a matter of public knowledge through no
fault of Recipient; (c) is rightfully received by Recipient from a third party
without a duty of confidentiality; (d) is disclosed by Discloser to a third
party without a duty of confidentiality on the third party; (e) is
independently developed by Recipient; (f) is disclosed under operation of law;
or (g) is disclosed by Recipient with Discloser's prior written approval.
10. WARRANTY: each Disclose warrants that it has the right to make the
disclosures under this Agreement. NO OTHER WARRANTIES ARE MADE BY EITHER PARTY
UNDER THIS AGREEMENT. ANY INFORMATION EXCHANGED UNDER THIS AGREEMENT IS
PROVIDED "AS IS".
11. RIGHTS: Neither party acquires any intellectual property rights under this
Agreement except the limited rights necessary to carry out the purposes set
forth in paragraph 4. This Agreement shall not restrict reassignment of
Recipient's employees.
MISCELLANEOUS
12. This Agreement imposes no obligation on either party to purchase, sell,
license, transfer or otherwise dispose of any technology, services or products.
13. Both parties shall adhere to all applicable laws, regulations and rules
relating to the export of technical data, and shall not export or reexport any
technical data, any products received from Discloser, or the direct product of
such technical data to any proscribed country listed in such applicable laws,
regulations and rules unless properly authorized.
14. This Agreement does not create any agency or partnership relationship.
15. All additions or modifications to this Agreement must be made in writing
and must be signed by both parties.
16. This Agreement is made under, and shall be construed according to, the laws
of the State of California, U.S.A.
HEWLETT-PACKARD COMPANY
San Diego Division
- -----------------------------------------------------------------------------
(Entity Name)
16399 W. Bernardo Drive
- -----------------------------------------------------------------------------
San Diego , CA 92127
- -----------------------------------------------------------------------------
(Address)
BY
--------------------------------------------------------------------------
(Functional Manager's Signature)
Mike Fawkes
- -----------------------------------------------------------------------------
Manufacturing Manager
- -----------------------------------------------------------------------------
(Title)
PARTICIPANT
Dovatron International
- -----------------------------------------------------------------------------
(Company Name)
4076 Specialty Place
- -----------------------------------------------------------------------------
Longmont, CO 80504
- -----------------------------------------------------------------------------
(Address)
BY
--------------------------------------------------------------------------
(Authorized Signature)
Carl Plichta
- -----------------------------------------------------------------------------
VP HP WW Programs
- -----------------------------------------------------------------------------
(Title)
<PAGE> 19
ADDENDA
A.1.0 Not yet executed
A.2.0 Not yet executed
<PAGE> 20
REFERENCE 1.0
CM: DOVATRON MEXICO
PRODUCT: NORTH AMERICAN LIU
WORKWEEK: 18
WEEK ENDING: MAY 2, 1997
1) LINE YIELD LOSS SUMMARY
<TABLE>
<CAPTION>
====================================================================================================
Station Description Prev. Mth WW14 WW15 WW16 WW17 WW18 Cur. Mth
- ----------------------------------------------------------------------------------------------------
Station Description Prev. Mth WW14 WW15 WW16 WW17 WW18 Cur. Mth
====================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total PCA Inspected
---------------------------------------------------------------------------------
AUTOMATIC Total Defective PCA
---------------------------------------------------------------------------------
Insert/production Yield Loss In PPM 0 0 0 0 0 0 0
---------------------------------------------------------------------------------
100% inspect Target In PPM 50ppm 50ppm 50ppm 50ppm 50ppm 50ppm 50ppm
====================================================================================================
Total PCA Inspected 0 0 0 0 0 0 0
---------------------------------------------------------------------------------
Total Defective PCA 0 0 0 0 0 0 0
---------------------------------------------------------------------------------
Yield Loss In PPM 0 0 0 0 0 0 0
---------------------------------------------------------------------------------
Target In PPM
====================================================================================================
Total PCA Inspected
---------------------------------------------------------------------------------
POST WAVE Total Defective PCA
---------------------------------------------------------------------------------
Production 100% Yield Loss In PPM 0 0 0 0 0 0 0
---------------------------------------------------------------------------------
Inspection Target In PPM 500ppm 500ppm 500ppm 500ppm 500ppm 500ppm 500ppm
====================================================================================================
Total Tested
---------------------------------------------------------------------------------
Total Defects
---------------------------------------------------------------------------------
ICT Yield Loss % 0 0 0 0 0 0 0
---------------------------------------------------------------------------------
Target In % 2% 2% 2% 2% 2% 2% 2%
---------------------------------------------------------------------------------
Total Repaired
---------------------------------------------------------------------------------
WIP For Repair
====================================================================================================
ICT Breakdown Material
Process
Workmanship
NIF
Others
====================================================================================================
Total Tested
---------------------------------------------------------------------------------
Total Defects
---------------------------------------------------------------------------------
FCT Yield Loss % 0 0 0 0 0 0 0
---------------------------------------------------------------------------------
Target In % 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
---------------------------------------------------------------------------------
Total Repaired
---------------------------------------------------------------------------------
WIP For Repair
====================================================================================================
ICT Breakdown Material
Process
Workmanship
NIF
Others
====================================================================================================
Total Inspected
---------------------------------------------------------------------------------
OBA Total Defects
---------------------------------------------------------------------------------
Yield Loss In % 0 0 0 0 0 0 0
---------------------------------------------------------------------------------
Target In % 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
====================================================================================================
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
===========================================================================================
WORK WEEK: 18
DEFECT BREAKDOWN WEEK ENDING: 05/02/97 PRODUCTS: NORTH AMERICAN LIU
- -------------------------------------------------------------------------------------------
STATION CLASS QUANTITY BOARDS DEFECT BREAKDOWN QUANTITY DEFECTS LOCATIONS
- -------------------------------------------------------------------------------------------
STATION CLASS QUANTITY BOARDS DEFECT BREAKDOWN QUANTITY DEFECTS LOCATIONS
===========================================================================================
<S> <C> <C> <C> <C> <C>
Automatic
Insertion
Top side
===========================================================================================
POST IR BOT
===========================================================================================
POST WAVE
===========================================================================================
</TABLE>
<PAGE> 22
<TABLE>
===========================================================================================
WORK WEEK: 18
DEFECT BREAKDOWN WEEK ENDING: 05/02/97 PRODUCTS: NORTH AMERICAN LIU
- -------------------------------------------------------------------------------------------
STATION CLASS QUANTITY BOARDS DEFECT BREAKDOWN QUANTITY DEFECTS LOCATIONS
- -------------------------------------------------------------------------------------------
STATION CLASS QUANTITY BOARDS DEFECT BREAKDOWN QUANTITY DEFECTS LOCATIONS
===========================================================================================
<S> <C> <C> <C> <C> <C> <C>
ICT
===========================================================================================
FCT
===========================================================================================
OBA
===========================================================================================
</TABLE>
<PAGE> 23
REF. 2.0 - ICT AND FCT PLANS
DEVELOPMENT AND IMPLEMENTATION OF AN INTEGRATED GLOBAL TEST STRATEGY
WITH CONTRACT MANUFACTURERS
BY
JOHN SEDEJ
MIKE MCDANIEL
ABSTRACT
The San Diego Division has targeted the Home Office/Small Office market
with its multi-function product line. The highly successful OfficeJet, which
is running at 60,000 units per month is being replaced with the Denali
platform. Currently, SDD is developing manufacturing plans to produce upwards
of 500,000 units per month within the next three to five years. Implementing a
global test strategy with world-wide contract manufacturers has become crucial
to ensure HP quality levels are maintained.
The high growth projections and cost pressures of the Denali project
requires San Diego Division to utilize contract manufacturers for the assembly
of the Division's products. SDD is using multiple contract manufacturers for
the manufacture of printed circuit boards and electro-mechanical assemblies.
Concurrently, the San Diego Division is faced with meeting the challenges of
shorter product development cycles, aggressive ramp schedules and multiple
product launches. With HP's quality level being highly influenced by its
suppliers, SDD must still maintain global control, while keeping its resources
at minimum.
In order to meet the challenge of implementing a global test strategy, San
Diego Division has elected to partner with TTI Testron, a test development
contract manufacturer. The objective of this partnership is to develop a
global test strategy that ensures a comprehensive test system is implemented
across its contract manufacturing base, thus eliminating the need to maintain a
traditional internal test engineering and development infrastructure.
This paper explores the challenges of establishing and implementing a
global test strategy with an external partner. It also outlines the project
management challenges of coordinating the multiple interfaces. The ultimate
success is determined by maximizing and leveraging off the multiple cross
expertise's and the timing of the coordination
INTRODUCTION
During the development and launch of the Denali program, San Diego's
resources in test development were very limited. Due to the critical
development path, additional engineering resources were to be focused on
product development and not test development. Yet, without early planning and
focus on test development, significant opportunities would be missed and the
ability to achieve maximum test coverage would be jeopardized. Further
complicating the situation was SDD's manufacturing strategy to completely
outsource its printed circuit assembly requirements across multiple contract
manufacturers. TTI Testron was chosen to support the San Diego Division in
developing and implementing its global test strategy due to its global presence
and engineering test capabilities. It was recognized that in order for the
test strategy to be successful, a strong partnership would have to be
developed. This paper explores some of the major challenges faced by
establishing and implementing this partnership.
The following major challenges are addressed:
1. Establishing the overall global test strategy and objectives.
2. Defining the roles and responsibilities of both the internal support
personnel and contract manufacturer.
3. Defining and getting agreement on the deliverables for each phase of the
development cycle.
4. Coordinating and managing test development during the product development
phases.
5. Developing new and/or modifying existing procedures to handle changes and
modifications after MR.
<PAGE> 24
CHALLENGE ONE: ESTABLISHING THE OVERALL GLOBAL TEST STRATEGY AND OBJECTIVES
Clearly defining the test strategy at the start of the project is
absolutely critical to ensuring a successful implementation. The test strategy
and timing of the plan must be correlated to the product development cycle.
But the effort is highly weighted towards the front end of the project, where
the most positive impact can be made. Also, by driving the test requirements
from the top down ensures that the same information structure and system is
established throughout the various contract manufacturers. The most
significant windows of opportunities lie at the start of the design and waiting
too long for incorporating the test plans, precludes one from incorporating
them.
In addition to establishing the tactical objectives and focusing on the
test coverage, it is important to define the strategic test objectives.
Identifying the strategic objectives determines the full scope of resources
required. A well defined strategy, also anchors the project effectively,
enabling one to compare against the core objectives to ensure that the project
is effectively on track.
The San Diego Division established the following test objectives:
1. Maximize test coverage at the ICT level.
2. Minimize test cycle times.
3. Establish identical test systems for the same printed circuit
assemblies across the contract manufacturing base.
4. Maintain global control over test systems, both test fixtures
and test programs.
5. Coordinate test platform changes to maintain identical systems.
6. Establish a flexible development plan that enhances product
development and not hinders it.
By establishing these strategic objectives, SDD essentially determined the
scope of resources that would be required. Test support would be needed
immediately at the start of the program and would also be required globally to
ensure full implementation of the strategy. Since SDD's test resources were
limited, the only remaining choice was to outsource the test development.
Developing the internal infrastructure was immediately ruled out because of the
limitation placed on test resources. The short development cycle precluded the
possibility of creating an internal infrastructure in time to support the
program.
There was another immediate benefit to pre establishing the strategic
objectives. The objectives stated by themselves have merit. They set the
stage and focus for selling the strategy and getting buy-in from all affected
parties. One could always reference these objectives and then build consensus
by adjusting for minor differences without significantly deviating from the
core. Without pre-establishing clear objectives, endangers one from diverging
and getting lost in a tangent path. Successful implementation of the plan
requires close cooperation and coordination between numerous organizations
within the San Diego Division, AMMO, TTI Testron and the contract
manufacturers. The objectives always enables a starting point of reference and
serves as the foundation for any discussion. Each project will have its unique
set of objectives and the San Diego Division attempted to establish its
objectives to encompass all affected parties interests. Maintaining this
consensus is an on-going task.
CHALLENGE TWO: DEFINING THE ROLES AND RESPONSIBILITIES OF BOTH THE INTERNAL
SUPPORT PERSONNEL AND CONTRACT MANUFACTURER.
A crucial step in establishing the partnership is defining the
responsibilities of the individual and team. Without having a clear
understanding of each others area of responsibility, it is impossible to have a
successful project. This is especially true when working with an outside
partner. Unless the supplier has worked extensively with the division, he
cannot be expected to understand all the various changes and personalities that
make up an organization.
<PAGE> 25
Therefore, it is imperative that one defines for both parties the roles and set
the expectations. This step is also crucial in identifying any voids that one
may have in the plan.
The detail and definition of the responsibility of the supplier becomes
more crucial with the larger scope of work being outsource. As the suppliers
role becomes more involved, then the importance of clearly defining his role
becomes more critical. This is true because as the role of the supplier
becomes more of a partner, the level of interactions becomes more
sophisticated. His expectations and demands must be viewed as an equal with
the division as they relate to supporting the objectives of the project.
Without a clear definition of the roles, then there is a tendency to slide back
into the standard supplier/customer mode and communication tends to be
unidirectional A successful project requires true bi-directional communication.
Time must be taken at the start of the project to map out and create a
responsibility matrix to eliminate any potential misunderstandings.
During the beginning of the project SDD and TTI established a rough draft
of the roles and responsibilities with each other. This also allowed both
companies to create a set of common objectives. It is also critical that you
periodically review the responsibility matrix to ensure that everyone's
expectations remain the same as the project itself evolves. Organizations are
changing and as new people are added to the program expectations can change.
It is absolutely critical that the team members re-calibrate themselves,
especially for the supplier. The supplier is working without the benefit of
being within the HP organization and he tends to receive his information in
step wise fashion. The changes that take place always appear more severe to
him. So it is imperative that one road maps out the various program changes
and establishes the expectations of the team members for the various program
stages. One of the major objectives of outsourcing the test development is to
accomplish more with less and to leverage off and use each other's expertise.
Without clearly defining the roles, there is a tendency for redundant activity
to take place, thereby eliminating one of the advantages of outsourcing.
CHALLENGE THREE: DEFINING AND GETTING AGREEMENT ON THE DELIVERABLES FOR EACH
PHASE OF THE DEVELOPMENT CYCLE.
Defining the deliverables for each of the project development phases is
absolutely critical. The project and test development is undergoing a constant
evolution with each new phase potentially requiring changes and/or
modifications. Without clear tactical deliverables defined for each
development phase and their associative test coverage expectations established,
there will be a constant misunderstanding between the parties. This will only
lead to a deterioration in the relationship and potentially yield an
unsatisfactory result. By establishing the test expectations for each phase,
clearly sets the base line and metrics for tracking the performance of the
plan. The success of the test plan and coverage requires strong cross
communication between the test development supplier and HP. Clear defined
deliverables, objectively sets the requirements amongst the team members and
allows for a more productive interface. It also serves as an objective measure
of the success of the strategy at the various stages of the project.
SDD established a set of test coverage deliverables with TTI prior to
critical phases of the project. It was evident that a formal definition of
the deliverables is required up front and that they need be reviewed
periodically. As the project evolved, the deliverables had to be adjusted to
accommodate the changes that were encountered. But without a formal
pre-established deliverable list, one could never be assured whether previously
established commitments were being met. One of the biggest generators of
tension and frustration between a partnership is the feeling that commitments
are not be met. The list serves as the objective means of measuring the
success of the commitments.
Another critical use of the deliverable list is to verify and track the
effectiveness of the test program and fixtures. As one passes through each
phase of the program development and produces a certain number of units, one
can monitor the quality levels and then review the robustness of the test
program. And then intelligently make the necessary modifications to the test
platform and program to obtain the desired quality levels.
CHALLENGE FOUR: COORDINATING AND MANAGING TEST DEVELOPMENT DURING THE PRODUCT
DEVELOPMENT PHASES.
<PAGE> 26
The success of the global test strategy and implementation is highly
dependent on the effectiveness of the management of the project. This is
especially true when using an outside supplier for both the test development
and manufacturing, which tends to complicate the communication channels.
Perhaps the most important first step in managing the project is to ensure that
you have buy-in from all the affected parties and that everyone agrees on the
project objectives. Without adequate understanding and agreement from the
affected parties, one only complicates the management and jeopardizes the
success of the plan. Extensive time and effort is required establishing and
obtaining a joint agreement. But there are other benefits from making the
effort. By getting everyone to understand and agree on the objectives, creates
a certain momentum between the team members that could not be duplicated in any
forced manner. Care must be taken to analyze and review upfront who all the
affected parties could be and immediately start building consensus. The San
Diego division sought out the support of the contract manufacturers which are
the recipients of the test platforms, HN10, SDD's Asian top level manufacturing
site, and the following organizations within SDD: R and D, Manufacturing
Engineering and Procurement. This process took numerous personal meetings and
conferences over a period of a year.
Successful project management requires the balancing of several variables.
One must ensure and maintain strong technical exchange between the R and D
team and the test development supplier. This requires direct and personal
contact between the cross team members. Anything that can be done to
facilitate this is an added benefit In order to meet the tight development
schedules, the test development supplier must be aware of the latest
information as early as possible so they can incorporate the changes. In
addition, someone must ensure that the overall test strategy and required
deliverables are on track and will support the overall project objectives.
Constant feedback and cross communication is required to ensure that everyone
is working with the latest information and that the best recommendations are
being incorporated. With all the required cross communications taken place, it
is critical to hold periodic check point and review meetings to ensure that
everyone is at the same level of understanding. One needs to accelerate and
facilitate the communication flow so that opportunities are not lost, but
without careful management it is also easy to create confusion and
misunderstandings. Holding periodic reviews and issuing detailed status
reports helps prevent problems.
The San Diego Division set up weekly reviews and meetings with TTI Testron
and R and D to review and develop the test platforms. These meetings were then
expanded to include Manufacturing Engineering. Although one does not want to
spend too much time generating status reports, it was apparent that without
regular meetings and status reports, confusion and misunderstandings quickly
generated. Procurement worked with R and D to ensure that the overall project
was tracking to the development and implementation schedule and ensured that
the contract manufacturer was included in the i communication loop. It is
extremely important that the contract manufacturer's input is included, since
you must have assurances that the robustness of the design supports the
manufacturing plans and environment. The main objective is to end up with a
platform that provides maximum coverage possible at the lowest possible cycle
count. Each player brings a certain perspective and need. By coordinating
effectively all the various players, ensures that all the perspectives are
incorporated within a reasonable balance.
CHALLENGE FIVE: DEVELOPING NEW AND/OR MODIFYING EXISTING PROCEDURES TO SUPPORT
OUTSOURCING THE TEST DEVELOPMENT.
Current procedures and support systems are structured towards test
development organizations and systems that utilize internal development teams.
One must review these systems and procedures to see how they can be adapted or
modified to support the new model of outsourcing the test development. This
becomes extremely important when one looks beyond the MR date. New questions
arise and must be answered such as how to efficiently incorporate changes after
production is launched and how to maintain and support the systems once they
have been implemented.
The San Diego Division has adopted a modified model where the ongoing
program and fixture modifications will be handled by TII Testron under the
joint review and approval of SDI) and HMO. But this will be done in a
coordinated fashion in order not to jeopardize one of the original goals of
ensuring identical test systems and coverage. The idea is that no modification
can be accomplished without the approval and knowledge of all affected parties
and the change must be incorporated universally. This ensures identical
coverage and the ability to correlate the data on a global basis. The "learned"
performance of the process is documented and distributed to all the contract
manufacturers, and not just those privy to the event. But this also highlights
the need to establish a strong partnership with your outside
<PAGE> 27
test development supplier since his services will be required on an on-going
basis. Care must be taken when choosing the start-up supplier and on-going
monitoring of their available resources and capabilities must be maintained.
This emphasizes one of the misnomers of outsourcing that most organizations
tend to overlook. Outsourcing alone does not eliminate all the issues
associated with the task and certain requirements and issues will always
remain. Strong on-going project management will be required and the level of
sophistication of the people managing the project increases with the complexity
of the task being outsourced. Care must also be taken with the internal
resources as they rotate to other projects to ensure that the same level of
interfacing with the supplier is maintained. It does not take long for the
communication system to break down quickly, since it tends to be highly people
dependent.
In order to maintain the on-going objective of identical test systems and
to ensure the same high level of coverage, requires centralized coordination
from the engineering division. This does not imply absolute control and, in
fact, is not recommended, but some type of centralized control is required. The
complexity of the project and manufacturing strategy will determine the level
of coordination required from the engineering division.
SUMMARY
The San Diego Division chose to outsource its test development with TTI
Testron primarily due to resource constraints and the need to provide global
consistency with its test platforms and coverage. The benefits to date have
been the ability of the division to develop a more comprehensive test platform
that has kept up with its shortened project development cycle. The San Diego
Division has been able to support the development ; and launch of four
different test platforms with four different contract manufacturers in five
different countries without adding test resources. In addition, the test
program development and coverage has been controlled by the R and D team with
the tactical development and implementation being handled by TTI Testron. The
San Diego Division has been able to leverage off the test manufacturing
experience of TTI Testron while focusing on its core strength. The San Diego
and HMO division continues to focus on the project management of the test
strategy, while TTI Testron focuses on the mechanics of developing and
implementing the test platforms. TTI Testron was also tasked with managing and
coordinating the test fixture development and buy-offs with the contract
manufacturers of the printed circuit assemblies. This model allowed for each
partner to focus on their core strengths and enabled a more comprehensive test
system to be created than if being implemented and controlled by SDD alone.
With an effective project management system to support the team members, a
synergistic advantage can be successfully achieved.
The final objective of this test strategy is to enable the San Diego
Division to monitor and accurately correlate the quality data on a global
basis. The plan also ensures that the systems to monitor the printed circuit
assemblies are the same. This consistency adds to the confidence level,
enabling for more effective decisions and allowing for changes to be made
quickly on a global basis. The test platforms utilized serve as the last
quality and check barrier and must be implemented to protect HP's interest. By
utilizing TTI Testron, the San Diego Division has been able to maintain global
control over the test platforms without having to create a large test
infrastructure in order to meet its objectives.
SPECIAL THANKS AND APPRECIATION
A special thanks and appreciation to Henry Munoz and Johnson Ng of TTI
Testron for their personal dedication, commitment and vision to ensuring that
the objectives of the San Diego Division were met.
<PAGE> 28
REFERENCES 3.0 AND 4.0
DOCUMENT: HP RMA PROCEDURE
PART NUMBER: PMOR0009
REV: B
PAGE 1 OF 5
================================================================================
PROCEDURE NAME
- --------------------------------------------------------------------------------
RMM process for HP SDD returns
================================================================================
================================================================================
APPLICATION
- --------------------------------------------------------------------------------
All products manufactured to HP's SDD
================================================================================
<TABLE>
<CAPTION>
================================================================================
VERIFIED APPROVED IMPLEMENT
REV DATE CONTENT BY BY BY PAGES COMMENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A 2/14/97 Initial Release A. Robles B. Hehir A. Robles 5
- --------------------------------------------------------------------------------
B 4/23/97 Updated A. Morales A. Morales 5
================================================================================
</TABLE>
================================================================================
REVISION FREQUENCY: WHERE ANY CHANGE OR MODIFICATION RELEASE
- --------------------------------------------------------------------------------
Next scheduled revision: None
================================================================================
<PAGE> 29
DOCUMENT: HP RMA PROCEDURE
PART NUMBER: PMOR0009
REV: B
PAGE 2 OF 5
0.0 INDEX
<TABLE>
<CAPTION>
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CONTENTS PAGE
----------------------------------------
<S> <C>
Objective 2
----------------------------------------
Input/Output Diagram 2
----------------------------------------
Flow Diagram 3
----------------------------------------
Procedure Description 4
----------------------------------------
References 5
========================================
</TABLE>
1.0 OBJECTIVE
The Objective of this document is to establish the procedure for the Ass'y
returns generated at Hewlett Packard's San Diego Division assembly line.
2.0 INPUT/OUTPUT DIAGRAM
<TABLE>
<CAPTION>
SUPPLIER INPUT PROCESS OUTPUT CUSTOMER
- -------- ----------------- ----------------- -------------- --------
<S> <C> <C> <C> <C>
-----------------
HP Line return RMA # DMEX Internal RMA Repaired Ass'y HP
request approved process to HP
returns
-----------------
</TABLE>
<PAGE> 30
DOCUMENT: HP RMA PROCEDURE
PART NUMBER: PMOR0009
REV: B
PAGE 3 OF 5
3.0 FLOW DIAGRAM
[FLOW CHART]
<PAGE> 31
4.0 PROCEDURE DESCRIPTION
4.1 HP REQUEST & RECEIVE RMA # SAME DAY.
As soon as the SDD line has detected any problem found in the assemblies
produced by DMEX, the SDD responsible person must contact DMEX Program
Manager to request a RMA number. An RMA # will be supplied back to IAP
person by this Program Mgr. A database identified as HP-RMADB.xIs will be
keep updated with all RMA's requested from SDD with the appropriate
information including all generated corrective actions and solutions.
4.2 ISSUE FORMAT PMFT0005.
DMEX program manager will log all details on RMA in the format PMFT0005
and get all authorization signatures requested.
4.3 HP SEND BACK TO DMEX THE NON CONFORMING ASS'YS.
HP SDD then. will send the Non Conforming ASS Ys back to DMEX. As soon as
the material is received there is a period of three (3) calendar days to
these ASS'Ys must be repaired and send it back to SDD. These ASSY's must
be tagged and sent back with a description of line failures found by
Serial Number. A report of the failures found on rejected boards must be
attached with the HP shipment.
4.4 ASS'YS SEND TO THE FLOOR
Once the material is received, must be processed according to the internal
rework process factory plan, based on the HP's Non Conforming Process (
For ASS'Ys returned to the CM ) procedure, This PIP procedure is pan of
this document and is located on page 6 of this Document.
4.5 CREDIT MEMO
DMEX will generate an credit memo to HP for the same amount of ASS'Ys
described on the RMA document PMFT0005.
4.6 MATERIAL THAT HAS BEEN RETURNED BEFORE
Once the rejected ASS'Ys start to be processed internally at DMEX, the
first step is to verify how many 'R' the PCBA has stamped. Here are two
possibilities;
1. If the PCBA has two 'R', the board must to be diagnosed and
generate a report of failures found, however. the final disposition
will be 'Scrap'. It is not allowed by I IP to rework any PCBA by
third time.
2. If the PCBA has one 'R', the assembly must be processed
according to the internal rework process factory plan based on the
Non Conforming Process ( For PCA's returned to the CM, Rev 1A ).
4.7 ASS'Y REWORK
If the Ass'y has no 'R's or only one 'R', this board must be processed in
accordance to the Non conforming Process (For Ass'y returned to the CM
Rev 1A).
4.8 DATA COMPILATION AND RESORTS
Once the Ass'y has been repaired all data collected from diagnostics and
repairs will be keep in-a electronic data base named HP_LRDB.XLS. This
DataBase will be updated any lime with the data collected from the line
returns received from SDD. Also this information will serve as support to
create all the troubles found and Corrective actions reports. Also to
track the status of these corrective actions.
4.9 REPORTS DISTRIBUTION
A problems found and no trouble found report together with Corrective
actions report will be issued and] distributed to the following persons:
o RMA # requester at SDD
o Dovatron s HP world wide Program Manager
o MIPO representative
<PAGE> 32
o DMSC Program Manager
o DMEX Program Manager
4.10 SEND REPAIRED ASS'YS
Repaired ASS y will be sent back to SDD as regular production
4.11 END OF THE PROCEDURE.
5.0 REFERENCES
o Non Conforming Process (For PCAs returned to the CM) Rev 1A.
o DMEX RMA format # PFT0005
<PAGE> 33
REFERENCE 5.0 PCO PROCESS AND AVL CONTROL
<TABLE>
<CAPTION>
================================================================================
REV RELEASED REVISION CHANGES EFFECTIVITY
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 January 1 Initial Release. January 6, 1997
2 JANUARY 24 CLARIFICATION CHANGES. JANUARY 24
================================================================================
</TABLE>
APPROVED BY: /s/ G. EDGMON G. EDGMON DATE: JAN. 2, 1997
PROGRAM MANAGER
DISTRIBUTION: Julio Acevedo (MIPO) Alvaro Aguilar (DMEX)
Jesus Bernal (DMEX) Sergio Guevara (DMEX)
Pat Hehir (DMEX) Ernesto Lopez (MIPO)
Mike McDaniel (SDD) Henry Munoz (TTI)
Carl Plichta (DOV HQ) Arturo Robles (DMEX)
Bernardo Romero (DMEX) Luis Valtierra (MIPO)
BC Seow (DMAL) Simon Choo (DMAL)
Lily Aw (Singapore) Greg Edgmon (DOV HQ)
1.0 PURPOSE:
The purpose of this procedure is to establish a method of communicating
and tracking Customer Engineering Changes.
2.0 SCOPE:
This procedure applies to the all Dovatron facilities involved in the
Denali program. This procedure applies to both process and materials
changes.
3.0 REFERENCE DOCUMENTS:
<PAGE> 34
PCO (Process Change Order) Form
4.0 DEFINITIONS:
DMEX: Dovatron Mexico Facility.
DMAL: Dovatron Malaysia Facility.
DOV HQ: Dovatron Worldwide Corporate Headquarters.
Customer: HP SDD.
Customer IPO: MIPO/SIPO
PCO: HP supplied Process Change Order.
<PAGE> 35
5.0 ENGINEERING CHANGE ORDER PROCEDURE:
5.1 A PCO is transmitted to the Denali Worldwide Program Manager.
5.2 The customer sends the following PCO information:
[ ] DATA: Part Number Affected and Change Details.
[ ] DIVISION: Site Affected.
[ ] DATES: Implementation Date.
[ ] DIRECTION: Assembly, Component and WIP Disposition.
5.2.1 The DATA portion of the PCO must include:
[ ] Part Number Affected.
[ ] Revision Level.
[ ] Tooling and Process Change Information.
[ ] Details of Change.
[ ] Customer Part Number , QTY Per and Description.
[ ] Reference Designator(s).
[ ] AVL Information and Supplier Selection.
[ ] MPN Details and Evaluation Status.
[ ] Gerber Data and Drawings.
5.2.2 The DIVISION portion of the PCO must include:
[ ] Site Affected.
[ ] Specific Implementation Details.
[ ] Qualification and Testing Requirements.
[ ] Details of Support Services Provided by Customer (If Applicable).
5.2.3 The DATE portion of the PCO must include:
[ ] Phase in or Cut in Logistics Specified.
[ ] Date Required.
[ ] Qualification Timeline.
[ ] Certification Requirements Schedule.
5.2.4 The DIRECTION portion of the PCO must include:
[ ] Disposition Needs:
o Assemblies.
o Components.
o Work In Process.
o Equipment.
<PAGE> 36
[ ] Logistics Needs:
o Open Order Directive.
o PPV Approval.
o Scrap Authorization.
5.3 The PCO form is assigned a tracking number and logged in the PCO log.
5.4 The PCO form is transmitted to the site for implementation analysis.
5.5 The site reviews the changes identified on the PCO form and submits the
following deliverables to the Denali Worldwide Program Manager:
[ ] Material Availability.
[ ] Tooling, Process and Pricing Information.
[ ] Performance Data for Supplier Allocation Recommendation.
[ ] Equipment Availability.
[ ] Estimated Lead Time and Delivery Schedule.
[ ] Disposition Details:
o Assemblies.
o Components.
o Work In Process.
o Equipment.
[ ] Procurement Logistics Details:
o Continuous Order Execution Status.
o PPV Analysis.
o Scrap Analysis.
5.6 The Denali Worldwide Program Manager merges the Site deliverables into a
global format and communicates it to the customer for final ECO
implementation authorization and approval.
5.7 The Denali Worldwide Program Manager identifies and provides the
customer with the following deliverables:
[ ] Global Coordination Planning Model.
o Goals and Milestones.
o Action Item and Follow-up Details.
o Implementation Schedule Details.
[ ] Strategic Delivery Planning Schedule.
[ ] Project Coordination and Implementation Plan Timelines
<PAGE> 37
5.8 Upon receiving implementation direction from the customer, the Denali
Worldwide Program Manager contacts the site to execute the implementation
plan.
5.9 The site confirms to the Denali Worldwide Program Manager completion of
all actions required to implement the ECO.
5.10 The PCO is logged as completed.
5.11 Any pertinent site implementation data is merged into a global format and
communicated to the customer.
<PAGE> 38
HEWLETT PACKARD
SUPPLIER PERFORMANCE EVALUATION
AND DEVELOPMENT PLAN
- -----------------------------------------------------------------------
SUPPLIER NAME:
SUPPLIER NUMBER:
SUPPLIER REPRESENTATIVE:
COMMODITY BEING EVALUATED:
COMMODITY BUYER:
PROCUREMENT ENGINEER:
PROCUREMENT ENGINEER (MIPO):
EVALUATION DATE:
- -----------------------------------------------------------------------
This evaluation is intended as a supplier management tool and a method of
compiling performance data to provide feedback to our suppliers. The
Procurement Team will work with you to set expectations, create specific
objectives and identify actions that you and Vancouver Division can take to
continually improve the overall level of performance.
- -----------------------------------------------------------------------
SUMMARY:
Area of Date Last
Performance Score Evaluated
----------- ----- ---------
Technology
-
Quality
-
Responsiveness
-
Delivery
-
OVERALL SCORE: DATE:
This score will be calculated on a periodic basis when all five areas are
evaluated.
REV. 2/90
<PAGE> 39
TECHNOLOGY
OBJECTIVE: Hewlett-Packard must compete in the world market on the basis of
manufacturing technology, as well as design technology. We expect our
suppliers to be technological leaders in their respective fields of
design and manufacturing. Suppliers are expected to participate in
mutual engineering throughout HP's products' lifecycle to enable
timely introductions and continuous quality and cost improvements.
Provide Leading-Edge Technology Products (T1)
4 = Usually first with new technology introductions
3 = Sometimes first with new technology introductions
2 = Introduces new technology along with other industry leaders
1 = Follows with new technology within one year after technology introduced
0 = "Me too" for available technologies or none at all
N = Not applicable
T1 SCORE:____
Timely New Product Introductions (T2)
4 = Usually ahead of promised production availability schedule
3 = Sometimes ahead of promised production availability schedule
2 = Meets promised availability schedule
1 = Sometimes meets promised availability schedule
0 = Never meets promised availability schedule
N = Not applicable
T2 SCORE:____
Mutual Engineering: Technology / Design Support (T3)
4 = Proactive and effective
3 = Effective
2 = Usually available
1 = Some
0 = Little or none
N = Not applicable
T3 Score____
"T" AVG. SCORE:__
<PAGE> 40
QUALITY
Objective: HP has set a quality goal of zero defective products for electrical,
mechanical, cosmetic, and administrative reasons. HP's quality
expectation is defect-free materials. Quality and reliability are
expected to be achieved through superior design, process control and
continuous process improvements. All material must be fit for use and
cosmetically acceptable.
Quality (Q1)
HP Incoming inspection * OR * HP In-Process Quality
4 = 0 to n ppm 4 = 0 to n ppm
3 = n to n ppm 3 = n to n ppm
2 = n to n ppm 2 = n to n ppm
1 = n to n ppm 1 = n to n ppm
0 = > n ppm 0 = > n ppm
* OR *
If you are not currently collecting PPM data for Incoming Inspection or
In-Process Quality, please answer the following metric instead:
Quality Expectations
4 = Consistently exceeds expectations
3 = Consistently meets and occasionally exceeds expectations
2 = Consistently meets expectations
1 = Occasionally meets expectations
0 = Consistently does not meet expectations
N = Not applicable
Q1 Score____
Demonstrated Quality/Reliability (Q2)
4 = No quality/reliability problems (Supplier has proactive Q/R
verification programs which are effective)
3 = Minimum number of problems. Problems or alerts identified by supplier.
Supplier presented effective and permanent corrective action
2 = Minimum number of problems. Problems or alerts identified
by HP. Prompt, effective and permanent corrective action
initiated by supplier
1 = Problems encountered with slow response by supplier
0 = Many problems and/or unacceptable corrective action
N = Not applicable
Q2 Score____
Overall Q Score____
<PAGE> 41
RESPONSIVENESS
Objective: HP expects suppliers to be responsive to swings in demand, with short
cycle times, and appropriate inventory management, while maintaining
flexible capacity capabilities to successfully resolve problems and
improve worldwide service.
Timely Response (R1)
CRITERIA
4 = Meets all of the criteria * Timely Order Acknowledgments
3 = Meets 3 of the 4 criteria * Timely response to normal in-
2 = Meets 2 of the 4 criteria quiries (price, availability)
1 = Meets 1 of the 4 criteria * Timely communication of pro-
0 = Meets none of the criteria cess changes and/or problems
N = Not applicable * Timely response to emergency
inquiries
R1 Score____
Effective Service and Support (R2)
CRITERIA
4 = Meets all of the criteria * Meets expectations for con-
3 = Meets 3 of the 4 criteria tacting divisions
2 = Meets 2 of the 4 criteria * Demonstrates professionalism
1 = Meets 1 of the 4 criteria and product knowledge
0 = Meets none of the criteria * Easily accessible
N = Not applicable * Meets expectations for sample
part & documentation support
R2 Score____
Does your local representative meet your service expectation? (R3)
Y = Yes
N = No, comment required (Not Scored)
R3 Score___
Long Term Product Support (R4)
CRITERIA
4 = Meets all of the criteria * Committed to long term supply
3 = Meets 3 of the 4 criteria * Provides alternate solutions
2 = Meets 2 of the 4 criteria for product discontinuances
1 = Meets 1 of the 4 criteria * Meets requirements for
0 = Meets none of the criteria product discontinuances
N = Not applicable * Extends to meet special HP
requirements
R4 Score____
<PAGE> 42
Flexibility to Changes (Accepts and completes reasonable requests for
Purchase Order changes and additions) (R5)
4 = Consistently exceeds expectations
3 = Consistently meets and occasionally exceeds expectations
2 = Consistently meets expectations
1 = Occasionally meets expectations
0 = Consistently does not meet expectations
N = Not applicable
R5 Score____
Support of Sole Sourced Parts (R6)
CRITERIA
4 = Meets all of the criteria * Assurance of supply
3 = Meets 3 of the 4 criteria * Parts priced fairly
2 = Meets 2 of the 4 criteria * Cost reductions/improvements
1 = Meets 1 of the 4 criteria implemented and passed to HP
0 = Meets none of the criteria * Long term product support
N = Not applicable
R6 Score____
Overall R Score____
<PAGE> 43
DELIVERY
Objective: HP expects deliveries to be 100% on time all the time within a window
of -3/+0 (three days early and no days late). To achieve this
expectation there must be continuos improvement in overall delivery
performance and our suppliers must be prepared to meet commitments
worldwide. Lead times must be short by industry standards, reliable
and decreasing over time.
On-Time Delivery (Division Six Month Average - If supplier meets on-time
delivery percentage but has any deliveries greater than 5 days late select the
next lower number). Primary Weight = 60% (D1) **
4 = Greater than 95% On-time
3 = Greater than or equal to 85% On-time
2 = Greater than or equal to 70% On-time
1 = Greater than or equal to 60% On-time
0 = Less than 60% On-time
N = Not applicable
D1 Score _____ X .6 =
Lead Time - Secondary Weight = 30% (D2)
CRITERIA
4 = Meets all of the criteria * Stable (even in mkt upturns)
3 = Meets 3 of the 4 criteria * Contract lead times being met
2 = Meets 2 of the 4 criteria * Competitive
1 = Meets 1 of the 4 criteria * Decreasing over time through
0 = Meets none of the criteria supplier process improvement
N = Not applicable efforts
D2 Score _____ X .3 =
Packaging/Shipping - Secondary Weight = 10% (D3)
CRITERIA
4 = Meets all of the criteria * Requested quantity; accurate
3 = Meets 3 of the 4 criteria and complete invoicing/ship-
2 = Meets 2 of the 4 criteria ping documentation
1 = Meets 1 of the 4 criteria * Complies with shipping ins-
0 = Meets none of the criteria tructions
N = Not applicable * Consistently provides proper
packaging and markings
* Proactive in solving packa-
ging/shipping issues
D3 Score _____ X .1 =
Overall D Score__
<PAGE> 44
ENVIRONMENTAL
HP suppliers should have an implementation plan with metrics which is tied
to their environmental improvement policy. HP suppliers should strive to
improve the environment in their location by instituting programs with
progressive and measurable improvements. Progress on these metrics should
be reported within their company and reviewed with HP periodically. Which
environmental improvement factors the supplier chooses (e.g., reduced air
or water emissions, eliminated use of toxic materials, increased recycling,
etc.) to measure and how rigorous these goals and objectives are, is the
responsibility of the supplier.
(E2) Does the supplier have an improvement implementation plan with metrics
which is directly tied to their environmental improvement policy?
4 = Documented plan with objectives, metrics, and demonstrable results
3 = Documented plan with objectives and metrics
2 = Documented plan with objectives
1 = Documented plan
0 = No plan
Weight = 33%
Elimination of ODS:
HP fully supports the Montreal Protocol, the U.S. Clean Air Act, and
international efforts to protect the earth's ozone layer through conservation
and an orderly phase-out of ozone depleting substances. HP has eliminated ODS
use in its worldwide manufacturing processes. HP expects its suppliers to
support this goal by eliminating their ODS use in manufacturing of parts
and materials used in HP products.
(E3) Has the supplier eliminated the use of ozone depleting substances?
4 = Yes
0 = No
Weight = 34%
<PAGE> 45
SUPPLIER COMMENTS:
<PAGE> 1
EXHIBIT 10.3
THE DII GROUP, INC.
DEFERRED COMPENSATION PLAN
ARTICLE I
PURPOSE
1.1 ESTABLISHMENT OF THE PLAN. Effective as of February 28, 1997,
The DII Group, Inc. (the "Company") hereby establishes The DII Group,
Inc. Deferred Compensation Plan (the "Plan"), as set forth in this
document.
1.2 PURPOSE OF THE PLAN. The Plan permits participating employees
and directors to defer the payment of certain cash and other compensation
that they may earn. The opportunity to elect such deferrals is provided
in order to help the Company attract and retain key employees and
directors. This Plan is unfunded and is maintained primarily for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees and directors. It is
accordingly intended to be exempt from the participation, vesting,
funding, and fiduciary requirements set forth in Title I of the Employee
Retirement Income Security Act of 1974.
ARTICLE II
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following
indicated meanings:
2.1 "ACCOUNT OR ACCOUNTS" shall mean, with respect to a Participant
other than a Director, the (i) the Deferred Compensation Account, (ii)
Common Stock Account, (iii) Matching Contribution Account and (iv)
Discretionary Contribution Account established pursuant to Article VII
and, with respect to a Participant who is a Director, the Common Stock
Account. These Accounts shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a Participant
pursuant to this Plan. The Deferred Compensation and Common Stock
Accounts shall be fully vested at all times and the Matching Contribution
Account and the Discretionary Contribution Account shall vest in
accordance with Article XIII.
2.2 "BENEFICIARY" shall mean one or more persons, trusts, estates or
other entities, designated in accordance with Article XII to receive
benefits under this Plan upon the death of a Participant.
2.3 "BOARD" shall mean the Board of Directors of the Company.
<PAGE> 2
2.4 "BONUS" shall mean bonuses paid in the calendar year in question
to a Participant for employment services rendered to the Company or
Related Employer, before reduction for compensation contributed to or
deferred under any Company or Related Employer benefit plan.
2.5 "CHANGE IN CONTROL" shall mean a change in control of the
Company, which shall be deemed to have occurred if the conditions set
forth in any one of the following four paragraphs shall have been
satisfied:
(i) any corporation, person, other entity or group (other than
the trustee of any qualified retirement plan maintained by the
Company) becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities
representing twenty percent (20%) or more of the combined voting
power of the Company's then outstanding securities; or
(ii) during any period of twenty-four consecutive months,
individuals who at the beginning of such consecutive twenty-four
month period constitute the Board cease for any reason (other than
retirement upon reaching normal retirement age, disability or
death) to constitute at least a majority thereof, unless the
election or the nomination for election by the Company's
shareholders of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were
directors at the beginning of such twenty-four month period;
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
or such surviving entity outstanding immediately after such merger
or consolidation, or the shareholders of the Company approve a plan
or complete liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially all the
Company's assets;
(iv) there shall occur a transaction or series of transactions
which the Board shall determine to have the effect of a Change in
Control.
2.6 "CLAIMANT" shall have the meaning set forth in Section 16.1,
below.
2.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
2.8 "COMMON STOCK" shall mean the Common Stock, par value $0.01 of
the Company, or any security of the Company issued in substitution,
exchange or lieu thereof.
2
<PAGE> 3
2.9 "COMMITTEE" shall mean the Compensation Committee of the Board.
2.10 "COMPANY" shall mean The DII Group, Inc. and its successors.
2.11 "DIRECTOR" shall mean a member of the Board.
2.12 "DIRECTOR SHARES" shall mean compensation in the form of shares
of Common Stock issued under the Company's Non-Employee Directors' Stock
Compensation Plan.
2.13 "DISABILITY" shall mean any inability on the part of an
Employee, commencing before age 64 1/2, as determined by the Committee
or Plan Administrator, in its complete and sole discretion, to perform
the substantial and material duties of his or her job due to injury or
sickness lasting for more than one hundred eighty (180) consecutive days.
Disability for purposes of this Plan shall be deemed to commence as of
the first day following the end of such one hundred eighty (180) day
period. If an Employee makes application for disability benefits under
the Social Security Act, as now in effect or as hereafter amended, and
qualifies for such benefits, the Employee shall be presumed to suffer
from a Disability under this Plan. The Committee or Plan Administrator
may require the Employee to submit to an examination by a physician or
medical clinic selected by the Committee or Plan Administrator. On the
basis of such medical evidence and in the absence of qualification for
disability benefits under the Social Security Act, the determination of
the Committee or Plan Administrator as to whether or not a condition of
Disability exists shall be conclusive. To constitute Disability, the
same must commence after the Employee has become a Participant in the
Plan. The significance under this Plan of a Participant suffering a
Disability is that the Participant (i) shall be deemed to have had a
Termination of Employment, which shall cause his or her Account to be
distributed pursuant to Article X and (ii) the Participant's Account
shall become fully Vested pursuant to Article XIII.
2.14 "EARNINGS" shall mean the amount credited or debited to a
Participant's Account based on the earnings or losses attained on the
investment of the amounts held by the Trust, and any amount credited to
the Common Stock Account pursuant to Section 7.2 which is attributable
to a dividend. Until distributed to the Participant, Earnings are
solely the property of the Company (subject to the terms of the Trust)
and shall be subject to the rights of the Company's general creditors.
2.15 "EFFECTIVE DATE" of the Plan shall mean February 28, 1997.
2.16 "EMPLOYEE" shall mean an individual who renders services to the
Company or a Related Employer as a common law employee (i.e., a person
whose wages from the Company are subject to federal income tax
withholding).
2.17 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
3
<PAGE> 4
2.18 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended and in effect from time to time.
2.19 "FAIR MARKET VALUE" shall mean, if the Common Stock is listed
on a national securities exchange in the United States on the date in
question, the average of the high and low sale prices on such national
securities exchange in the United States on the date in question, but if
the Common Stock is not traded on such date, or such national securities
exchange is not open for business on such date, the fair market value per
share shall be the average of the high and low sale prices determined as
of the closest preceding date on which such exchange shall have been open
for business and the Common Stock was traded. If the Common Stock is
listed on more than one national securities exchange in the United States
on the date in question, the Committee or Plan Administrator shall
determine which national securities exchange shall be used for the
purpose of determining the fair market value per share. If the Common
Stock is not listed on a national securities exchange but is listed on
the Nasdaq National Market ("Nasdaq"), the fair market value per share
shall be deemed to be the average of the high and low sale prices on the
date in question as reported by Nasdaq or, if the Common Stock is not
traded on such date or Nasdaq is not open for business on such date, the
fair market value per share shall be the average of the high and low sale
prices determined as of the closest preceding date on which Nasdaq shall
have reported the shares.
2.20 "NON-QUALIFIED STOCK OPTION" shall mean an award to purchase
shares of Common Stock that is not an incentive stock option under
Section 422 of the Code and is granted pursuant to the provisions of any
of the Company's stock option plans which grant the optionee the ability
to elect to defer the Option Profit under this Plan.
2.21 "NORMAL RETIREMENT DATE" shall mean the date a Participant
attains age 65.
2.22 "OPTION PROFIT" shall mean the amount (not less than zero) by
which the Fair Market Value of a share of Common Stock subject to the
Non-Qualified Stock Option on the date of the Participant's exercise of
the Non-Qualified Stock Option exceeds the exercise price of a
Non-Qualified Stock Option.
2.23 "PARTICIPANT" shall mean any Employee or Director who is
covered by this Plan as provided in Article III.
2.24 "PERFORMANCE SHARES" shall mean performance shares awarded
under the Company's 1994 Stock Incentive Plan and under any successor
plan of the Company which permits the awardee to elect to defer the
Performance Shares under this Plan.
2.25 "PLAN" shall mean The DII Group, Inc. Deferred Compensation
Plan hereby created and as it may be amended form time to time.
4
<PAGE> 5
2.26 "PLAN ADMINISTRATOR" shall mean the Plan Administrator, if
appointed pursuant to Section 14.1.
2.27 "PLAN YEAR" shall mean the 12-month period ending on December
31.
2.28 "RELATED EMPLOYER" shall mean an affiliate (and its successors)
of the Company, related to the Company in the manner described in
Sections 414(b) or (c) of the Code, that the Committee or Plan
Administrator in its sole discretion allows to participate in the Plan.
2.29 "SALARY" shall mean base salary paid in the calendar year in
question to a Participant for services rendered to the Company or Related
Employer, before reduction for compensation contributed to or deferred
under any Company or Related Employer benefit plan. In no event shall
severance benefits of any type be taken into account in computing a
Participant's Salary.
2.30 "STOCK UNITS" shall mean units in the Plan each of which
represents a share of Common Stock.
2.31 "TERMINATION OF EMPLOYMENT" shall mean a Participant's
cessation of employment or service with the Company or a Related Employer
voluntarily or involuntarily, for any reason other than death.
2.32 "TRUST" shall mean the one (1) or more grantor, or "rabbi",
trusts, within the meaning of Code Section 671 that may be established
between the Company (and the Related Employers) and the trustee (or
trustees) named therein. Despite the existence of such a trust, this
Plan is technically an unfunded plan for tax purposes and for purposes of
Title I of ERISA.
2.33 "UNFORESEEABLE FINANCIAL EMERGENCY" shall mean an unanticipated
emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship to the
Participant resulting from (i) a sudden and unexpected illness or
accident of the Participant or a dependent of the Participant, (ii) a
loss of the Participant's property due to casualty, or (iii) other such
extraordinary and unforeseeable circumstances, all as determined in the
sole discretion of the Committee or Plan Administrator.
2.34 "VALUATION DATE" shall mean any date for which the balance of
the Accounts maintained for a Participant is determined.
5
<PAGE> 6
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 SELECTION. Participation in the Plan shall be limited to (i) a
select group of management or highly compensated Employees and (ii) the
Directors. From the select group of Employees, the Committee or Plan
Administrator, in its sole discretion, shall determine those Employees
eligible to participate in the Plan. To be eligible for participation,
an Employee must be highly compensated or have significant responsibility
for the management, direction and/or success of the Company or a Related
Employer. The Committee or Plan Administrator, in its sole discretion,
may terminate the ongoing participation of any Participant, provided that
any such termination shall only affect the ability of a Participant to
defer additional future compensation hereunder.
3.2 PARTICIPATION. Once a selected Employee or Director has filed
with the Committee or Plan Administrator (within 30 days of becoming
eligible to participate or such other time as the Committee or Plan
Administrator permits) an executed copy of a deferred compensation
agreement prescribed by the Committee or Plan Administrator, the Employee
or Director shall become a Participant on the latest of the date set
forth in the deferred compensation agreement, the date on which his or
her deferred compensation agreement is filed with the Committee or Plan
Administrator or the date upon which a deferral is first credited to his
or her Account.
3.3 ADOPTION BY RELATED EMPLOYER. A Related Employer may adopt this
Plan by appropriate action of its board of directors. The terms of the
Plan will apply separately to each Related Employer adopting the Plan and
its Participants in the same manner as is expressly provided for the
Company and its Participants except that the powers of the Board and
Committee under the Plan will be exercised by the Board and Committee of
the Company alone. The Company and each Related Employer adopting the
Plan will bear the cost of providing plan benefits for its own
Participants.
ARTICLE IV
DEFERRAL ELECTIONS
4.1 CASH DEFERRAL AMOUNT. A Participant may elect to defer all or
any part of his or her anticipated Salary or Bonus.
4.2 ELECTIONS TO DEFER CASH. In connection with a Participant's
commencement of participation in the Plan, the Participant may make a
deferral election by delivering to the Committee or Plan Administrator a
completed and signed election form at the same time the Participant files
his or her completed and signed deferred compensation agreement with the
Committee or Plan Administrator. Thereafter, if the Participant wishes
to commence or discontinue making a deferral, or to change the amount of
his or her deferral, the Participant must file a new election form with
the Committee or Plan Administrator 30 days before the beginning of the
(a) Plan Year for changes to the deferral of a Participant's Bonus or (b)
calendar quarter (i.e., January 1, April 1, July 1 or October 1) for
changes to the deferral of a Participant's Salary, or such
6
<PAGE> 7
other time as the Committee or Plan Administrator permits. Such new
election form shall supersede any prior election form.
4.3 DIRECTOR SHARES DEFERRALS. A Director may elect to defer all or
any part of his or her anticipated Director Shares.
4.4 DIRECTOR SHARES ELECTIONS. A Director may commence or
discontinue making a Director Shares deferral, or change the amount of
his or her deferral by filing an election form with the Committee or Plan
Administrator 30 days prior to any calendar quarter for changes in the
deferral of a Director's Director Shares which shall supersede any prior
election form.
4.5 PERFORMANCE SHARE DEFERRALS. A Participant may elect to defer
all or any part of his or her unvested Performance Shares.
4.6 ELECTIONS TO DEFER PERFORMANCE SHARES. A Participant may make
an election to defer Performance Shares upon vesting by filing an
election form with the Committee or Plan Administrator at least one year
prior to the date the Performance Shares vest or such other time as the
Committee or Plan Administrator permits. Notwithstanding anything to the
contrary contained in this Section, a Performance Share deferral and
election shall be subject to any additional requirements imposed by the
plan under which the Performance Shares are granted to the Participant.
4.7 OPTION PROFIT DEFERRALS. A Participant may elect to defer all
or any part of his or her Option Profit on the exercise of a
Non-Qualified Stock Option, but only if the Participant paid the exercise
price of the Non-Qualified Stock Option with Common Stock.
4.8 OPTION PROFIT ELECTIONS. A Participant may make an Option
Profit deferral by filing an election form with the Committee or Plan
Administrator at least one year prior to the date the Non-Qualified Stock
Option vests or such other time as the Committee or Plan Administrator
permits. With respect to Non-Qualified Stock Options that are vested as
of the Effective Date or will become vested within one year after the
Effective Date, a Participant may make an Option Profit deferral within
thirty days of the Effective Date. Notwithstanding anything to the
contrary contained in this Section, an Option Profit deferral and
election shall be subject to any additional requirements imposed by the
plan under which the Non-Qualified Stock Option is granted to the
Participant.
4.9 WITHHOLDING OF DEFERRAL AMOUNTS. A Participant's deferrals
shall be withheld as specified in the Participant's election form,
subject to any rules established by the Committee and the Plan
Administrator limiting or prescribing how deferrals are to be withheld,
such as rules requiring that deferrals first be made out of incentive
compensation.
7
<PAGE> 8
4.10 IRREVOCABLE ELECTIONS. Except as provided in Sections 4.2 and
4.11, any election by a Participant pursuant to Section 4.1 shall be
irrevocable for any Plan Year once the Plan Year has begun. Except as
provided in Section 4.2, any deferral election will continue until
revoked or modified in a writing delivered by the Participant to the
Committee or Plan Administrator. Except as provided in Sections 4.4 and
4.11, any election by a Participant made pursuant to Sections 4.3, 4.5
and 4.7 shall be irrevocable.
4.11 UNFORESEEABLE FINANCIAL EMERGENCY. If a Participant suffers an
Unforeseeable Financial Emergency, the Participant will be permitted to
revoke his deferral election for the remainder of the Plan Year in which
it is determined by the Committee or Plan Administrator that the
Unforeseeable Financial Emergency has occurred.
ARTICLE V
COMMON STOCK ACCOUNT
5.1 DEFERRAL AMOUNTS. The entire amount of the Director Shares,
Performance Shares and the Option Profit subject to a Participant's
deferral election shall be credited to the Participant's Common Stock
Account in the form of Stock Units. A corresponding number of shares of
Common Stock shall be issued by the Company to the Trust, to be held in
accordance with the terms of the Trust.
5.2 CREDITED AMOUNTS. The Participant's Common Stock Account will
be credited with a number of Stock Units equal to the following amounts:
Director the number of shares of Common Stock deferred by a
Shares Participant from a Director Shares grant when the
shares are otherwise payable
Performance the number of shares of Common Stock deferred by a
Shares Participant from a Performance Share award when the
shares are otherwise payable (i.e., on the date of
vesting)
Option the amount of the Option Profit deferral divided by
Profit the Fair Market Value on the date of exercise of the
Non-Qualified Stock Option
The amounts shall be credited on the date the Director Shares,
Performance Shares and Option Profit would otherwise be payable to the
Participant.
8
<PAGE> 9
ARTICLE VI
COMPANY MATCHING CONTRIBUTIONS
6.1 MATCHING CONTRIBUTIONS. The Company will credit each
Participant's Matching Contribution Account with a matching contribution
based upon his Salary and Bonus deferrals, as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF COMPENSATION DEFERRED MATCHING PERCENTAGE
----------------------------------- -------------------
<S> <C>
The first 5% of Salary and 100%
Bonus
The next 5% of Salary 25%
and Bonus
</TABLE>
6.2 DISCRETIONARY CONTRIBUTIONS. As of each Plan Year, the Company
may, in its sole discretion, credit a Participant's Discretionary
Contribution Account with a discretionary contribution in an amount to be
determined by the Company in its sole discretion.
ARTICLE VII
PARTICIPANT ACCOUNTS AND INVESTMENT OF
DEFERRED AMOUNTS
7.1 DEFERRED COMPENSATION ACCOUNT. Deferrals pursuant to Section
4.1 shall be recorded by the Committee or Plan Administrator in a
Deferred Compensation Account maintained in the name of the Participant.
The Deferred Compensation Account shall be credited with all amounts that
have been deferred by the Participant pursuant to Section 4.1 during the
Plan Year, plus Earnings and such account shall be charged from time to
time with all amounts that are distributed to the Participant.
7.2 COMMON STOCK ACCOUNT.
(a) Deferrals made pursuant to Sections 4.3, 4.5 and 4.7 shall be
recorded by the Committee or Plan Administrator in the Common Stock
Account and shall be represented by Stock Units. The Common Stock
Account shall be credited with all amounts that have been deferred by the
Participant pursuant to Sections 4.3, 4.5 and 4.7. In addition, in the
event the Company declares and pays a dividend, the Common Stock
Account shall be credited with an amount equal to the amount of the
dividend paid on the number of shares of Common Stock equal to the
number of Stock Units in the Participant's Common Stock Account.
Finally, the Common Stock Account shall be charged from time to time
with all amounts that are distributed to the Participant.
9
<PAGE> 10
(b) In the event of any stock dividend, stock split, combination or
exchange of shares of Common Stock, recapitalization or other change in
the capital structure of the Company, corporate separation or division
(including, but not limited to, split-up, spin-off or distribution to
Company shareholders other than a normal cash dividend), sale by the
Company of all or a substantial portion of its assets, rights offering,
merger, consolidation, reorganization or partial or complete liquidation,
or any other corporate transaction or event having an effect similar to
any of the foregoing, the number of Stock Units in each Participant's
Common Stock Account shall be appropriately adjusted in an equitable
manner by the Committee or there shall be made such other equitable
adjustments to each Participant's Common Stock Account as shall be
determined by the Committee.
7.3 MATCHING CONTRIBUTION ACCOUNT. Company matching contributions
credited to a Participant pursuant to this Plan shall be recorded by the
Committee or Plan Administrator in a Matching Contribution Account
maintained in the name of the Participant. The Matching Contribution
Account shall be credited with all amounts that have been contributed by
the Company during the Plan Year, plus Earnings and such account shall be
charged from time to time with all amounts that are distributed to the
Participant.
7.4 DISCRETIONARY CONTRIBUTION ACCOUNT. Company discretionary
contributions, if any, credited to a Participant pursuant to this Plan
shall be recorded by the Committee or Plan Administrator in a
Discretionary Contribution Account maintained in the name of the
Participant. The Discretionary Contribution Account shall be credited
with all amounts that have been contributed by the Company during the
Plan Year, plus Earnings and such account shall be charged from time to
time with all amounts that are distributed to the Participant.
7.5 EARNINGS. A Participant's Account shall be credited with
Earnings commensurate with earnings or losses attained on the investment
of amounts held by the Trust, except that Earnings attributable to a
dividend (pursuant to Section 7.2) shall be credited on the date the
dividend is paid.
7.6 INVESTMENT. The Committee or Plan Administrator shall permit a
Participant (or Beneficiary) to have the right to direct the investment
of all or any part of the Trust allocable to his or her Accounts,
including amounts credited to the Participant's Common Stock Account,
provided that such amounts are currently available for investment
purposes, subject to the Committee's or Plan Administrator's final
determination. Such directions to invest are subject to all of the
following:
(a) All directions to invest must be made in writing, or in
accordance with procedures established by the Committee or Plan
Administrator for telephone direction.
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(b) All directions to invest are limited to investment options
selected by the Committee or Plan Administrator, unless the Committee or
Plan Administrator permits otherwise.
(c) All interest and other income earned on investments directed by
the Participant shall be accumulated and added to the principal for the
Participant's benefit.
(d) The Committee or Plan Administrator and Trustee shall not be
responsible for any loss incurred as the result of the Participant's
direction to invest.
(e) No investments may be made in shares of Common Stock pursuant to
this Section 7.6.
The crediting of assumed earnings shall not mean that any deferred
compensation promise to a Participant is secured by particular investment
assets or that the Participant is actually earning interest or any other
form of investment income under the Plan.
7.7 VALUATION OF ACCOUNTS. As of each Valuation Date, a
Participant's Account shall consist of the balance of the Participant's
Account as of the last preceding Valuation Date, plus the Participant's
deferrals and contributions by the Company credited to the Account, plus
Earnings on the Account, minus the amount of any distributions made since
the immediately preceding Valuation Date.
7.8 STATEMENT OF ACCOUNTS. The Committee or Plan Administrator
shall submit to each Participant, within ninety (90) days after the close
of each Plan Year and at such other time as determined by the Committee
or Plan Administrator, a statement setting forth the balance to the
credit of the Accounts maintained for a Participant.
ARTICLE VIII
IN SERVICE DISTRIBUTIONS
8.1 DISTRIBUTIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. If the
Participant experiences an Unforeseeable Financial Emergency, the
Participant may, with the approval of the Plan Administrator, receive a
partial or full distribution from the Plan of the Vested amounts in his
or her Accounts. The distribution shall not exceed the lesser of the
Vested balance then credited to the Participant's Account or the amount
reasonably needed to satisfy the Unforeseeable Financial Emergency.
8.2 WITHDRAWAL ELECTION. A Participant may at any time elect to
withdraw all of the balance then credited to his or her Accounts, less a
ten (10) percent withdrawal penalty. Thereafter, the Participant shall
never again be eligible to participate in the Plan.
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ARTICLE IX
LOANS
9.1 LOANS TO PARTICIPANTS
(a) The Plan Administrator shall have the investment management
discretion to direct the Trustee to loan money to Participants. Each
such loan shall be treated as an investment of the borrower's Account.
(A former Employee who still has an Account under the Plan or a
Beneficiary who is entitled to future benefits because of the death of a
Participant, shall not be entitled to borrow from the Plan.)
(b) The Plan Administrator shall establish Plan Rules governing loan
procedures. These Rules may limit the number of loans a Participant may
receive, require payment of loan processing fees by the Participant
(either directly or out of his or her Vested Account) or establish any
other requirements the Plan Administrator determines to be necessary or
desirable. A Participant who wishes to borrow money from the Plan shall
file a written loan application with the Plan Administrator in accordance
with these Plan Rules. The Plan Administrator, in its sole discretion,
shall approve or deny the loan. The Plan Administrator may deny a loan
application if it believes that the loan would not be repaid (e.g., if
the borrower has failed to repay a prior loan on time) or for any other
reason if denial would be in the best interests of the Plan or the
Participant. The Plan Administrator shall exercise its discretion in a
uniform and nondiscriminatory manner. No loan shall be granted unless
the following requirements are met:
(i) No more than two loans shall be outstanding at any time;
(ii) No loan shall be made if the loan amount, when aggregated
with the amount of any outstanding loan, would exceed the lesser of
$100,000 or fifty percent of the Vested portion of the
Participant's Account, including the Participant's Common Stock
Account represented by Stock Units;
(iii) The loan shall bear a reasonable rate of interest not in
excess of that permitted by law;
(iv) Except as otherwise authorized by the Plan Administrator,
interest and principal on a loan must be repaid through payroll
deduction in installments not less frequently than quarterly over a
specified period not to exceed five years (including renewals,
extensions and refinancing); and
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(v) The loan shall be documented by such notes, evidences of
indebtedness and other instruments executed by the Participant
which the Plan Administrator in its discretion requires.
(c) Each loan from the Plan shall be secured by the borrowing
Participant's interest in the Plan.
(d) A loan shall be in default if the Participant fails to make any
payment when due or if there occurs such other circumstances as may be
prescribed by Plan Rule. A loan which is in default shall, at the Plan
Administrator's election, become immediately due and payable and shall be
subject to the execution provisions of subsection (f).
(e) If a Participant's Employment terminates or the Plan terminates
before he or she has repaid a loan, the loan, at the Plan Administrator's
election, shall become immediately due and shall be repaid out of the
Participant's Vested Account which secures the loan and that Account
shall be reduced accordingly.
(f) If a Participant's loan is in default for 120 consecutive days
and the Participant's Employment has not terminated, the loan shall be
satisfied to the extent possible from the Participant's Vested Account
which secures the loan and the Account shall be reduced accordingly. In
addition, the Participant shall be assessed a penalty of ten (10) percent
of the outstanding balance of the defaulted loan as of the date the
penalty is assessed. Unless the defaulting Participant satisfies the
penalty by paying it directly to the Company, the defaulting
Participant's Vested Account shall be reduced by the amount of the
penalty, in which case the penalty shall be paid to the Company directly
or used to reduce the Company's obligation to make matching contributions
under Section 6.1, at the Company's option. In all cases, the
Participant shall be responsible for any indebtedness not discharged
pursuant to the provisions of this subsection (f).
ARTICLE X
DISTRIBUTIONS FOLLOWING TERMINATION OF EMPLOYMENT
10.1 DISTRIBUTION. Upon Termination of Employment, a Participant's
Vested Account shall be distributed in accordance with this Article.
10.2 ELECTIONS. A Participant, on his or her initial election form,
shall elect to receive distributions following Termination of Employment
in a lump sum or in installment payments, not more frequently than
quarterly, over a period of not more than ten years. A Participant may
change this election on any subsequent election form filed at least one
(1) year prior to the Participant's Termination of Employment; if made
within one (1) year of Termination of Employment, such a new election
shall be invalid.
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10.3 TIME FOR PAYMENT. The lump sum payment shall be made, or
installment payments shall commence, no later than sixty (60) days after
the Participant's Termination of Employment. If installment payments are
being made, the first benefit payment to a Participant shall be prorated.
Installment payments shall be made pro rata from all of the
Participant's Accounts. Undistributed portions of a Participant's
Accounts shall continue to accrue Earnings. The following formula shall
be used to determine each installment payment to a Participant: the
remaining Account balance divided by the number of remaining
installments, including the current one.
10.4 SMALL PAYMENTS. The minimum annual installment payment shall
be $5,000 (before withholding of taxes). If annual installment payments
to a Participant would be less than this amount, the Participant's
Account shall be distributed over the longest installment period
available under Section 10.2 under which the annual payment would be at
least $5,000 (before withholding of taxes) or, if no such period exists,
in a lump sum.
10.5 CASHOUT OF INSTALLMENT PAYMENTS. A Participant who has elected
to receive installment payments may, at the time installments are to
commence or thereafter, elect to receive, in lieu of any future
installment payments, a lump sum payment of the balance then credited to
his or her Account, less a ten (10) percent early withdrawal penalty.
The ten (10) percent early withdrawal penalty shall be used to reduce the
Company's obligation to make matching contributions to other Participants
under Section 6.1.
10.6 FORM OF PAYMENT. All payments made pursuant to this Article
shall be made in cash, except that distributions made from the Common
Stock Account shall be made in Common Stock.
10.7 RESTRICTIONS ON COMMON STOCK. Common Stock distributions
pursuant to this Article shall only be distributed to a Participant upon
delivery to the Company of such representations and warranties as the
Company deems necessary or advisable with respect to the investment
intent of the Participant as required by the Securities Act of 1933, as
amended, and any other federal or state securities laws. The Company
shall not be required to distribute shares of Common Stock to a
Participant before such shares become listed for trading on any stock
exchange on which the Common Stock may then be listed, if any, and the
completion of such registration or other qualification of such shares
under any state or federal law, rule or regulation, as the Plan
Administrator shall determine to be necessary or advisable.
ARTICLE XI
DISTRIBUTIONS FOLLOWING DEATH
11.1 DEATH WHILE EMPLOYED BY EMPLOYER GROUP. If a Participant dies
while employed by the Company or a Related Employer, the Participant's
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Beneficiary shall receive the Participant's Account in the form of death
benefit payments elected by the Participant on his or her last election
form. The Participant may elect to have such payments made in a lump sum
or in installment payments over a period of not more than ten years. The
minimum annual installment payment shall be $5,000 (before withholding of
taxes). If annual installment payments to a Beneficiary would be less
than this amount, the Participant's Account shall be distributed over the
longest installment period available under this Section under which the
annual payment would be at least $5,000 (before withholding of taxes) or,
if no such period exists, in a lump sum. Death benefit payments shall
commence within sixty (60) days after the date the Plan Administrator is
provided with proof of the Participant's death satisfactory to it.
11.2 DEATH AFTER TERMINATION OF EMPLOYMENT. If a Participant dies
after Termination of Employment but before his or her Account has been
fully distributed, unpaid amounts due under Article 10 shall be paid to
the Participant's Beneficiary in the same amount and at the same time as
they would have been paid under Section 11.1.
11.3 LUMP SUM ELECTION. While a Beneficiary may not select the
manner of payment, if requested by a Beneficiary and allowed in the sole
discretion of the Plan Administrator, the Beneficiary shall be paid a
lump sum calculated in accordance with Section 10.5 but without the ten
(10) percent early withdrawal penalty.
11.4 FORM OF PAYMENT. All payments made pursuant to this Article
shall be made in cash, except that distributions made from the Common
Stock Account shall be made in Common Stock.
11.5 RESTRICTIONS ON COMMON STOCK. Common Stock shall only be
distributed to a Participant upon delivery to the Company of such
representations and warranties as the Company deems necessary or
advisable with respect to the investment intent of the Participant as
required by the Securities Act of 1933, as amended, and any other federal
or state securities laws. The Company shall not be required to
distribute shares of Common Stock to a Participant before such shares
become listed for trading on any stock exchange on which the Common Stock
may then be listed, if any, and the completion of such registration or
other qualification of such shares under any state or federal law, rule
or regulation, as the Plan Administrator shall determine to be necessary
or advisable.
ARTICLE XII
BENEFICIARY DESIGNATION
12.1 BENEFICIARY. Each Participant shall have the right, at any
time, to designate his or her Beneficiary (both primary as well as
contingent) to receive any benefits payable under the Plan to a
beneficiary upon the death of a Participant. The
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<PAGE> 16
Beneficiary designated under this Plan may be the same as or different
from the beneficiary designated under any other plan in which the
Participant participates.
12.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A
Participant shall designate his or her Beneficiary by completing and
signing a Beneficiary designation form, and returning it to the Committee
or Plan Administrator or its designated agent. A Participant shall have
the right to change a Beneficiary by completing and signing a new
Beneficiary designation form, or such other form approved by the
Committee or Plan Administrator, and filing it with the Committee or Plan
Administrator. If the Participant names someone other than his or her
spouse as a Beneficiary, a spousal consent, in the form designated by the
Committee or Plan Administrator, must be signed by that Participant's
spouse and returned to the Committee or Plan Administrator. Upon the
acceptance by the Committee or Plan Administrator of a new Beneficiary
designation form, all Beneficiary designations previously filed shall be
canceled. The Committee or Plan Administrator shall be entitled to rely
on the last Beneficiary designation form filed by the Participant and
accepted by the Committee or Plan Administrator prior to his or her
death.
12.3 NO BENEFICIARY DESIGNATION. If a Participant fails to
designate a Beneficiary as provided in Sections 12.1 and 12.2 above or,
if all designated Beneficiaries predecease the Participant or die prior
to complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to be his or her
surviving spouse or, if none the Participant's estate.
12.4 DOUBT AS TO BENEFICIARY. If the Committee or Plan
Administrator has any doubt as to the proper Beneficiary to receive
payments pursuant to this Plan, the Committee or Plan Administrator shall
have the right, exercisable in its discretion, to withhold such payments
until this matter is resolved to the Committee's or Plan Administrator's
satisfaction.
ARTICLE XIII
VESTING
13.1 VESTING SCHEDULES. A Participant shall become vested in his or
her Accounts in accordance with the Vesting Schedules described in this
Article.
13.2 DEFERRED COMPENSATION ACCOUNT. All Deferred Compensation and
Common Stock Accounts shall be fully Vested at all times.
13.3 VESTING SCHEDULE FOR MATCHING CONTRIBUTION AND DISCRETIONARY
CONTRIBUTION ACCOUNTS . The Vested portion of a Participant's Matching
Contribution and Discretionary Contribution Accounts shall be the
percentage of such Account shown on the following table (with credit for
prior years
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service to the Company or a subsidiary which is or hereafter
becomes a Related Employer):
<TABLE>
<CAPTION>
YEARS OF SERVICE VESTED PERCENTAGE
----------------------- ----------
<S> <C>
Less than one year 0%
1 20%
2 40%
3 60%
4 80%
5 (or more) 100%
</TABLE>
13.4 ACCELERATED VESTING. A Participant's Matching Contribution and
Discretionary Contribution Accounts shall become fully Vested upon the
earliest to occur of:
(a) the individual's attaining Normal Retirement Age while employed
by the Company or a Related Employer,
(b) the individual's death (or presumed death) while employed by the
Company or a Related Employer,
(c) the individual's suffering a Disability while employed by the
Company or a Related Employer, and
(d) a Change in Control.
13.5 FORFEITURES UPON TERMINATION OF EMPLOYMENT. The unvested
portion of the Accounts of a Participant whose employment terminates
shall be forfeited on the date of his or her Termination of Employment.
Forfeitures shall be used to reduce the Company's obligation to make
matching contributions to other Participants under Section 6.1.
ARTICLE XIV
ADMINISTRATION
14.1 COMMITTEE AND PLAN ADMINISTRATOR. The Committee shall
administer the Plan and may select one or more persons to serve as the
Plan Administrator. The Plan Administrator shall perform such
administrative functions as the Committee may delegate to it from time to
time. Any person selected to serve as the Plan Administrator may, but
need not, be a Committee member or an officer or employee of the Company.
However, if a person serving as Plan Administrator or a member of the
Committee is a Participant, such person may not vote on a matter
affecting his interest as a Participant. Except as provided in Section
16.6, the Committee or Plan Administrator
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shall have complete control and discretion to manage the operation and
administration of the Plan. Not in limitation, but in amplification of
the foregoing, the Committee or Plan Administrator shall have the
following powers:
(a) To determine all questions relating to the eligibility of
Employees to participate or continue to participate;
(b) To maintain all records and books of account necessary for the
administration of the Plan;
(c) To interpret the provisions of the Plan and to make and to
publish such interpretive or procedural rules as are not inconsistent
with the Plan and applicable law;
(d) To compute, certify and arrange for the payment of benefits to
which any Participant or Beneficiary is entitled;
(e) To process claims for benefits under the Plan by Participants or
Beneficiaries;
(f) To engage agents and professionals to assist the Plan
Administrator in carrying out its duties under this Plan;
(g) To adopt or modify Plan rules for the regulation or application
of the Plan; such rules may establish administrative procedures or
requirements which modify the terms of this Plan but Plan rules shall not
substantially alter significant requirements or provisions of the Plan;
and
(h) To develop and maintain such instruments as may be deemed
necessary from time to time by the Committee or Plan Administrator to
facilitate payment of benefits under the Plan.
14.2 COMMITTEE'S AND PLAN ADMINISTRATOR'S AUTHORITY. The Committee
or Plan Administrator may consult with Company officers, legal and
financial advisers to the Company and others, but nevertheless the
Committee or Plan Administrator shall have the full authority and
discretion to act, and the Committee's and Plan Administrator's actions
shall be final and conclusive on all parties.
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ARTICLE XV
AMENDMENT AND TERMINATION
15.1 AMENDMENTS. The Company reserves the right to amend the Plan
prospectively or retroactively, at any time. No amendment shall reduce
the value of a Participant's Vested Account prior to such amendment.
15.2 TERMINATION OF PLAN. The Company shall have the right at any
time to declare the Plan terminated completely as to it or as to any of
its divisions, facilities, operational units or job classifications.
Subject to Section 15.3, upon termination of the Plan, the Company may,
but shall not be required to, accelerate distribution of the amounts in
each Participant's Vested Account.
15.3 FOLLOWING A CHANGE IN CONTROL. Upon the occurrence of a Change
in Control, this Plan no longer shall be subject to alteration,
amendment, change, suspension, substitution, deletion, revocation or
termination in any manner adverse to the Participants and Beneficiaries.
ARTICLE XVI
CLAIMS PROCEDURES
16.1 PRESENTATION OF CLAIM. If any person (a "Claimant") does not
believe that he or she will receive the benefits to which the person is
entitled or believes that fiduciaries of the Plan have breached their
duties or that the Plan is not being operated properly or that his or her
legal rights have been or are being violated with respect to the Plan,
the Claimant must file a formal claim with the Committee or Plan
Administrator under the procedures set forth in this Article. The
procedures in this Article shall apply to all claims that any person has
with respect to the Plan, including claims against fiduciaries and former
fiduciaries, unless the Committee or Plan Administrator determines, in
its sole discretion, that it does not have the power to grant, in
substance, all relief reasonably being sought by the Claimant. A claims
official appointed by the Committee or Plan Administrator shall, within a
reasonable time, consider the claim and shall issue his or her
determination thereon in writing. If such a claim relates to the
contents of a notice received by the Claimant, the claim must be made
within sixty (60) days after such notice was received by the Claimant.
All other claims must be made within one hundred-eighty (180) days of
the date on which the event that caused the claim to arise occurred.
The claim must state with particularity the determination desired by the
Claimant.
16.2 NOTIFICATION OF DECISION. Written notice of the disposition of
a claim shall be furnished to the Claimant within thirty (30) days after
the claim is filed with the Committee or Plan Administrator. In the
event the claim is denied, the reasons for the denial shall be
specifically set forth in writing, pertinent provisions of
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<PAGE> 20
the Plan shall be cited and, where appropriate, an explanation as to
how the claim can be perfected will be provided.
16.3 REVIEW OF A DENIED CLAIM. Within ninety (90) days after
receiving a notice from the Committee or Plan Administrator that a claim
has been denied in whole or in part, a Claimant may appeal the denial of
his or her claim by filing a written statement of the Claimant's position
with the review official designated by the Committee or Plan
Administrator. The review official shall schedule and give the Claimant
an opportunity for a full and fair hearing before the review official of
the issue within thirty (30) days after the appeal is requested. The
review official's decision following such hearing shall be made within
thirty (30) days and shall be communicated in writing to the Claimant.
16.4 ARBITRATION. If a Claimant's claim described in Section 16.1
(an "Arbitrable Dispute") is denied pursuant to Section 16.3, the
Claimant's only further recourse shall be to submit the claim to final
and binding arbitration in the County of Boulder, State of Colorado,
before an experienced employment arbitrator selected in accordance with
the Employment Dispute Resolution Rules of the American Arbitration
Association. Except as otherwise provided in Section 18.10, each party
shall pay the fees of their respective attorneys, the expenses of their
witnesses and any other expenses connected with the arbitration, but all
other costs of the arbitration, including the fees of the arbitrator,
costs of any record or transcript of the arbitration, administrative fees
and other fees and costs shall be paid in equal shares by each party (or,
if applicable, each group of parties) to the arbitration. Except as
otherwise provided in Section 18.10, in any dispute involving a Claimant
or the trustee of a Trust in which the Claimant or the trustee prevails,
the Company shall reimburse the Claimant's or the trustee's reasonable
attorneys fees and related expenses. Arbitration in this manner shall be
the exclusive remedy for any Arbitrable Dispute. The arbitrator's
decision or award shall be fully enforceable and subject to an entry of
judgment by a court of competent jurisdiction. Should any party attempt
to resolve an Arbitrable Dispute by any method other than arbitration
pursuant to this Section, the responding party shall be entitled to
recover from the initiating party all damages, expenses and attorneys
fees incurred as a result.
16.5 LEGAL ACTION. Prior to a Change in Control, except to enforce
an arbitrator's award, no actions may be brought by a Claimant in any
court with respect to an Arbitrable Dispute.
16.6 FOLLOWING A CHANGE IN CONTROL. Upon the occurrence of a Change
in Control, an independent party selected by the Committee or Plan
Administrator prior to a Change in Control shall assume all duties and
responsibilities of the Committee or Plan Administrator under this
Article and actions may be brought by a Claimant in any appropriate court
with respect to an Arbitrable Dispute.
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ARTICLE XVII
TRUST
17.1 ESTABLISHMENT OF TRUST. The Company (and the Related
Employers) shall establish a Trust and shall at least annually transfer
over to the Trust such assets, if any, as the Committee or Plan
Administrator, in its sole discretion, determines to be appropriate. The
assets of the Trust shall be considered part of the general assets of the
Company subject to the claims of its general creditors. All expenses of
operating and administering this Plan, including the fees of, and general
expenses incurred by, the Trustee, shall be paid by the Company.
17.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of
the Plan and the deferred compensation agreement shall govern the rights
of a Participant to receive distributions pursuant to the Plan. The
provisions of any Trust shall govern the rights of the Participant and
the creditors of the Company to the assets transferred to such Trust.
The Company shall at all times remain liable to carry out its obligations
under the Plan. The Company's obligations under the Plan shall be deemed
satisfied to the extent met with assets distributed pursuant to the terms
of the Trust.
ARTICLE XVIII
MISCELLANEOUS
18.1 UNSECURED GENERAL CREDITOR/UNFUNDED PLAN. The Plan constitutes
an unsecured promise by the Company or a Related Employer to pay benefits
in the future and the Participants shall have the status of general
unsecured creditors of the Company and Related Employers. The Plan is
unfunded for Federal tax purposes and for purposes of Title I of ERISA.
All amounts credited to the Participants' accounts will remain the
general assets of the Company and the Related Employers and shall remain
subject to the claims of the Company's and the Related Employers' general
creditors until such amounts are distributed to the Participants.
18.2 PAYMENTS TO MINORS AND INCOMPETENTS. If the Plan
Administrator receives satisfactory evidence that a person who is
entitled to receive any benefit under the Plan, at the time such benefit
becomes available, is a minor or is physically unable or mentally
incompetent to receive such benefit and to give a valid release therefor,
and that another person or an institution is then maintaining or has
custody of such person, and that no guardian committee, or other
representative of the estate of such person shall have been duly
appointed, the Committee or Plan Administrator may authorize payment of
such benefit otherwise payable to such person to such other person or
institution; and the release of such other person or institution shall be
a valid and complete discharge for the payment of such benefit.
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18.3 PLAN NOT A CONTRACT OF EMPLOYMENT. The Plan shall not be
deemed to constitute a contract between the Company or any Related
Employer and any Participant, nor to be consideration for the employment
of any Participant. Nothing in the Plan shall give a Participant the
right to be retained in the employ of the Company or any Related
Employer; all Participants shall remain subject to discharge or
discipline as Employees to the same extent as if the Plan had not been
adopted.
18.4 NO INTEREST IN ASSETS. Nothing contained in the Plan shall be
deemed to give any Participant any equity or other interest in the
assets, business or affairs of the Company or a Related Employer. No
Participant in the Plan shall have a security interest in assets of the
Company or a Related Employer used to make contributions or pay benefits.
18.5 RECORDKEEPING. Appropriate records shall be maintained for the
purpose of the Plan by the officers and Employees of the Company at the
Company's expense and subject to the supervision and control of the
Committee or Plan Administrator.
18.6 NOTICE. Any notice or filing required or permitted to be given
to the Committee or Plan Administrator under this Plan shall be
sufficient if in writing and hand-delivered, or sent by registered or
certified mail or by telefax (with a hard copy sent by mail), to the
address or telefax number shown below (or such other address or telefax
number specified in notice given pursuant to this Section):
The DII Group, Inc.
6273 Monarch Park Place, Suite 200
Niwot, CO 80503
Telefax: 303-652-0416
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification. Any notice or filing required
or permitted to be given to a Participant under this Plan shall be
sufficient if in writing and hand-delivered, or sent by mail, to the last
known address of the Participant.
18.7 SUCCESSORS. The provisions of this Plan shall bind and inure
to the benefit of the Company and its successors and assigns and the
Participant, his or her Beneficiary and their permitted successors and
assigns.
18.8 SPOUSE'S INTEREST. The interest in the benefits hereunder of a
spouse of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by
such spouse in any manner, including but not limited to such spouse's
will, nor shall such interest pass under the laws of intestate
succession.
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18.9 TAXES AND WITHHOLDING. For each Plan Year in which deferrals
are being withheld, the Company shall ratably withhold from that portion
of the Participant's Salary and Bonus that is not being deferred, the
Participant's share of FICA and other employment taxes on the deferral
(including deferrals of Salary, Bonus, Performance Shares and Option
Profit). If necessary, the Committee or Plan Administrator shall reduce
a Participant's deferrals in order to comply with this Section. The
Company (or the trustee of the Trust) shall withhold from benefits
distributed under the Plan all federal, state and local income,
employment and other taxes required to be withheld by applicable law.
18.10 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. After
a Change in Control, if any person or entity has failed to comply (or
is threatening not to comply) with any of its obligations under the
Plan, any Trust or any related agreement, or takes or threatens to take
any action to deny, diminish or to recover from any Participant the
benefits intended to be provided thereunder, the Company shall reimburse
the Participant for reasonable attorneys fees and related costs incurred
in the successful pursuance or defense of the Participant's rights. If
the Participant does not prevail, attorneys fees shall also be payable
under the preceding sentence to the extent the Participant had
reasonable justification for retaining counsel, but only to the extent
that the scope of such representation was reasonable.
18.11 COURT ORDER. The Committee or Plan Administrator is
authorized to make any payments directed by court order in any action in
which the Plan or the Committee or Plan Administrator has been named as a
party.
18.12 FURNISHING INFORMATION. A Participant will cooperate with the
Company by furnishing any and all information requested by the Company
and take such other actions as may be requested in order to facilitate
the administration of the Plan and the payment of benefits hereunder,
including but not limited to taking such physical examinations as the
Company may deem necessary.
18.13 NON-ALIENATION OF BENEFITS. No benefit under the Plan shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to do so shall
be void. No benefit under the Plan shall in any manner be liable for or
subject to the debts, contracts, liabilities, engagements or torts of the
person entitled to any such benefit, except as specifically provided in
the Plan.
18.14 GOVERNING LAW. Except to the extent preempted by ERISA, this
Plan shall be construed in accordance with the laws of New York without
regard to its conflicts of laws principles.
18.15 SECTION 16. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 or its successor rules
under the Exchange Act. To the extent any provision under the Plan or
action by the Committee fails to so comply, it shall be
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<PAGE> 24
deemed null and void to the extent permitted by law and deemed
advisable by the Committee.
18.16 LIABILITY LIMITED. In administering the Plan, neither the
members of the Committee, the Plan Administrator nor any officer,
Director or Employee thereof shall be liable for any act or omission
performed or omitted, as the case may be, by such person with respect to
the Plan; provided, that the foregoing shall not relieve any person of
liability for gross negligence, fraud or bad faith. The members of the
Committee, the Plan Administrator, its officers, Directors and Employees
shall be entitled to rely conclusively on all tables, valuations,
certificates, opinions and reports that shall be furnished by any
actuary, accountant, trustee, insurance company, consultant, counsel or
other expert who shall be employed or engaged by the Committee or Plan
Administrator in good faith.
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<PAGE> 25
IN WITNESS WHEREOF, the Company has caused this Plan to be executed
by its duly authorized officer on this 28th day of February, 1997.
THE DII GROUP, INC.
By: /s/ Carl R. Vertuca, Jr.
----------------------------------
Name: Carl R. Vertuca, Jr.
Title: Senior Vice President
and Chief Financial Officer
25
<PAGE> 1
EXHIBIT 10.4
THE DII GROUP, INC.
PERFORMANCE SHARE AGREEMENT
PURSUANT TO THE
1994 STOCK INCENTIVE PLAN
This Performance Share Agreement is made and entered into as of the Date
of Award specified herein, by and between THE DII GROUP, INC., a Delaware
corporation (the "Company") and Ronald R. Budacz (the "Grantee")
W I T N E S S E T H:
WHEREAS, the Company maintains the The DII Group, Inc. 1994 Stock
Incentive Plan (the "Plan") under which the Compensation Committee of the
Company's Board of Directors (the "Compensation Committee") may, among other
things, grant awards of performance shares in the form of shares of the
Company's Common Stock, $.01 par value per share ("Common Stock"), subject to
such terms, conditions and restrictions as the Compensation Committee may deem
appropriate; and
WHEREAS, pursuant to the Plan, the Compensation Committee has granted the
Grantee an award of performance shares conditioned upon the execution by the
Company and the Grantee of a Performance Share Agreement setting forth all the
terms, conditions and restrictions relating to the performance shares.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. Award of Performance Shares. Pursuant to the terms of the Plan, the
Compensation Committee has granted to the Grantee a performance share award as
of January 1, 1997 (the "Date of Award"), covering 100,000 shares of Common
Stock (the "Performance Shares"), subject to the terms, conditions and
restrictions set forth in this Agreement. This Performance Share award is
subject to approval by the stockholders of the Company at the 1997 Annual
Meeting of Stockholders of an amendment to the Plan to permit issuances and
grants to an executive covering up to a maximum of 150,000 shares per annum.
2. Restrictions. Until a Performance Share vests, it may not be sold,
assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in
any manner whatsoever.
<PAGE> 2
3. Vesting of Performance Shares. Subject to accelerated vesting in
accordance with the provisions of Sections 4 and 5 hereof and subject to
forfeiture in accordance with the provisions of Section 6 hereof, the
Performance Shares shall vest one-quarter on the first anniversary of the Date
of Award, one-quarter on the second anniversary of the Date of Award,
one-quarter on the third anniversary of the Date of Award, and one-quarter on
the fourth anniversary of the Date of Award.
4. Acceleration of Vesting upon Death, Disability. If the employment of
the Grantee shall terminate by reason of the Grantee's death or Disability (as
hereinafter defined), all of the Performance Shares granted hereunder and not
previously vested hereunder shall vest in full upon such termination. For
purposes of this Agreement, Disability shall have the meaning set forth in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.
5. Acceleration of Vesting upon Change of Control. Upon a Change of
Control (as hereinafter defined), all Performance Shares granted hereunder
shall immediately vest in full. For purposes hereof, a Change of Control shall
be deemed to have taken place upon the occurrence of any of the following
events:
(i) any person (which shall mean and include any individual,
corporation, partnership, group, association or other "person", as such term is
used in Sections 13 and 14 of the Securities Exchange Act of 1934, as amended)
is, becomes, or has the right to become the beneficial owner, directly or
indirectly, of securities of the Company representing 20% or more of the shares
of Common Stock then outstanding, whether or not such person continues to be
the beneficial owner of securities representing 20% or more of the outstanding
shares of Common Stock; or
(ii) as the result of, or in connection with, any tender or exchange
offer, merger or other business combination, sale of assets or contested
election, any announcement of an intention to make any of the foregoing
transactions, or any combination of the foregoing transactions (a
"Transaction"), those persons who were directors of the Company before the
Transaction and were otherwise unaffiliated with any other party to the
Transaction shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company (a "Change in the Board"); or
(iii) the stockholders of the Company approve any merger, consolidation,
reorganization, liquidation, dissolution, or sale of all or substantially all
of the Company's assets in which neither the Company nor a successor resulting
from a change in domicile or form of organization will survive as an
independent, publicly-owned corporation.
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<PAGE> 3
Notwithstanding anything herein to the contrary, no Change of Control
shall be deemed to have occurred by virtue of any event which results in any of
the following:
(i) the acquisition, directly or indirectly, of 20% or more of the
outstanding shares of Common Stock by (A) the Grantee or a person including the
Grantee, (B) the Company, (C) a subsidiary of the Company, or (D) any employee
benefit plan of the Company or of a subsidiary, or any entity holding
securities of the Company recognized, appointed, or established by the Company
or by a subsidiary for or pursuant to the terms of such plan; or
(ii) a Change in the Board resulting from any Transaction in which the
Grantee or a person including the Grantee participates, directly or indirectly,
with any party to the Transaction other than the Company.
6. Forfeiture of Performance Shares. Except as otherwise provided in
Section 4 or 5 hereof, in the event the Grantee shall cease to be an employee
of the Company or any of its subsidiaries for any reason, or for no reason,
then, the then unvested portion of the award of Performance Shares shall be
forfeited, the Grantee shall have no further rights under this Agreement and
the Common Stock covered by the Performance Shares shall revert to the Company.
7. Change in Common Stock or Corporate Structure. In the event of any
stock dividend, stock split, combination or exchange of shares of Common Stock,
recapitalization or other change in the capital structure of the Company,
corporate separation or division (including, but not limited to, split-up,
spin-off or distribution to Company shareholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its assets,
rights offering, merger, consolidation, reorganization or partial or complete
liquidation, or any other corporate transaction or
event having an effect similar to any of the foregoing, the number of
Performance Shares subject to the award granted hereunder shall be equitably
and appropriately adjusted, as determined by the Compensation Committee in its
discretion. Any such adjustment made by the Compensation Committee shall be
conclusive and binding upon the Grantee, the Company and all other interested
persons.
8. Payment of Withholding Taxes. If the Company becomes obligated to
withhold an amount of any federal, state or local tax imposed as a result of
the issuance of the Performance Shares to the Grantee pursuant to this
Agreement or the vesting of Performance Shares hereunder, including without
limitation, any federal, state or other income tax, or any F.I.C.A., state
disability insurance tax or other employment tax (the date upon which the
Company becomes so obligated shall be referred to herein as the "Withholding
Date"), then the Grantee shall pay such amount (the "Withholding Liability") to
the Company on the Withholding Date in
3
<PAGE> 4
cash or by check payable to the Company. The Grantee hereby consents to the
Company withholding the full amount of the Withholding Liability from any
compensation or other amounts otherwise payable to the Grantee if the Grantee
does not pay the Withholding Liability to the Company on the Withholding Date,
and the Grantee agrees that the withholding and payment of any such amount by
the Company to the relevant taxing authority shall constitute full satisfaction
of the Company's obligation to pay such compensation or other amounts to the
Grantee. The Grantee shall be entitled to elect to have the Company withhold
from any vested Performance Shares to be delivered to the Grantee a sufficient
number of such shares to satisfy the Withholding Liability.
9. Stock Certificates. Upon the vesting of any part of the Performance
Shares (and subject to payment by the Grantee of the Withholding Liability
pursuant to Section 8 hereof), the Company shall cause a stock certificate
covering the appropriate number of shares registered on the Company's books in
the name of the Grantee to be delivered to the Grantee. All Performance Shares
which vest under this Agreement shall be fully paid and non-assessable.
10. Voting, Dividends. The Grantee shall have no rights as a stockholder
(including no rights to vote or receive dividends or distributions) with
respect to any Performance Shares until such Performance Shares vest in
accordance with the terms and provisions of this Agreement. Notwithstanding
the foregoing, the Grantee will be entitled to receive dividend equivalents
with respect to the Performance Shares as provided in this Section 10.
In the event of an ordinary cash dividend on the shares of Common Stock of
the Company the record date of which is prior to the vesting or forfeiture of
any Performance Shares, the Company shall allocate for the Grantee an amount
equal to the amount of such ordinary cash dividend multiplied by the number of
Performance Shares, and the Grantee shall become entitled to receive any such
amounts upon the vesting of the corresponding Performance Shares, provided that
any rights to receive such amounts shall be forfeited upon the forfeiture of
the corresponding Performance Shares.
11. Deferral. Grantee may elect to defer all or part of his Performance
Shares upon vesting, in accordance with the provisions of the Company's
Deferred Compensation Plan. Any such deferral shall be made in writing in
accordance with the provisions of the Deferred Compensation Plan. In cases of
deferral, shares otherwise issuable to Grantee shall be issued to the Trust
established pursuant to the Deferred Compensation Plan.
12. Employment Rights. Nothing in this Agreement shall be deemed to
confer on the Grantee the right to continue in the employ of the Company
4
<PAGE> 5
or any of its subsidiaries or affect the right of the Company to terminate the
employment of the Grantee at any time with or without cause.
13. Nontransferability. The rights of the Grantee with respect to the
Performance Shares may not be assigned or transferred, otherwise than by will
or the laws of descent and distribution.
14. Impact on Other Benefits. The value of the Performance Shares awarded
hereunder (either on the Date of Award or at the time of vesting) shall not be
includable as compensation or earnings for purposes of any other benefit plan
offered by the Company.
15. Interpretation. This Agreement and the Performance Shares awarded
hereunder are subject to all of the terms and provisions of the Plan. In the
event of any conflict or inconsistency between the terms and provisions of this
Agreement and the Plan, the terms and provisions of the Plan shall govern. The
Compensation Committee shall have the sole and complete authority and
discretion to decide any questions concerning the application, interpretation
or scope of any of the terms and conditions of this Agreement and the Plan, and
its decisions shall be binding and conclusive upon all interested parties.
16. Amendment. This Agreement shall be subject to the terms of the Plan,
as amended, except that the award of Performance Shares that is the subject of
this Agreement may not in any way be restricted or limited by any Plan
amendment or termination approved after the Date of Award without the Grantee's
written consent.
17. Force and Effect. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or
unenforceability of any one provision shall have no effect on the continuing
force and effect of the remaining provisions.
18. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware.
19. Successors. This Agreement shall be binding upon and inure to the
benefit of the successors, assigns and heirs of the respective parties.
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<PAGE> 6
20. Entire Agreement. This Agreement contains the entire understanding of
the parties and shall not be modified or amended except by written instrument
duly signed by the parties. No waiver by either party of any default under
this Agreement shall be deemed a waiver of any later default.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the Date of Award stated above.
THE DII GROUP, INC.
By:
-----------------------------------
-----------------------------------
GRANTEE
6
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
Agreement, made as of the 1st day of January 1997, by and between The DII
Group, Inc., a Delaware corporation (the "Company"), and Ronald R. Budacz (the
"Executive").
RECITALS
A. The Company desires to continue to employ Executive as Chairman of the
Board and Chief Executive Officer; and
B. Executive is willing to accept such employment on the terms and
conditions set forth in this Agreement.
THE PARTIES AGREE as follows:
1. Position and Term of Employment. Executive's employment hereunder
shall commence as of January 1, 1997 and shall end December 31, 2000, unless
terminated sooner pursuant to Section 7 of this Agreement or extended by the
mutual agreement of the parties. During the term hereof, Executive shall be
employed as Chairman of the Board and Chief Executive Officer of the Company
and shall devote his full business time, skill, attention and best efforts in
carrying out his duties and promoting the best interests of the Company.
Executive shall also serve as a director and/or officer of one or more of the
Company's subsidiaries as may be requested from time to time by the Board of
Directors. Subject always to the instructions and control of the Board of
Directors of the Company, Executive shall report to the Board of Directors of
the Company and shall be responsible for the control, supervision and
management of the Company and its business affairs.
<PAGE> 2
Executive shall not at any time while employed by the Company or any of
its affiliates or for a period of one (1) year following the later of (i)
termination of employment for any reason or (ii) the date on which the last
payment is required to be made under Section 2.1(a)(ii) hereof, without the
prior consent of the Board of Directors, knowingly acquire any financial
interests, directly or indirectly, in or perform any services for or on behalf
of any business, person or enterprise which undertakes any business in
competition with the business of the Company and its affiliates or sells to or
buys from or otherwise transacts business with the Company and its affiliates;
provided that Executive may acquire and own not more than five percent (5%) of
the outstanding capital stock of any public corporation or mutual fund.
Executive shall not at any time while employed by the Company or any of its
affiliates or for a period of two (2) years following termination of
employment for any reason, directly or indirectly, solicit for employment,
employ or enter into any business or contractual relationship with any employee
of the Company or any of its affiliates.
2.1 Base Salary. (a) (i) Executive shall be paid an initial salary at
the monthly rate of Thirty-Five Thousand Eight Hundred Thirty-Four Dollars
($35,834), which shall be paid in accordance with the Company's normal payroll
practice with respect to salaried employees, subject to applicable payroll
taxes and deductions (the "Base Salary"). Executive's Base Salary shall be
subject to review and possible change in accordance with the usual practices
and policies of the Company. However, Executive's base annual salary shall not
be reduced unless such reduction is part of a Company-wide reduction in pay
scale and such reduction is proportionate to reductions imposed on the
Company's and its subsidiaries' employees; however, in no event may Executive's
then current Base Salary be reduced by more than 10%.
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<PAGE> 3
(ii) If for any reason other than Executive's voluntary resignation or
termination pursuant to Sections 7(a), (b) or (c) hereof, Executive does not
continue to be employed by the Company, Executive shall continue to receive an
amount equal to his then current Base Salary plus an annual performance bonus
equal to the highest annual bonus payment Executive has received in the
previous three years for the then remaining balance of the term of this
Agreement. In no event shall such payment be less than one year's base salary
plus such highest annual bonus. The foregoing amounts shall be paid to
Executive over the remaining term of this Agreement or one year (whichever is
applicable) in accordance with the Company's payroll and bonus payment
policies. Notwithstanding the foregoing, no payments under this subparagraph
(ii) shall be made if the Company makes all payments to Executive required to
be made under the Executive's Senior Executive Severance Agreement (the
"Severance Agreement") in the event of a Change in Control. For purposes of
this Agreement, a Change in Control shall be deemed to have taken place upon
the occurrence of any of the following events:
(A) any corporation, person, other entity or group (other than the
trustee of any qualified retirement plan maintained by the Company) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of securities representing twenty percent
(20%) or more of the combined voting power of the Company's then outstanding
securities; or
(B) during any period of twenty-four consecutive months, individuals
who at the beginning of such consecutive twenty-four month period constitute
the Board of Directors cease for any reason (other than retirement upon
reaching normal retirement age, disability or death) to constitute at least a
majority thereof, unless the election or the nomination
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<PAGE> 4
for election by the Company's stockholders of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such twenty-four month period; or
(C) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets; or
(D) there shall occur a transaction or series of transactions which the
Board of Directors shall determine to have the effect of a Change in Control.
(b) If Executive resigns voluntarily or ceases to be employed by the
Company (or any affiliate) for any reason described in Section 7(a) or (c) of
this Agreement, all benefits described in Sections 2 and 4 hereof shall
terminate (except to the extent previously earned or vested).
(c) If Executive's employment shall have been terminated pursuant to
Section 7(b), the Company shall pay in equal monthly installments for the then
remaining balance of the term of this Agreement to Executive (or his
beneficiaries or personal representatives, as the case
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<PAGE> 5
may be) disability benefits at a rate per annum equal to one hundred percent
(100%) of his then current Base Salary, plus amounts equal to the highest
annual bonus as provided in clause (ii) of Section 2.1(a), less payments and
benefits, if any, received under any disability plan or insurance provided by
the Company and less any "sick leave" payments received from the Company for
the applicable period.
2.2 Bonuses. Executive shall be eligible for an annual performance bonus
for calendar years beginning after December 31, 1996, in accordance with the
Company's Senior Executive Performance Bonus Plan. The Company shall
administer such bonus plan on a basis consistent with the past.
2.3 Expenses. During the term hereof, the Company shall pay or reimburse
Executive in accordance with the Company's normal practices any travel, hotel
and other expenses or disbursements reasonably incurred or paid by Executive in
connection with the services performed by Executive hereunder, in each case
upon presentation by Executive of itemized accounts of such expenditures or
such other supporting information as the Company may require.
3.1 Stock Options; Performance Shares. Executive shall be eligible for
grants of stock options and performance share awards under the Company's 1994
Stock Incentive Plan (the "Plan"), as may hereafter be determined by the
Compensation Committee of the Board of Directors of the Company under the Plan.
3.2 Restricted Share Awards. The Company hereby grants to Executive,
effective as of the date hereof, 100,000 restricted shares representing shares
of Company Common Stock, $.01 par value, as evidenced by the Performance Share
Award dated of even date herewith. The restricted shares shall vest one
quarter on each of the first, second, third and
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fourth anniversary dates of the date hereof, subject to the terms and
provisions of the Performance Share Award. The grant of restricted shares
provided herein is subject to approval by the stockholders of the Company at
the 1997 Annual Meeting of Stockholders of an amendment to the Plan to permit
issuances and grants to an executive covering up to a maximum of 150,000 shares
per annum.
3.3 Forgiveness of Indebtedness. The Company agrees to forgive the
outstanding indebtedness of Executive to the Company in the principal amount of
$274,812, together with interest accrued and accruing thereon (collectively,
the "Aggregate Indebtedness"), subject to the following terms. On the first
anniversary of the date hereof, 25% of the Aggregate Indebtedness then
outstanding shall be forgiven; on the second anniversary of the date hereof,
33-1/3% of the Aggregate Indebtedness then outstanding shall be forgiven; on
the third anniversary of the date hereof, 50% of the Aggregate Indebtedness
then outstanding shall be forgiven; and any remaining Aggregate Indebtedness
shall be forgiven on the fourth anniversary of the date hereof. In addition,
the Company shall make certain payments on an After-Tax Basis to Executive on
each of the first, second, third and fourth anniversary dates equal to
Executive's actual federal, state and local tax liability resulting from the
forgiveness of the Aggregate Indebtedness on any such date. Further, in the
event that Executive's employment is terminated as a result of death,
disability, or for any reason other than Executive's voluntary resignation or
termination pursuant to Section 7(c), the amount of the Aggregate Indebtedness
then outstanding shall be forgiven in full and the Company shall make
additional payments on an After-Tax Basis to Executive equal to Executive's
actual federal, state and local tax liability resulting from the forgiveness of
the Aggregate Indebtedness. Further, if at any time during the term of
employment there is a Change in Control, the amount of the Aggregate
Indebtedness then
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outstanding shall be forgiven in full effective immediately upon the Change in
Control and the Company shall immediately make additional payments on an
After-Tax Basis to Executive equal to Executive's actual federal, state and
local tax liability resulting from the forgiveness of the Aggregate
Indebtedness. For purposes of this Section 3.3, After-Tax Basis shall mean
with respect to any payment to be received or deemed to be received by
Executive, the amount of such payment (the "Base Payment") supplemented by a
further payment (the "Additional Payment") to Executive so that the sum of the
Base Payment plus the Additional Payment shall, after deducting all taxes
imposed on such Executive as a result of the receipt or accrual of the Base
Payment and such Additional Payment, be equal to the Base Payment. If at any
time during the term of employment, Executive voluntarily resigns or is
terminated pursuant to Section 7(c), Executive shall forfeit any benefits not
yet then realized under this Section 3.3. For example, if Executive
voluntarily resigns in December 1998, Executive shall not realize any of the
forgiveness which would have occurred on January 1, 1999.
3.4 Effect of Termination of Employment; Change in Control. (a)
Notwithstanding the provisions of Executive's options, if Executive shall
resign voluntarily or cease to be employed by the Company (or an affiliate)
other than as a result of death or disability, Executive shall be entitled to
exercise such options to the extent such options could otherwise have been
exercised immediately prior to the time of termination at any time up to and
including 90 days after the date of termination, but not beyond the expiration
date of an option. This provision is not intended to limit any other rights
that Executive may have with respect to the vesting or exercise of options.
(b) If Executive shall die or become disabled, all options and
performance shares (including the Performance Share Award under Section 3.2)
which have not
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vested will accelerate and vest immediately, and, in the event of Executive's
death, all option rights will transfer to Executive's representative. All then
unexercised options will be cancelled one year after Executive dies or becomes
disabled.
(c) If there is a Change in Control, all options and performance
shares (including the Performance Share Award under Section 3.2) which have not
vested will accelerate and vest immediately.
4. Other Benefits. Executive shall be entitled to (i) participate in
medical, dental, hospitalization, disability and life insurance benefit plans
made available by the Company to its senior executives and shall also be
eligible to participate in existing retirement or pension plans offered by the
Company to its senior executives, subject in each case to the terms and
requirements of each such plan or program, (ii) reimbursement for country club
dues at Boulder Country Club and up to one additional country club, (iii)
reimbursement for automobile lease payments up to $1,000 per month and
non-routine maintenance costs, (iv) Company payment of premiums for a split
dollar life insurance policy with a face value of $2 million providing for
repayment of paid-in premiums to the Company and the balance to the estate, and
(v) an annual financial and tax-planning allowance up to 1% of base salary.
5. Confidential Information. Except as specifically permitted by this
Section 5, and except as required in the course of his employment with the
Company, while in the employ of the Company or thereafter, Executive will not
communicate or divulge to or use for the benefit of himself or any other
person, firm, association, or corporation without the prior written consent of
the Company, any Confidential Information (as defined herein) owned, or used by
the Company or any of its affiliates that may be communicated to, acquired by
or learned of by Executive in the course of, or as a result of, Executive's
employment with the Company or
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any of its affiliates. All Confidential Information relating to the business
of the Company or any of its affiliates which Executive shall use or prepare or
come into contact with shall become and remain the sole property of the Company
or its affiliates.
"Confidential Information" means information not generally known about
the Company and its affiliates, services and products, whether written or not,
including information relating to research, development, purchasing, marketing
plans, computer software or programs, any copyrightable material, trade secrets
and proprietary information, including, but not limited to, customer lists.
Executive may disclose Confidential Information to the extent it (i)
becomes part of the public domain otherwise than as a result of Executive's
breach hereof or (ii) is required to be disclosed by law. If Executive is
required by applicable law or regulation or by legal process to disclose any
Confidential Information, Executive will provide the Company with prompt notice
thereof so as to enable the Company to seek an appropriate protective order.
Upon request by the Company, Executive agrees to deliver to the Company at
the termination of Executive's employment, or at such other times as the
Company may request, all memoranda, notes, plans, records, reports and other
documents (and all copies thereof) containing Confidential Information that
Executive may then possess or have under his control.
6. Assignment of Patents and Copyrights. Executive shall assign to the
Company all inventions and improvements within the existing or contemplated
scope of the Company's business made by Executive while in the Company's
employ, together with any such patents or copyrights as may be obtained
thereon, both domestic and foreign. Upon request by the Company and at the
Company's expense, Executive will at any time during his employment with the
Company and after termination regardless of the reason therefor, execute all
proper
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papers for use in applying for, obtaining and maintaining such domestic
and foreign patents and/or copyrights as the Company may desire, and will
execute and deliver all proper assignments therefor.
7. Termination.
(a) This Agreement shall terminate upon Executive's death.
(b) The Company may terminate Executive's employment hereunder upon
fifteen (15) days' written notice if in the opinion of the Board of Directors,
Executive's physical or mental disability has continued or is expected to
continue for one hundred and eighty (180) consecutive days and as a result
thereof, Executive will be unable to continue the proper performance of his
duties hereunder. For the purpose of determining disability, Executive agrees
to submit to such reasonable physical and mental examinations, if any, as the
Board of Directors may request and hereby authorizes the examining person to
disclose his findings to the Board of Directors of the Company.
(c) The Company may terminate Executive's employment hereunder "for
cause" (as hereinafter defined). If Executive's employment is terminated for
cause, Executive's salary and all other rights not then vested under this
Agreement shall terminate upon written notice of termination being given to
Executive. As used herein, the term "for cause" means the occurrence of any of
the following:
(i) Executive having willfully and continually failed
to perform substantially his duties with the Company (other
than such failure resulting from incapacity due to physical
or mental illness, death or disability) after a written
demand for substantial performance has been delivered to the
Executive by the Board or the President of the Company which
specifically identifies the manner in which the Executive is
not substantially performing his duties; or (ii) Executive
having willfully engaged in conduct which is materially
demonstrably injurious to the Company. For purposes of this
section, no act, or failure to act, on the part
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of the Executive shall be considered "willful" unless done, or
omitted to be done, by the Executive in bad faith and
without reasonable belief that such action or omission was
in, or not opposed to, the best interests of the Company.
Any act or failure to act based upon authority given
pursuant to a resolution duly adopted by the Board or based
upon the advice of counsel to the Company shall be
conclusively presumed to be done or omitted to be done by
the Executive in good faith and in the best interests of the
Company. Notwithstanding the foregoing, the Executive shall
not be deemed to have been terminated for cause unless and
until there shall have been delivered to the Executive a
copy of a written resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting called and held for
that purpose after reasonable notice to and opportunity for
the Executive and the executive's counsel to be heard by the
Board, finding that in the good faith opinion of the Board
the Executive was guilty of the conduct set forth above in
(i) or (ii) and specifying the particulars thereof in
detail.
8. Additional Remedies. Executive recognizes that irreparable injury will
result to the Company and to its business and properties in the event of any
breach by Executive of the non-compete or non-solicitation provisions of
Section 1, the confidentiality provisions of Section 5 or the assignment
provisions of Section 6 and that Executive's continued employment is predicated
on the covenants made by him pursuant to such Sections. In the event of any
breach by Executive of his obligations under said provisions, the Company shall
be entitled, in addition to any other remedies and damages available, to
injunctive relief to restrain any such breach by Executive or by any person or
persons acting for or with Executive in any capacity whatsoever and other
equitable relief.
9. Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and the Company and their
respective legal representatives, successors and assigns. Neither this
Agreement nor any of the duties or obligations hereunder shall be assignable by
Executive.
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<PAGE> 12
10. Governing Law; Jurisdiction. This Agreement shall be interpreted and
construed in accordance with the laws of the State of Colorado. Each of the
Company and Executive consents to the jurisdiction of any state or federal
court sitting in Colorado, in any action or proceeding arising out of or
relating to this Agreement.
11. Headings. The paragraph headings used in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any purpose or in any way affect the interpretation of this Agreement.
12. Severability. If any provision, paragraph or subparagraph of this
Agreement is adjudged by any court to be void or unenforceable in whole or in
part, this adjudication shall not affect the validity of the remainder of this
Agreement. In addition, to the extent possible, a like valid term which meets
the objective of the void or unenforceable term shall be substituted for any
such void or unenforceable term.
13. Complete Agreement. This document embodies the complete agreement and
understanding among the parties, written or oral, which may have related to the
subject matter hereof in any way and shall not be amended orally, but only by
the mutual agreement of the parties hereto in writing, specifically referencing
this Agreement.
14. Counterparts. This Agreement may be executed in one or more separate
counterparts, all of which taken together shall constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THE DII GROUP, INC.
By:
-------------------------------
Title:
----------------------------
RONALD R. BUDACZ
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<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
Agreement, made as of the 1st day of January 1997, by and between The DII
Group, Inc., a Delaware corporation (the "Company"), and Carl R. Vertuca, Jr.
(the "Executive").
RECITALS
A. The Company desires to continue to employ Executive as Senior Vice
President and Chief Financial Officer; and
B. Executive is willing to accept such employment on the terms and
conditions set forth in this Agreement.
THE PARTIES AGREE as follows:
1. Position and Term of Employment. Executive's employment hereunder
shall commence as of January 1, 1997 and shall end December 31, 2000, unless
terminated sooner pursuant to Section 7 of this Agreement or extended by the
mutual agreement of the parties. During the term hereof, Executive shall be
employed as Senior Vice President and Chief Financial Officer of the Company
and shall devote his full business time, skill, attention and best efforts in
carrying out his duties and promoting the best interests of the Company.
Executive shall also serve as a director and/or officer of one or more of the
Company's subsidiaries as may be requested from time to time by the Board of
Directors. Subject always to the instructions and control of the Board of
Directors of the Company, Executive shall report to the Chief Executive Officer
of the Company and shall be responsible for the duties of the Senior Vice
President and Chief Financial Officer.
<PAGE> 2
Executive shall not at any time while employed by the Company or any of
its affiliates or for a period of one (1) year following the later of (i)
termination of employment for any reason or (ii) the date on which the last
payment is required to be made under Section 2.1(a)(ii) hereof, without the
prior consent of the Board of Directors, knowingly acquire any financial
interests, directly or indirectly, in or perform any services for or on behalf
of any business, person or enterprise which undertakes any business in
competition with the business of the Company and its affiliates or sells to or
buys from or otherwise transacts business with the Company and its affiliates;
provided that Executive may acquire and own not more than five percent (5%) of
the outstanding capital stock of any public corporation or mutual fund.
Executive shall not at any time while employed by the Company or any of its
affiliates or for a period of two (2) years following termination of employment
for any reason, directly or indirectly, solicit for employment, employ or enter
into any business or contractual relationship with any employee of the Company
or any of its affiliates.
2.1 Base Salary. (a) (i) Executive shall be paid an initial salary at
the monthly rate of Twenty Thousand Eight Hundred Thirty-Four Dollars
($20,834), which shall be paid in accordance with the Company's normal payroll
practice with respect to salaried employees, subject to applicable payroll
taxes and deductions (the "Base Salary"). Executive's Base Salary shall be
subject to review and possible change in accordance with the usual practices
and policies of the Company. However, Executive's base annual salary shall not
be reduced unless such reduction is part of a Company-wide reduction in pay
scale and such reduction is proportionate to reductions imposed on the
Company's and its subsidiaries' employees; however, in no event may Executive's
then current Base Salary be reduced by more than 10%.
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<PAGE> 3
(ii) If for any reason other than Executive's voluntary resignation or
termination pursuant to Sections 7(a), (b) or (c) hereof, Executive does not
continue to be employed by the Company, Executive shall continue to receive an
amount equal to his then current Base Salary plus an annual performance bonus
equal to the highest annual bonus payment Executive has received in the
previous three years for the then remaining balance of the term of this
Agreement. In no event shall such payment be less than one year's base salary
plus such highest annual bonus. The foregoing amounts shall be paid to
Executive over the remaining term of this Agreement or one year (whichever is
applicable) in accordance with the Company's payroll and bonus payment
policies. Notwithstanding the foregoing, no payments under this subparagraph
(ii) shall be made if the Company makes all payments to Executive required to
be made under the Executive's Senior Executive Severance Agreement (the
"Severance Agreement") in the event of a Change in Control. For purposes of
this Agreement, a Change in Control shall be deemed to have taken place upon
the occurrence of any of the following events:
(A) any corporation, person, other entity or group (other than the
trustee of any qualified retirement plan maintained by the Company) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of securities representing twenty percent
(20%) or more of the combined voting power of the Company's then outstanding
securities; or
(B) during any period of twenty-four consecutive months,
individuals who at the beginning of such consecutive twenty-four month period
constitute the Board of Directors cease for any reason (other than retirement
upon reaching normal retirement age, disability or death) to constitute at
least a majority thereof, unless the election or the nomination
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<PAGE> 4
for election by the Company's stockholders of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such twenty-four month period; or
(C) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets; or
(D) there shall occur a transaction or series of transactions
which the Board of Directors shall determine to have the effect of a Change in
Control.
(b) If Executive resigns voluntarily or ceases to be employed by the
Company (or any affiliate) for any reason described in Section 7(a) or (c) of
this Agreement, all benefits described in Sections 2 and 4 hereof shall
terminate (except to the extent previously earned or vested).
(c) If Executive's employment shall have been terminated pursuant to
Section 7(b), the Company shall pay in equal monthly installments for the then
remaining balance of the term of this Agreement to Executive (or his
beneficiaries or personal representatives, as the case
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<PAGE> 5
may be) disability benefits at a rate per annum equal to one hundred percent
(100%) of his then current Base Salary, plus amounts equal to the highest
annual bonus as provided in clause (ii) of Section 2.1(a), less payments and
benefits, if any, received under any disability plan or insurance provided by
the Company and less any "sick leave" payments received from the Company for
the applicable period.
2.2 Bonuses. Executive shall be eligible for an annual performance bonus
for calendar years beginning after December 31, 1996, in accordance with the
Company's Senior Executive Performance Bonus Plan. The Company shall
administer such bonus plan on a basis consistent with the past.
2.3 Expenses. During the term hereof, the Company shall pay or reimburse
Executive in accordance with the Company's normal practices any travel, hotel
and other expenses or disbursements reasonably incurred or paid by Executive in
connection with the services performed by Executive hereunder, in each case
upon presentation by Executive of itemized accounts of such expenditures or
such other supporting information as the Company may require.
3.1 Stock Options; Performance Shares. Executive shall be eligible for
grants of stock options and performance share awards under the Company's 1994
Stock Incentive Plan (the "Plan"), as may hereafter be determined by the
Compensation Committee of the Board of Directors of the Company under the Plan.
3.2 Forgiveness of Indebtedness. The Company agrees to forgive the
outstanding indebtedness of Executive to the Company in the principal amount of
$185,862, together with interest accrued and accruing thereon (collectively,
the "Aggregate Indebtedness"), subject to the following terms. On the first
anniversary of the date hereof, 25% of the Aggregate
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<PAGE> 6
Indebtedness then outstanding shall be forgiven; on the second anniversary of
the date hereof, 33-1/3% of the Aggregate Indebtedness then outstanding shall
be forgiven; on the third anniversary of the date hereof, 50% of the Aggregate
Indebtedness then outstanding shall be forgiven; and any remaining Aggregate
Indebtedness shall be forgiven on the fourth anniversary of the date hereof.
In addition, the Company shall make certain payments on an After-Tax Basis to
Executive on each of the first, second, third and fourth anniversary dates
equal to Executive's actual federal, state and local tax liability resulting
from the forgiveness of the Aggregate Indebtedness on any such date. Further,
in the event that Executive's employment is terminated as a result of death,
disability, or for any reason other than Executive's voluntary resignation or
termination pursuant to Section 7(c), the amount of the Aggregate Indebtedness
then outstanding shall be forgiven in full and the Company shall make
additional payments on an After-Tax Basis to Executive equal to Executive's
actual federal, state and local tax liability resulting from the forgiveness of
the Aggregate Indebtedness. Further, if at any time during the term of
employment there is a Change in Control, the amount of the Aggregate
Indebtedness then outstanding shall be forgiven in full effective immediately
upon the Change in Control and the Company shall immediately make additional
payments on an After-Tax Basis to Executive equal to Executive's actual
federal, state and local tax liability resulting from the forgiveness of the
Aggregate Indebtedness. For purposes of this Section 3.2, After-Tax Basis
shall mean with respect to any payment to be received or deemed to be received
by Executive, the amount of such payment (the "Base Payment") supplemented by a
further payment (the "Additional Payment") to Executive so that the sum of the
Base Payment plus the Additional Payment shall, after deducting all taxes
imposed on such Executive as a result of the receipt or accrual of the Base
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<PAGE> 7
Payment Additional Payment, be equal to the Base Payment. If at any time
during the term of employment, Executive voluntarily resigns or is terminated
pursuant to Section 7(c), Executive shall forfeit any benefits not yet then
realized under this Section 3.2. For example, if Executive voluntarily resigns
in December 1998, Executive shall not realize any of the forgiveness which
would have occurred on January 1, 1999.
3.3 Effect of Termination of Employment; Change in Control. (a)
Notwithstanding the provisions of Executive's options, if Executive shall
resign voluntarily or cease to be employed by the Company (or an affiliate)
other than as a result of death or disability, Executive shall be entitled to
exercise such options to the extent such options could otherwise have been
exercised immediately prior to the time of termination at any time up to and
including 90 days after the date of termination, but not beyond the expiration
date of an option. This provision is not intended to limit any other rights
that Executive may have with respect to the vesting or exercise of options.
(b) If Executive shall die or become disabled, all options and
performance shares which have not vested will accelerate and vest immediately,
and, in the event of Executive's death, all option rights will transfer to
Executive's representative. All then unexercised options will be cancelled one
year after Executive dies or becomes disabled.
(c) If there is a Change in Control, all options and performance shares
which have not vested will accelerate and vest immediately.
4. Other Benefits. Executive shall be entitled to (i) participate in
medical, dental, hospitalization, disability and life insurance benefit plans
made available by the Company to its senior executives and shall also be
eligible to participate in existing retirement or pension plans offered by the
Company to its senior executives, subject in each case to the terms and
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<PAGE> 8
requirements of each such plan or program, (ii) reimbursement for country club
dues at Boulder Country Club and up to one additional country club, (iii)
reimbursement for automobile lease payments up to $700 per month and
non-routine maintenance costs, and (iv) an annual financial and tax-planning
allowance up to 1% of base salary.
5. Confidential Information. Except as specifically permitted by this
Section 5, and except as required in the course of his employment with the
Company, while in the employ of the Company or thereafter, Executive will not
communicate or divulge to or use for the benefit of himself or any other
person, firm, association, or corporation without the prior written consent of
the Company, any Confidential Information (as defined herein) owned, or used by
the Company or any of its affiliates that may be communicated to, acquired by
or learned of by Executive in the course of, or as a result of, Executive's
employment with the Company or any of its affiliates. All Confidential
Information relating to the business of the Company or any of its affiliates
which Executive shall use or prepare or come into contact with shall become and
remain the sole property of the Company or its affiliates.
"Confidential Information" means information not generally known about
the Company and its affiliates, services and products, whether written or not,
including information relating to research, development, purchasing, marketing
plans, computer software or programs, any copyrightable material, trade secrets
and proprietary information, including, but not limited to, customer lists.
Executive may disclose Confidential Information to the extent it
(i) becomes part of the public domain otherwise than as a result of Executive's
breach hereof or (ii) is required to be disclosed by law. If Executive is
required by applicable law or regulation or by legal process
-8-
<PAGE> 9
to disclose any Confidential Information, Executive will provide the Company
with prompt notice thereof so as to enable the Company to seek an appropriate
protective order.
Upon request by the Company, Executive agrees to deliver to the Company
at the termination of Executive's employment, or at such other times as the
Company may request, all memoranda, notes, plans, records, reports and other
documents (and all copies thereof) containing Confidential Information that
Executive may then possess or have under his control.
6. Assignment of Patents and Copyrights. Executive shall assign to the
Company all inventions and improvements within the existing or contemplated
scope of the Company's business made by Executive while in the Company's
employ, together with any such patents or copyrights as may be obtained
thereon, both domestic and foreign. Upon request by the Company and at the
Company's expense, Executive will at any time during his employment with the
Company and after termination regardless of the reason therefor, execute all
proper papers for use in applying for, obtaining and maintaining such domestic
and foreign patents and/or copyrights as the Company may desire, and will
execute and deliver all proper assignments therefor.
7. Termination.
(a) This Agreement shall terminate upon Executive's death.
(b) The Company may terminate Executive's employment hereunder upon
fifteen (15) days' written notice if in the opinion of the Board of Directors,
Executive's physical or mental disability has continued or is expected to
continue for one hundred and eighty (180) consecutive days and as a result
thereof, Executive will be unable to continue the proper performance of his
duties hereunder. For the purpose of determining disability, Executive agrees
to submit to such reasonable physical and mental examinations, if any, as the
Board of Directors
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<PAGE> 10
may request and hereby authorizes the examining person to disclose his findings
to the Board of Directors of the Company.
(c) The Company may terminate Executive's employment hereunder "for
cause" (as hereinafter defined). If Executive's employment is terminated for
cause, Executive's salary and all other rights not then vested under this
Agreement shall terminate upon written notice of termination being given to
Executive. As used herein, the term "for cause" means the occurrence of any of
the following:
(i) Executive having willfully and continually failed to
perform substantially his duties with the Company (other than such
failure resulting from incapacity due to physical or mental
illness, death or disability) after a written demand for
substantial performance has been delivered to the Executive by the
Board or the President of the Company which specifically
identifies the manner in which the Executive is not substantially
performing his duties; or (ii) Executive having willfully engaged
in conduct which is materially demonstrably injurious to the
Company. For purposes of this section, no act, or failure to act,
on the part of the Executive shall be considered "willful" unless
done, or omitted to be done, by the Executive in bad faith and
without reasonable belief that such action or omission was in, or
not opposed to, the best interests of the Company. Any act or
failure to act based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel to
the Company shall be conclusively presumed to be done or omitted
to be done by the Executive in good faith and in the best
interests of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for cause
unless and until there shall have been delivered to the Executive
a copy of a written resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting called and held for that
purpose after reasonable notice to and opportunity for the
Executive and the executive's counsel to be heard by the Board,
finding that in the good faith opinion of the Board the Executive
was guilty of the conduct set forth above in (i) or (ii) and
specifying the particulars thereof in detail.
8. Additional Remedies. Executive recognizes that irreparable injury will
result to the Company and to its business and properties in the event of any
breach by Executive of the non-compete or non-solicitation provisions of
Section 1, the confidentiality provisions of
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<PAGE> 11
Section 5 or the assignment provisions of Section 6 and that Executive's
continued employment is predicated on the covenants made by him pursuant to
such Sections. In the event of any breach by Executive of his obligations
under said provisions, the Company shall be entitled, in addition to any other
remedies and damages available, to injunctive relief to restrain any such
breach by Executive or by any person or persons acting for or with Executive in
any capacity whatsoever and other equitable relief.
9. Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and the Company and their
respective legal representatives, successors and assigns. Neither this
Agreement nor any of the duties or obligations hereunder shall be assignable by
Executive.
10. Governing Law; Jurisdiction. This Agreement shall be interpreted and
construed in accordance with the laws of the State of Colorado. Each of the
Company and Executive consents to the jurisdiction of any state or federal
court sitting in Colorado, in any action or proceeding arising out of or
relating to this Agreement.
11. Headings. The paragraph headings used in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any purpose or in any way affect the interpretation of this Agreement.
12. Severability. If any provision, paragraph or subparagraph of this
Agreement is adjudged by any court to be void or unenforceable in whole or in
part, this adjudication shall not affect the validity of the remainder of this
Agreement. In addition, to the extent possible, a like valid term which meets
the objective of the void or unenforceable term shall be substituted for any
such void or unenforceable term.
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<PAGE> 12
13. Complete Agreement. This document embodies the complete agreement and
understanding among the parties, written or oral, which may have related to the
subject matter hereof in any way
and shall not be amended orally, but only by the mutual agreement of the
parties hereto in writing, specifically referencing this Agreement.
14. Counterparts. This Agreement may be executed in one or more separate
counterparts, all of which taken together shall constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THE DII GROUP, INC.
By:
--------------------------------
Title:
--------------------------------
-----------------------------------
CARL R. VERTUCA, JR.
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<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
Agreement, made as of the 1st day of January 1997, by and between The DII
Group, Inc., a Delaware corporation (the "Company"), and Ronald R. Snyder (the
"Executive").
RECITALS
A. The Company desires to continue to employ Executive as Senior Vice
President of Sales and Marketing; and
B. Executive is willing to accept such employment on the terms and
conditions set forth in this Agreement.
THE PARTIES AGREE as follows:
1. Position and Term of Employment. Executive's employment hereunder
shall commence as of January 1, 1997 and shall end December 31, 2000, unless
terminated sooner pursuant to Section 7 of this Agreement or extended by the
mutual agreement of the parties. During the term hereof, Executive shall be
employed as Senior Vice President of Sales and Marketing of the Company and
shall devote his full business time, skill, attention and best efforts in
carrying out his duties and promoting the best interests of the Company.
Executive shall also serve as a director and/or officer of one or more of the
Company's subsidiaries as may be requested from time to time by the Board of
Directors. Subject always to the instructions and control of the Board of
Directors of the Company, Executive shall report to the Chief Executive Officer
of the Company and shall be responsible for the duties of the Senior Vice
President of Sales and Marketing.
<PAGE> 2
Executive shall not at any time while employed by the Company or any of
its affiliates or for a period of one (1) year following the later of (i)
termination of employment for any reason or (ii) the date on which the last
payment is required to be made under Section 2.1(a)(ii) hereof, without the
prior consent of the Board of Directors, knowingly acquire any financial
interests, directly or indirectly, in or perform any services for or on behalf
of any business, person or enterprise which undertakes any business in
competition with the business of the Company and its affiliates or sells to or
buys from or otherwise transacts business with the Company and its affiliates;
provided that Executive may acquire and own not more than five percent (5%) of
the outstanding capital stock of any public corporation or mutual fund.
Executive shall not at any time while employed by the Company or
any of its affiliates or for a period of two (2) years following termination of
employment for any reason, directly or indirectly, solicit for employment,
employ or enter into any business or contractual relationship with any employee
of the Company or any of its affiliates.
2.1 Base Salary. (a) (i) Executive shall be paid an initial salary at
the monthly rate of Fourteen Thousand One Hundred Sixty-Seven Dollars
($14,167), which shall be paid in accordance with the Company's normal payroll
practice with respect to salaried employees, subject to applicable payroll
taxes and deductions (the "Base Salary"). Executive's Base Salary shall be
subject to review and possible change in accordance with the usual practices
and policies of the Company. However, Executive's base annual salary shall not
be reduced unless such reduction is part of a Company-wide reduction in pay
scale and such reduction is proportionate to reductions imposed on the
Company's and its subsidiaries' employees; however, in no event may Executive's
then current Base Salary be reduced by more than 10%.
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<PAGE> 3
(ii) If for any reason other than Executive's voluntary resignation or
termination pursuant to Sections 7(a), (b) or (c) hereof, Executive does not
continue to be employed by the Company, Executive shall continue to receive an
amount equal to his then current Base Salary plus an annual performance bonus
equal to the highest annual bonus payment Executive has received in the
previous three years for the then remaining balance of the term of this
Agreement. In no event shall such payment be less than one year's base salary
plus such highest annual bonus. The foregoing amounts shall be paid to
Executive over the remaining term of this Agreement or one year (whichever is
applicable) in accordance with the Company's payroll and bonus payment
policies. Notwithstanding the foregoing, no payments under this subparagraph
(ii) shall be made if the Company makes all payments to Executive required to
be made under the Executive's Senior Executive Severance Agreement (the
"Severance Agreement") in the event of a Change in Control. For purposes of
this Agreement, a Change in Control shall be deemed to have taken place upon
the occurrence of any of the following events:
(A) any corporation, person, other entity or group (other than the
trustee of any qualified retirement plan maintained by the Company) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of securities representing twenty percent
(20%) or more of the combined voting power of the Company's then outstanding
securities; or
(B) during any period of twenty-four consecutive months,
individuals who at the beginning of such consecutive twenty-four month period
constitute the Board of Directors cease for any reason (other than retirement
upon reaching normal retirement age, disability or death) to constitute at
least a majority thereof, unless the election or the nomination
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<PAGE> 4
for election by the Company's stockholders of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such twenty-four month period; or
(C) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets; or
(D) there shall occur a transaction or series of transactions
which the Board of Directors shall determine to have the effect of a Change in
Control.
(b) If Executive resigns voluntarily or ceases to be employed by the
Company (or any affiliate) for any reason described in Section 7(a) or (c) of
this Agreement, all benefits described in Sections 2 and 4 hereof shall
terminate (except to the extent previously earned or vested).
(c) If Executive's employment shall have been terminated pursuant to
Section 7(b), the Company shall pay in equal monthly installments for the then
remaining balance of the term of this Agreement to Executive (or his
beneficiaries or personal representatives, as the case
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<PAGE> 5
may be) disability benefits at a rate per annum equal to one hundred percent
(100%) of his then current Base Salary, plus amounts equal to the highest
annual bonus as provided in clause (ii) of Section 2.1(a), less payments and
benefits, if any, received under any disability plan or insurance provided by
the Company and less any "sick leave" payments received from the Company for
the applicable period.
2.2 Bonuses. Executive shall be eligible for an annual performance bonus
for calendar years beginning after December 31, 1996, in accordance with the
Company's Senior Executive Performance Bonus Plan. The Company shall
administer such bonus plan on a basis consistent with the past.
2.3 Expenses. During the term hereof, the Company shall pay or reimburse
Executive in accordance with the Company's normal practices any travel, hotel
and other expenses or disbursements reasonably incurred or paid by Executive in
connection with the services performed by Executive hereunder, in each case
upon presentation by Executive of itemized accounts of such expenditures or
such other supporting information as the Company may require.
3.1 Stock Options; Performance Shares. Executive shall be eligible for
grants of stock options and performance share awards under the Company's 1994
Stock Incentive Plan (the "Plan"), as may hereafter be determined by the
Compensation Committee of the Board of Directors of the Company under the Plan.
3.2 Forgiveness of Indebtedness. The Company agrees to forgive the
outstanding indebtedness of Executive to the Company in the principal amount of
$100,531, together with interest accrued and accruing thereon (collectively,
the "Aggregate Indebtedness"), subject to the following terms. On the first
anniversary of the date hereof, 25% of the Aggregate
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<PAGE> 6
Indebtedness then outstanding shall be forgiven; on the second anniversary of
the date hereof, 33-1/3% of the Aggregate Indebtedness then outstanding shall
be forgiven; on the third anniversary of the date hereof, 50% of the Aggregate
Indebtedness then outstanding shall be forgiven; and any remaining Aggregate
Indebtedness shall be forgiven on the fourth anniversary of the date hereof.
In addition, the Company shall make certain payments on an After-Tax Basis to
Executive on each of the first, second, third and fourth anniversary dates
equal to Executive's actual federal, state and local tax liability resulting
from the forgiveness of the Aggregate Indebtedness on any such date. Further,
in the event that Executive's employment is terminated as a result of death,
disability, or for any reason other than Executive's voluntary resignation or
termination pursuant to Section 7(c), the amount of the Aggregate Indebtedness
then outstanding shall be forgiven in full and the Company shall make
additional payments on an After-Tax Basis to Executive equal to Executive's
actual federal, state and local tax liability resulting from the forgiveness of
the Aggregate Indebtedness. Further, if at any time during the term of
employment there is a Change in Control, the amount of the Aggregate
Indebtedness then outstanding shall be forgiven in full effective immediately
upon the Change in Control and the Company shall immediately make additional
payments on an After-Tax Basis to Executive equal to Executive's actual
federal, state and local tax liability resulting from the forgiveness of the
Aggregate Indebtedness. For purposes of this Section 3.2, After-Tax Basis
shall mean with respect to any payment to be received or deemed to be received
by Executive, the amount of such payment (the "Base Payment") supplemented by a
further payment (the "Additional Payment") to Executive so that the sum of the
Base Payment plus the Additional Payment shall, after deducting all taxes
imposed on such Executive as a result of the receipt or accrual of the Base
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<PAGE> 7
Payment and such Additional Payment, be equal to the Base Payment. If at any
time during the term of employment, Executive voluntarily resigns or is
terminated pursuant to Section 7(c), Executive shall forfeit any benefits not
yet then realized under this Section 3.2. For example, if Executive
voluntarily resigns in December 1998, Executive shall not realize any of the
forgiveness which would have occurred on January 1, 1999.
3.3 Effect of Termination of Employment; Change in Control. (a)
Notwithstanding the provisions of Executive's options, if Executive shall
resign voluntarily or cease to be employed by the Company (or an affiliate)
other than as a result of death or disability, Executive shall be entitled to
exercise such options to the extent such options could otherwise have been
exercised immediately prior to the time of termination at any time up to and
including 90 days after the date of termination, but not beyond the expiration
date of an option. This provision is not intended to limit any other rights
that Executive may have with respect to the vesting or exercise of options.
(b) If Executive shall die or become disabled, all options and
performance shares which have not vested will accelerate and vest immediately,
and, in the event of Executive's death, all option rights will transfer to
Executive's representative. All then unexercised options will be cancelled one
year after Executive dies or becomes disabled.
(c) If there is a Change in Control, all options and performance shares
which have not vested will accelerate and vest immediately.
4. Other Benefits. Executive shall be entitled to (i) participate in
medical, dental, hospitalization, disability and life insurance benefit plans
made available by the Company to its senior executives and shall also be
eligible to participate in existing retirement or pension plans offered by the
Company to its senior executives, subject in each case to the terms and
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<PAGE> 8
requirements of each such plan or program, (ii) reimbursement for
country club dues at one country club, (iii) reimbursement for automobile lease
payments up to $700 per month and non-routine maintenance costs, and (iv) an
annual financial and tax-planning allowance up to 1% of base salary.
5. Confidential Information. Except as specifically permitted by this
Section 5, and except as required in the course of his employment with the
Company, while in the employ of the Company or thereafter, Executive will not
communicate or divulge to or use for the benefit of himself or any other
person, firm, association, or corporation without the prior written consent of
the Company, any Confidential Information (as defined herein) owned, or used by
the Company or any of its affiliates that may be communicated to, acquired by
or learned of by Executive in the course of, or as a result of, Executive's
employment with the Company or any of its affiliates. All Confidential
Information relating to the business of the Company or any of its affiliates
which Executive shall use or prepare or come into contact with shall become and
remain the sole property of the Company or its affiliates.
"Confidential Information" means information not generally known about the
Company and its affiliates, services and products, whether written or not,
including information relating to research, development, purchasing, marketing
plans, computer software or programs, any copyrightable material, trade secrets
and proprietary information, including, but not limited to, customer lists.
Executive may disclose Confidential Information to the extent it (i)
becomes part of the public domain otherwise than as a result of Executive's
breach hereof or (ii) is required to be disclosed by law. If Executive is
required by applicable law or regulation or by legal process
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<PAGE> 9
to disclose any Confidential Information, Executive will provide the Company
with prompt notice thereof so as to enable the Company to seek an appropriate
protective order.
Upon request by the Company, Executive agrees to deliver to the Company at
the termination of Executive's employment, or at such other times as the
Company may request, all memoranda, notes, plans, records, reports and other
documents (and all copies thereof) containing Confidential Information that
Executive may then possess or have under his control.
6. Assignment of Patents and Copyrights. Executive shall assign to the
Company all inventions and improvements within the existing or contemplated
scope of the Company's business made by Executive while in the Company's
employ, together with any such patents or copyrights as may be obtained
thereon, both domestic and foreign. Upon request by the Company and at the
Company's expense, Executive will at any time during his employment with the
Company and after termination regardless of the reason therefor, execute all
proper papers for use in applying for, obtaining and maintaining such domestic
and foreign patents and/or copyrights as the Company may desire, and will
execute and deliver all proper assignments therefor.
7. Termination.
(a) This Agreement shall terminate upon Executive's death.
(b) The Company may terminate Executive's employment hereunder upon
fifteen (15) days' written notice if in the opinion of the Board of Directors,
Executive's physical or mental disability has continued or is expected to
continue for one hundred and eighty (180) consecutive days and as a result
thereof, Executive will be unable to continue the proper performance of his
duties hereunder. For the purpose of determining disability, Executive agrees
to submit to such reasonable physical and mental examinations, if any, as the
Board of Directors
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<PAGE> 10
may request and hereby authorizes the examining person to disclose his findings
to the Board of Directors of the Company.
(c) The Company may terminate Executive's employment hereunder
"for cause" (as hereinafter defined). If Executive's employment is terminated
for cause, Executive's salary and all other rights not then vested under this
Agreement shall terminate upon written notice of termination being given to
Executive. As used herein, the term "for cause" means the occurrence of any of
the following:
(i) Executive having willfully and continually failed
to perform substantially his duties with the Company (other
than such failure resulting from incapacity due to physical
or mental illness, death or disability) after a written
demand for substantial performance has been delivered to the
Executive by the Board or the President of the Company which
specifically identifies the manner in which the Executive is
not substantially performing his duties; or (ii) Executive
having willfully engaged in conduct which is materially
demonstrably injurious to the Company. For purposes of this
section, no act, or failure to act, on the part of the
Executive shall be considered "willful" unless done, or
omitted to be done, by the Executive in bad faith and
without reasonable belief that such action or omission was
in, or not opposed to, the best interests of the Company.
Any act or failure to act based upon authority given
pursuant to a resolution duly adopted by the Board or based
upon the advice of counsel to the Company shall be
conclusively presumed to be done or omitted to be done by
the Executive in good faith and in the best interests of the
Company. Notwithstanding the foregoing, the Executive shall
not be deemed to have been terminated for cause unless and
until there shall have been delivered to the Executive a
copy of a written resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting called and held for
that purpose after reasonable notice to and opportunity for
the Executive and the executive's counsel to be heard by
the Board, finding that in the good faith opinion of the
Board the Executive was guilty of the conduct set forth
above in (i) or (ii) and specifying the particulars thereof
in detail.
8. Additional Remedies. Executive recognizes that irreparable injury will
result to the Company and to its business and properties in the event of any
breach by Executive of the non-compete or non-solicitation provisions of
Section 1, the confidentiality provisions of
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<PAGE> 11
Section 5 or the assignment provisions of Section 6 and that Executive's
continued employment is predicated on the covenants made by him pursuant to
such Sections. In the event of any breach by Executive of his obligations
under said provisions, the Company shall be entitled, in addition to any other
remedies and damages available, to injunctive relief to restrain any such
breach by Executive or by any person or persons acting for or with Executive in
any capacity whatsoever and other equitable relief.
9. Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and the Company and their
respective legal representatives, successors and assigns. Neither this
Agreement nor any of the duties or obligations hereunder shall be assignable by
Executive.
10. Governing Law; Jurisdiction. This Agreement shall be interpreted and
construed in accordance with the laws of the State of Colorado. Each of the
Company and Executive consents to the jurisdiction of any state or federal
court sitting in Colorado, in any action or proceeding arising out of or
relating to this Agreement.
11. Headings. The paragraph headings used in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any purpose or in any way affect the interpretation of this Agreement.
12. Severability. If any provision, paragraph or subparagraph of this
Agreement is adjudged by any court to be void or unenforceable in whole or in
part, this adjudication shall not affect the validity of the remainder of this
Agreement. In addition, to the extent possible, a like valid term which meets
the objective of the void or unenforceable term shall be substituted for any
such void or unenforceable term.
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<PAGE> 12
13. Complete Agreement. This document embodies the complete agreement and
understanding among the parties, written or oral, which may have related to the
subject matter hereof in any way and shall not be amended orally, but only by
the mutual agreement of the parties hereto in writing, specifically referencing
this Agreement.
14. Counterparts. This Agreement may be executed in one or more separate
counterparts, all of which taken together shall constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THE DII GROUP, INC.
By:
-------------------------------
Title:
----------------------------
----------------------------------
RONALD R. SNYDER
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<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
Agreement, made as of the 1st day of January 1997, by and between The DII
Group, Inc., a Delaware corporation (the "Company"), and Dermott O'Flanagan
(the "Executive").
RECITALS
A. The Company desires to continue to employ Executive as Senior Vice
President and President, DOVatron International, Inc.; and
B. Executive is willing to accept such employment on the terms and
conditions set forth in this Agreement.
THE PARTIES AGREE as follows:
1. Position and Term of Employment. Executive's employment hereunder
shall commence as of January 1, 1997 and shall end December 31, 2000, unless
terminated sooner pursuant to Section 7 of this Agreement or extended by the
mutual agreement of the parties. During the term hereof, Executive shall be
employed as Senior Vice President (and President, DOVatron International, Inc.)
of the Company and shall devote his full business time, skill, attention and
best efforts in carrying out his duties and promoting the best interests of the
Company. Executive shall also serve as a director and/or officer of one or
more of the Company's subsidiaries as may be requested from time to time by the
Board of Directors. Subject always to the instructions and control of the
Board of Directors of the Company,
<PAGE> 2
Executive shall report to the Chief Executive Officer of the Company and shall
be responsible for the duties of the Senior Vice President and President,
DOVatron International, Inc.
Executive shall not at any time while employed by the Company or any of
its affiliates or for a period of one (1) year following the later of (i)
termination of employment for any reason or (ii) the date on which the last
payment is required to be made under Section 2.1(a)(ii) hereof, without the
prior consent of the Board of Directors, knowingly acquire any financial
interests, directly or indirectly, in or perform any services for or on behalf
of any business, person or enterprise which undertakes any business in
competition with the business of the Company and its affiliates or sells to or
buys from or otherwise transacts business with the Company and its affiliates;
provided that Executive may acquire and own not more than five percent (5%) of
the outstanding capital stock of any public corporation or mutual fund.
Executive shall not at any time while employed by the Company or any of its
affiliates or for a period of two (2) years following termination of employment
for any reason, directly or indirectly, solicit for employment, employ or enter
into any business or contractual relationship with any employee of the Company
or any of its affiliates.
2.1 Base Salary. (a) (i) Executive shall be paid an initial salary at
the monthly rate of Nineteen Thousand One Hundred Sixty-Seven Dollars
($19,167), which shall be paid in accordance with the Company's normal payroll
practice with respect to salaried employees, subject to applicable payroll
taxes and deductions (the "Base Salary"). Executive's Base Salary shall be
subject to review and possible change in accordance with the usual practices
and policies of the Company. However, Executive's base annual salary shall not
be reduced unless such reduction is part of a Company-wide reduction in pay
scale and such reduction is
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<PAGE> 3
proportionate to reductions imposed on the Company's and its subsidiaries'
employees; however, in no event may Executive's then current Base Salary be
reduced by more than 10%.
(ii) If for any reason other than Executive's voluntary resignation or
termination pursuant to Sections 7(a), (b) or (c) hereof, Executive does not
continue to be employed by the Company, Executive shall continue to receive an
amount equal to his then current Base Salary plus an annual performance bonus
equal to the highest annual bonus payment Executive has received in the
previous three years for the then remaining balance of the term of this
Agreement. In no event shall such payment be less than one year's base salary
plus such highest annual bonus. The foregoing amounts shall be paid to
Executive over the remaining term of this Agreement or one year (whichever is
applicable) in accordance with the Company's payroll and bonus payment
policies. Notwithstanding the foregoing, no payments under this subparagraph
(ii) shall be made if the Company makes all payments to Executive required to
be made under the Executive's Senior Executive Severance Agreement (the
"Severance Agreement") in the event of a Change in Control. For purposes of
this Agreement, a Change in Control shall be deemed to have taken place upon
the occurrence of any of the following events:
(A) any corporation, person, other entity or group (other than the
trustee of any qualified retirement plan maintained by the Company) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of securities representing twenty percent
(20%) or more of the combined voting power of the Company's then outstanding
securities; or
(B) during any period of twenty-four consecutive months, individuals who
at the beginning of such consecutive twenty-four month period constitute the
Board of
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<PAGE> 4
Directors cease for any reason (other than retirement upon reaching
normal retirement age, disability or death) to constitute at least a majority
thereof, unless the election or the nomination for election by the Company's
stockholders of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of
such twenty-four month period; or
(C) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets; or
(D) there shall occur a transaction or series of transactions which the
Board of Directors shall determine to have the effect of a Change in Control.
(b) If Executive resigns voluntarily or ceases to be employed by the
Company (or any affiliate) for any reason described in Section 7(a) or (c) of
this Agreement, all benefits described in Sections 2 and 4 hereof shall
terminate (except to the extent previously earned or vested).
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<PAGE> 5
(c) If Executive's employment shall have been terminated pursuant to
Section 7(b), the Company shall pay in equal monthly installments for the then
remaining balance of the term of this Agreement to Executive (or his
beneficiaries or personal representatives, as the case may be) disability
benefits at a rate per annum equal to one hundred percent (100%) of his then
current Base Salary, plus amounts equal to the highest annual bonus as provided
in clause (ii) of Section 2.1(a), less payments and benefits, if any, received
under any disability plan or insurance provided by the Company and less any
"sick leave" payments received from the Company for the applicable period.
2.2 Bonuses. Executive shall be eligible for an annual performance bonus
for calendar years beginning after December 31, 1996, in accordance with the
Company's Senior Executive Performance Bonus Plan. The Company shall
administer such bonus plan on a basis consistent with the past.
2.3 Expenses. During the term hereof, the Company shall pay or reimburse
Executive in accordance with the Company's normal practices any travel, hotel
and other expenses or disbursements reasonably incurred or paid by Executive in
connection with the services performed by Executive hereunder, in each case
upon presentation by Executive of itemized accounts of such expenditures or
such other supporting information as the Company may require.
3.1 Stock Options; Performance Shares. Executive shall be eligible for
grants of stock options and performance share awards under the Company's 1994
Stock Incentive Plan
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<PAGE> 6
(the "Plan"), as may hereafter be determined by the Compensation Committee of
the Board of Directors of the Company under the Plan.
3.2 Effect of Termination of Employment; Change in Control. (a)
Notwithstanding the provisions of Executive's options, if Executive shall
resign voluntarily or cease to be employed by the Company (or an affiliate)
other than as a result of death or disability, Executive shall be entitled to
exercise such options to the extent such options could otherwise have been
exercised immediately prior to the time of termination at any time up to and
including 90 days after the date of termination, but not beyond the expiration
date of an option. This provision is not intended to limit any other rights
that Executive may have with respect to the vesting or exercise of options.
(b) If Executive shall die or become disabled, all options and performance
shares which have not vested will accelerate and vest immediately, and, in the
event of Executive's death, all option rights will transfer to Executive's
representative. All then unexercised options will be cancelled one year after
Executive dies or becomes disabled.
(c) If there is a Change in Control, all options and performance shares
which have not vested will accelerate and vest immediately.
4. Other Benefits. Executive shall be entitled to (i) participate in
medical, dental, hospitalization, disability and life insurance benefit plans
made available by the Company to its senior executives and shall also be
eligible to participate in existing retirement or pension plans offered by the
Company to its senior executives, subject in each case to the terms and
requirements of each such plan or program, (ii) reimbursement for country club
dues at one country club, (iii) reimbursement for automobile lease payments up
to $700 per month and
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<PAGE> 7
non-routine maintenance costs, and (iv) an annual financial and tax-planning
allowance up to 1% of base salary.
5. Confidential Information. Except as specifically permitted by this
Section 5, and except as required in the course of his employment with the
Company, while in the employ of the Company or thereafter, Executive will not
communicate or divulge to or use for the benefit of himself or any other
person, firm, association, or corporation without the prior written consent of
the Company, any Confidential Information (as defined herein) owned, or used by
the Company or any of its affiliates that may be communicated to, acquired by
or learned of by Executive in the course of, or as a result of, Executive's
employment with the Company or any of its affiliates. All Confidential
Information relating to the business of the Company or any of its affiliates
which Executive shall use or prepare or come into contact with shall become and
remain the sole property of the Company or its affiliates.
"Confidential Information" means information not generally known about the
Company and its affiliates, services and products, whether written or not,
including information relating to research, development, purchasing, marketing
plans, computer software or programs, any copyrightable material, trade secrets
and proprietary information, including, but not limited to, customer lists.
Executive may disclose Confidential Information to the extent it (i)
becomes part of the public domain otherwise than as a result of Executive's
breach hereof or (ii) is required to be disclosed by law. If Executive is
required by applicable law or regulation or by legal process to disclose any
Confidential Information, Executive will provide the Company with prompt notice
thereof so as to enable the Company to seek an appropriate protective order.
-7-
<PAGE> 8
Upon request by the Company, Executive agrees to deliver to the Company at
the termination of Executive's employment, or at such other times as the
Company may request, all memoranda, notes, plans, records, reports and other
documents (and all copies thereof) containing Confidential Information that
Executive may then possess or have under his control.
6. Assignment of Patents and Copyrights. Executive shall assign to the
Company all inventions and improvements within the existing or contemplated
scope of the Company's business made by Executive while in the Company's
employ, together with any such patents or copyrights as may be obtained
thereon, both domestic and foreign. Upon request by the Company and at the
Company's expense, Executive will at any time during his employment with the
Company and after termination regardless of the reason therefor, execute all
proper papers for use in applying for, obtaining and maintaining such domestic
and foreign patents and/or copyrights as the Company may desire, and will
execute and deliver all proper assignments therefor.
7. Termination.
(a) This Agreement shall terminate upon Executive's death.
(b) The Company may terminate Executive's employment hereunder upon
fifteen (15) days' written notice if in the opinion of the Board of Directors,
Executive's physical or mental disability has continued or is expected to
continue for one hundred and eighty (180) consecutive days and as a result
thereof, Executive will be unable to continue the proper performance of his
duties hereunder. For the purpose of determining disability, Executive agrees
to submit to such reasonable physical and mental examinations, if any, as the
Board of Directors
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<PAGE> 9
may request and hereby authorizes the examining person to
disclose his findings to the Board of Directors of the Company.
(c) The Company may terminate Executive's employment hereunder "for
cause" (as hereinafter defined). If Executive's employment is terminated for
cause, Executive's salary and all other rights not then vested under this
Agreement shall terminate upon written notice of termination being given to
Executive. As used herein, the term "for cause" means the occurrence of any of
the following:
(i) Executive having willfully and continually failed
to perform substantially his duties with the Company (other
than such failure resulting from incapacity due to physical
or mental illness, death or disability) after a written
demand for substantial performance has been delivered to the
Executive by the Board or the President of the Company which
specifically identifies the manner in which the Executive is not
substantially performing his duties; or (ii) Executive having
willfully engaged in conduct which is materially demonstrably
injurious to the Company. For purposes of this section, no act, or
failure to act, on the part of the Executive shall be considered
"willful" unless done, or omitted to be done, by the Executive in
bad faith and without reasonable belief that such action or omission
was in, or not opposed to, the best interests of the Company. Any
act or failure to act based upon authority given pursuant to a
resolution duly adopted by the Board or based upon the advice of
counsel to the Company shall be conclusively presumed to be done or
omitted to be done by the Executive in good faith and in the best
interests of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for cause
unless and until there shall have been delivered to the Executive a
copy of a written resolution duly adopted by the affirmative vote of
not less than three-quarters (3/4) of the entire membership of the
Board at a meeting called and held for that purpose after reasonable
notice to and opportunity for the Executive and the executive's
counsel to be heard by the Board, finding that in the good faith
opinion of the Board the Executive was guilty of the conduct set
forth above in (i) or (ii) and specifying the particulars thereof in
detail.
8. Additional Remedies. Executive recognizes that irreparable injury will
result to the Company and to its business and properties in the event of any
breach by Executive of the non-compete or non-solicitation provisions of
Section 1, the confidentiality provisions of
-9-
<PAGE> 10
Section 5 or the assignment provisions of Section 6 and that Executive's
continued employment is predicated on the covenants made by him pursuant to
such Sections. In the event of any breach by Executive of his obligations
under said provisions, the Company shall be entitled, in addition to any other
remedies and damages available, to injunctive relief to restrain any such
breach by Executive or by any person or persons acting for or with Executive in
any capacity whatsoever and other equitable relief.
9. Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and the Company and their
respective legal representatives, successors and assigns. Neither this
Agreement nor any of the duties or obligations hereunder shall be assignable by
Executive.
10. Governing Law; Jurisdiction. This Agreement shall be interpreted and
construed in accordance with the laws of the State of Colorado. Each of the
Company and Executive consents to the jurisdiction of any state or federal
court sitting in Colorado, in any action or proceeding arising out of or
relating to this Agreement.
11. Headings. The paragraph headings used in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any purpose or in any way affect the interpretation of this Agreement.
12. Severability. If any provision, paragraph or subparagraph of this
Agreement is adjudged by any court to be void or unenforceable in whole or in
part, this adjudication shall not affect the validity of the remainder of this
Agreement. In addition, to the
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<PAGE> 11
extent possible, a like valid term which meets the objective of the void or
unenforceable term shall be substituted for any such void or unenforceable
term.
13. Complete Agreement. This document embodies the complete agreement and
understanding among the parties, written or oral, which may have related to the
subject matter hereof in any way and shall not be amended orally, but only by
the mutual agreement of the parties hereto in writing, specifically referencing
this Agreement.
14. Counterparts. This Agreement may be executed in one or more separate
counterparts, all of which taken together shall constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THE DII GROUP, INC.
By:
-------------------------------------
Title:
-------------------------------------
----------------------------------------
DERMOTT O'FLANAGAN
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<PAGE> 1
EXHIBIT 10.9
AMENDMENT
TO
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT, made and entered into
as of the first day of January, 1997 by and between The DII Group, Inc., a
Delaware corporation (the "Corporation") and Ronald R. Budacz (the
"Executive").
W I T N E S S E T H
WHEREAS, the Corporation and Executive are parties to that certain Senior
Executive Severance Agreement, dated May 21, 1993 (the "Severance Agreement")
and wish to amend the Severance Agreement as herein set forth: and
WHEREAS, the Board of Directors of the Corporation has approved the
following amendments to the Severance Agreement at a meeting of the Board of
Directors duly held on May 9, 1995 and has further ratified the following
amendments by Unanimous Written Consent of the Board of Directors dated
February 28, 1997.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 4(a) of the Severance Agreement is hereby amended so that said
Section 4(a) shall be and read as follows:
"a) Payment to the Executive as compensation for services rendered
to the Corporation a lump sum cash amount (subject to any applicable
payroll or other taxes required to be withheld) equal to twice (two
times) the sum of (i) the highest annual base salary received by the
Executive during the five-year period prior to the Change of Control (or
such shorter period that the Executive was employed by the Corporation or
a Subsidiary) or, if the amount would be greater, the highest annualized
base salary that the Executive would have received based on the highest
base annual salary rate in effect during such period and (ii) the highest
annual bonus received by the Executive during such five-year period, in
each case calculated without regard to amounts deferred under the
qualified and non-qualified plans of the Corporation. In the event that
there are fewer than 12 whole or partial months remaining from the date
of Termination to the Executive's normal retirement date, the amount to
be paid hereunder will be reduced by multiplying it by a fraction the
numerator of which is the number of whole or partial months so remaining
and the denominator of which is 12."
<PAGE> 2
2. Section 5 of the Severance Agreement is hereby amended by replacing the
word "options" appearing in the second line thereof with the word "option" and
inserting the words "stock incentive," immediately after the word "option" in
the second line thereof.
3. Section 6 of the Severance Agreement is hereby amended by adding the
words "and each anniversary thereafter" immediately after the word
"anniversary" in the third line thereof.
4. Section 9 of the Severance Agreement is hereby amended so that said
Section 9 shall be and read as follows:
9. Taxes.
"(a) Notwithstanding anything herein to the contrary, if
any of the payments provided for under Section 4 of this
Agreement, calculated without regard to any other payments or
benefits which the Executive has the right to receive from the
Corporation (including acceleration of vesting of options and
performance shares), would constitute a "parachute payment" (as
defined in Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code")), the payments pursuant to Section 4 of
this Agreement shall be reduced to the largest amount as would
result in no payments or portions thereof being nondeductible
by the Corporation under Section 280G of the Code, calculated
without regard to any other payments which the Executive has
the right to receive from the Corporation (including
acceleration of vesting of options and performance shares). In
the event that the Executive and the Corporation dispute
whether there should be any reduction in payments pursuant to
this Section 9, the determination of whether such reduction is
necessary shall be made by an independent accounting firm or
law firm mutually acceptable to the Executive and the
Corporation and such determination shall be conclusive and
binding on the Corporation and the Executive.
(b) In the event that any payment or benefit to the
Executive or for his benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his employment
with the Corporation or a change in ownership or effective
control of the Corporation or of a substantial portion of its
assets (each a "Payment" and collectively, the "Payments"),
would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the
Executive will be entitled to receive an additional payment (a
"Gross-Up Payment"), such that the net amount retained by the
Executive, after deduction and/or payment of any Excise Tax on
the Payments and the Gross-Up Payment and any federal, state
and local
-2-
<PAGE> 3
income tax on the Gross-Up Payment (including any interest or
penalties, other than interest and penalties imposed by reason
of the Executive's failure to file timely a tax return or pay
taxes shown due on his return, imposed with respect to such
taxes), shall be equal to the Payments. Notwithstanding the
foregoing, the amount of the Gross-Up Payment otherwise
required pursuant to Section 9(b) of this Agreement shall be
reduced by an amount equal to the Gross-Up Payment (if any)
that would have been required under the preceding portion of
Section 9(b) of this Agreement if no payments or benefits
arising from or relating to the acceleration, vesting or
lapsing of restrictions on incentive awards (including, without
limitation, stock options, performance shares and restricted
stock) had been made.
(c) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and the amount
of such Gross-Up Payment shall be made at the Corporation's
expense by an accounting firm selected by the Corporation and
reasonably acceptable to the Executive which is designated as
one of the five largest accounting firms in the United States
(the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed
supporting calculations and documentation to the Corporation
and the Executive within five days of the termination date if
applicable, or such other time as requested by the Executive
(provided the Executive reasonably believes that any of the
Payments may be subject to the Excise Tax) and if the
Accounting Firm determines that no Excise Tax is payable by the
Executive as provided in Section 9(b) above, it shall furnish
the Executive with an opinion reasonably acceptable to the
Executive to such effect. Within ten days of the delivery of
the Determination to the Executive, the Executive shall have
the right to dispute the Determination (the "Dispute"). The
Gross-Up Payment, if any, as determined pursuant to this
Paragraph 9(c) shall be paid by the Corporation to the
Executive within five days of the receipt of the Accounting
Firm's determination. The existence of the Dispute shall not
in any way affect the Executive's right to receive the Gross-Up
Payment in accordance with the Determination. Upon the final
resolution of a Dispute, the Corporation shall promptly pay to
the Executive any additional amount required by such
resolution. If there is no Dispute, the Determination shall be
binding, final and conclusive upon the Corporation and the
Executive subject to the application of Section 9(d) below.
(d) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a
Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an "Excess Payment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will
not have been paid (an "Underpayment"). An Underpayment shall
be deemed to have occurred (i) upon notice (formal or informal)
to the Executive from any governmental taxing authority that
the
-3-
<PAGE> 4
Executive's tax liability (whether in respect of the
Executive's current taxable year or in respect of any prior
taxable year) may be increased by reason of the imposition of
the Excise Tax on a Payment or Payments with respect to which
the Corporation has failed to make a sufficient Gross-Up
Payment, (ii) upon a determination by a court, (iii) by reason
of a determination by the Corporation (which shall include the
position taken by the Corporation, together with its
consolidated group, on its federal income tax return) or (iv)
upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall
promptly notify the Corporation and the Corporation shall
promptly, but in any event, at least five days prior to the
date on which the applicable government taxing authority has
requested payment, pay to the Executive an additional Gross-Up
Payment equal to the amount of the Underpayment plus an amount
that, net of federal, state and local income taxes, is equal to
any interest and penalties (other than interest and penalties
imposed by reason of the Executive's failure to file timely a
tax return or pay taxes shown due on the Executive's return)
imposed on the Underpayment. An Excess Payment shall be deemed
to have occurred upon a Final Determination (as hereinafter
defined) that the Excise Tax shall not be imposed upon a
Payment or Payments (or portion thereof) with respect to which
the Executive had previously received a Gross-Up Payment. A
"Final Determination" shall be deemed to have occurred when the
Executive has received from the applicable government taxing
authority a refund of taxes or other reduction in the
Executive's tax liability by reason of the Excess Payment and
upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental
taxing authority which finally and conclusively binds the
Executive and such taxing authority, or in the event that a
claim is brought before a court of competent jurisdiction, the
date upon which a final determination has been made by such
court and either all appeals have been taken and finally
resolved or the time for all appeals has expired or (y) the
statute of limitations period with respect to the Executive's
applicable tax return has expired. If an Excess Payment is
determined to have been made, the amount of the Excess Payment
shall be treated as a loan by the Corporation to the Executive
and the Executive shall pay to the Corporation on demand (but
not less than 10 days after the determination of such Excess
Payment and written notice has been delivered to the Executive)
the amount of the Excess Payment plus interest at an annual
rate equal to the Applicable Federal Rate provided for in
Section 1274(d) of the Code from the date the Gross-Up Payment
(to which the Excess Payment relates) was paid to the Executive
until the date of repayment to the Corporation.
(e) Notwithstanding anything contained in this Agreement
to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any Payment or
Payments, the Corporation shall pay to the applicable
government taxing authorities as Excise Tax
-4-
<PAGE> 5
withholding, the amount of the Excise Tax that the Corporation
has actually withheld from the Payment or Payments."
5. Section 10(f) of the Severance Agreement is hereby amended to change the
addresses to which notices and other communications hereunder shall be sent as
follows:
If to the Executive:
Ronald R. Budacz
6529 Daylilly Court
Niwot, Colorado 80503
If to the Corporation:
The DII Group, Inc.
6273 Monarch Park Place
Suite 200
Niwot, Colorado 80503
Attention: Chief Executive Officer
6. Except as otherwise expressly provided herein, the Severance Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
---------------------------------------
Ronald R. Budacz
THE DII GROUP, INC.
---------------------------------------
Name:
Title:
-5-
<PAGE> 1
EXHIBIT 10.10
AMENDMENT
TO
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT, made and entered into
as of the first day of January, 1997 by and between The DII Group, Inc., a
Delaware corporation (the "Corporation") and Carl R. Vertuca, Jr. (the
"Executive").
W I T N E S S E T H
WHEREAS, the Corporation and Executive are parties to that certain Senior
Executive Severance Agreement, dated May 21, 1993 (the "Severance Agreement")
and wish to amend the Severance Agreement as herein set forth: and
WHEREAS, the Board of Directors of the Corporation has approved the
following amendments to the Severance Agreement at a meeting of the Board of
Directors duly held on May 9, 1995 and has further ratified the following
amendments by Unanimous Written Consent of the Board of Directors dated
February 28, 1997.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 4(a) of the Severance Agreement is hereby amended so that said
Section 4(a) shall be and read as follows:
"a) Payment to the Executive as compensation for services rendered
to the Corporation a lump sum cash amount (subject to any applicable
payroll or other taxes required to be withheld) equal to twice (two
times) the sum of (i) the highest annual base salary received by the
Executive during the five-year period prior to the Change of Control (or
such shorter period that the Executive was employed by the Corporation or
a Subsidiary) or, if the amount would be greater, the highest annualized
base salary that the Executive would have received based on the highest
base annual salary rate in effect during such period and (ii) the highest
annual bonus received by the Executive during such five-year period, in
each case calculated without regard to amounts deferred under the
qualified and non-qualified plans of the Corporation. In the event that
there are fewer than 12 whole or partial months remaining from the date
of Termination to the Executive's normal retirement date, the amount to
be paid hereunder will be reduced by multiplying it by a fraction the
numerator of which is the number of whole or partial months so remaining
and the denominator of which is 12."
<PAGE> 2
2. Section 5 of the Severance Agreement is hereby amended by replacing the
word "options" appearing in the second line thereof with the word "option" and
inserting the words "stock incentive," immediately after the word "option" in
the second line thereof.
3. Section 6 of the Severance Agreement is hereby amended by adding the
words "and each anniversary thereafter" immediately after the word
"anniversary" in the third line thereof.
4. Section 9 of the Severance Agreement is hereby amended so that said
Section 9 shall be and read as follows:
9. Taxes.
"(a) Notwithstanding anything herein to the contrary, if
any of the payments provided for under Section 4 of this
Agreement, calculated without regard to any other payments or
benefits which the Executive has the right to receive from the
Corporation (including acceleration of vesting of options and
performance shares), would constitute a "parachute payment" (as
defined in Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code")), the payments pursuant to Section 4 of
this Agreement shall be reduced to the largest amount as would
result in no payments or portions thereof being nondeductible
by the Corporation under Section 280G of the Code, calculated
without regard to any other payments which the Executive has
the right to receive from the Corporation (including
acceleration of vesting of options and performance shares). In
the event that the Executive and the Corporation dispute
whether there should be any reduction in payments pursuant to
this Section 9, the determination of whether such reduction is
necessary shall be made by an independent accounting firm or
law firm mutually acceptable to the Executive and the
Corporation and such determination shall be conclusive and
binding on the Corporation and the Executive.
(b) In the event that any payment or benefit to the
Executive or for his benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his employment
with the Corporation or a change in ownership or effective
control of the Corporation or of a substantial portion of its
assets (each a "Payment" and collectively, the "Payments"),
would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the
Executive will be entitled to receive an additional payment (a
"Gross-Up Payment"), such that the net amount retained by the
Executive, after deduction and/or payment of any Excise Tax on
the Payments and the Gross-Up Payment and any federal, state
and local
-2-
<PAGE> 3
income tax on the Gross-Up Payment (including any interest or
penalties, other than interest and penalties imposed by reason
of the Executive's failure to file timely a tax return or pay
taxes shown due on his return, imposed with respect to such
taxes), shall be equal to the Payments. Notwithstanding the
foregoing, the amount of the Gross-Up Payment otherwise
required pursuant to Section 9(b) of this Agreement shall be
reduced by an amount equal to the Gross-Up Payment (if any)
that would have been required under the preceding portion of
Section 9(b) of this Agreement if no payments or benefits
arising from or relating to the acceleration, vesting or
lapsing of restrictions on incentive awards (including, without
limitation, stock options, performance shares and restricted
stock) had been made.
(c) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and the amount
of such Gross-Up Payment shall be made at the Corporation's
expense by an accounting firm selected by the Corporation and
reasonably acceptable to the Executive which is designated as
one of the five largest accounting firms in the United States
(the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed
supporting calculations and documentation to the Corporation
and the Executive within five days of the termination date if
applicable, or such other time as requested by the Executive
(provided the Executive reasonably believes that any of the
Payments may be subject to the Excise Tax) and if the
Accounting Firm determines that no Excise Tax is payable by the
Executive as provided in Section 9(b) above, it shall furnish
the Executive with an opinion reasonably acceptable to the
Executive to such effect. Within ten days of the delivery of
the Determination to the Executive, the Executive shall have
the right to dispute the Determination (the "Dispute"). The
Gross-Up Payment, if any, as determined pursuant to this
Paragraph 9(c) shall be paid by the Corporation to the
Executive within five days of the receipt of the Accounting
Firm's determination. The existence of the Dispute shall not
in any way affect the Executive's right to receive the Gross-Up
Payment in accordance with the Determination. Upon the final
resolution of a Dispute, the Corporation shall promptly pay to
the Executive any additional amount required by such
resolution. If there is no Dispute, the Determination shall be
binding, final and conclusive upon the Corporation and the
Executive subject to the application of Section 9(d) below.
(d) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a
Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an "Excess Payment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will
not have been paid (an "Underpayment"). An Underpayment shall
be deemed to have occurred (i) upon notice (formal or informal)
to the Executive from any governmental taxing authority that
the
-3-
<PAGE> 4
Executive's tax liability (whether in respect of the
Executive's current taxable year or in respect of any prior
taxable year) may be increased by reason of the imposition of
the Excise Tax on a Payment or Payments with respect to which
the Corporation has failed to make a sufficient Gross-Up
Payment, (ii) upon a determination by a court, (iii) by reason
of a determination by the Corporation (which shall include the
position taken by the Corporation, together with its
consolidated group, on its federal income tax return) or (iv)
upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall
promptly notify the Corporation and the Corporation shall
promptly, but in any event, at least five days prior to the
date on which the applicable government taxing authority has
requested payment, pay to the Executive an additional Gross-Up
Payment equal to the amount of the Underpayment plus an amount
that, net of federal, state and local income taxes, is equal to
any interest and penalties (other than interest and penalties
imposed by reason of the Executive's failure to file timely a
tax return or pay taxes shown due on the Executive's return)
imposed on the Underpayment. An Excess Payment shall be deemed
to have occurred upon a Final Determination (as hereinafter
defined) that the Excise Tax shall not be imposed upon a
Payment or Payments (or portion thereof) with respect to which
the Executive had previously received a Gross-Up Payment. A
"Final Determination" shall be deemed to have occurred when the
Executive has received from the applicable government taxing
authority a refund of taxes or other reduction in the
Executive's tax liability by reason of the Excess Payment and
upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental
taxing authority which finally and conclusively binds the
Executive and such taxing authority, or in the event that a
claim is brought before a court of competent jurisdiction, the
date upon which a final determination has been made by such
court and either all appeals have been taken and finally
resolved or the time for all appeals has expired or (y) the
statute of limitations period with respect to the Executive's
applicable tax return has expired. If an Excess Payment is
determined to have been made, the amount of the Excess Payment
shall be treated as a loan by the Corporation to the Executive
and the Executive shall pay to the Corporation on demand (but
not less than 10 days after the determination of such Excess
Payment and written notice has been delivered to the Executive)
the amount of the Excess Payment plus interest at an annual
rate equal to the Applicable Federal Rate provided for in
Section 1274(d) of the Code from the date the Gross-Up Payment
(to which the Excess Payment relates) was paid to the Executive
until the date of repayment to the Corporation.
(e) Notwithstanding anything contained in this Agreement
to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any Payment or
Payments, the Corporation shall pay to the applicable
government taxing authorities as Excise Tax
-4-
<PAGE> 5
withholding, the amount of the Excise Tax that the Corporation
has actually withheld from the Payment or Payments."
5. Section 10(f) of the Severance Agreement is hereby amended to change the
addresses to which notices and other communications hereunder shall be sent as
follows:
If to the Executive:
Carl R. Vertuca, Jr.
6955 Cordwood Court
Boulder, Colorado 80301
If to the Corporation:
The DII Group, Inc.
6273 Monarch Park Place
Suite 200
Niwot, Colorado 80503
Attention: Chief Executive Officer
6. Except as otherwise expressly provided herein, the Severance Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
---------------------------------------
Carl R. Vertuca, Jr.
THE DII GROUP, INC.
---------------------------------------
Name:
Title:
-5-
<PAGE> 1
EXHIBIT 10.11
AMENDMENT
TO
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT, made and entered into
as of the first day of January, 1997 by and between The DII Group, Inc., a
Delaware corporation (the "Corporation") and Ronald R. Snyder (the
"Executive").
W I T N E S S E T H
WHEREAS, the Corporation and Executive are parties to that certain Senior
Executive Severance Agreement, dated May 21, 1993 (the "Severance Agreement")
and wish to amend the Severance Agreement as herein set forth: and
WHEREAS, the Board of Directors of the Corporation has approved the
following amendments to the Severance Agreement at a meeting of the Board of
Directors duly held on May 9, 1995 and has further ratified the following
amendments by Unanimous Written Consent of the Board of Directors dated
February 28, 1997.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 4(a) of the Severance Agreement is hereby amended so that said
Section 4(a) shall be and read as follows:
"a) Payment to the Executive as compensation for services rendered
to the Corporation a lump sum cash amount (subject to any applicable
payroll or other taxes required to be withheld) equal to the sum of (i)
the highest annual base salary received by the Executive during the
five-year period prior to the Change of Control (or such shorter period
that the Executive was employed by the Corporation or a Subsidiary) or,
if the amount would be greater, the highest annualized base salary that
the Executive would have received based on the highest base annual salary
rate in effect during such period and (ii) the highest annual bonus
received by the Executive during such five-year period, in each case
calculated without regard to amounts deferred under the qualified and
non-qualified plans of the Corporation. In the event that there are
fewer than 12 whole or partial months remaining from the date of
Termination to the Executive's normal retirement date, the amount to be
paid hereunder will be reduced by multiplying it by a fraction the
numerator of which is the number of whole or partial months so remaining
and the denominator of which is 12."
<PAGE> 2
2. Section 5 of the Severance Agreement is hereby amended by replacing the
word "options" appearing in the second line thereof with the word "option" and
inserting the words "stock incentive," immediately after the word "option" in
the second line thereof.
3. Section 6 of the Severance Agreement is hereby amended by adding the
words "and each anniversary thereafter" immediately after the word
"anniversary" in the third line thereof.
4. Section 9 of the Severance Agreement is hereby amended so that said
Section 9 shall be and read as follows:
9. Taxes.
"(a) Notwithstanding anything herein to the contrary, if
any of the payments provided for under Section 4 of this
Agreement, calculated without regard to any other payments or
benefits which the Executive has the right to receive from the
Corporation (including acceleration of vesting of options and
performance shares), would constitute a "parachute payment" (as
defined in Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code")), the payments pursuant to Section 4 of
this Agreement shall be reduced to the largest amount as would
result in no payments or portions thereof being nondeductible
by the Corporation under Section 280G of the Code, calculated
without regard to any other payments which the Executive has
the right to receive from the Corporation (including
acceleration of vesting of options and peformance shares). In
the event that the Executive and the Corporation dispute
whether there should be any reduction in payments pursuant to
this Section 9, the determination of whether such reduction is
necessary shall be made by an independent accounting firm or
law firm mutually acceptable to the Executive and the
Corporation and such determination shall be conclusive and
binding on the Corporation and the Executive.
(b) In the event that any payment or benefit to the
Executive or for his benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his employment
with the Corporation or a change in ownership or effective
control of the Corporation or of a substantial portion of its
assets (each a "Payment" and collectively, the "Payments"),
would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the
Executive will be entitled to receive an additional payment (a
"Gross-Up Payment"), such that the net amount retained by the
Executive, after deduction and/or payment of any Excise Tax on
the Payments and the Gross-Up Payment and any federal, state
and local
-2-
<PAGE> 3
income tax on the Gross-Up Payment (including any interest or
penalties, other than interest and penalties imposed by reason
of the Executive's failure to file timely a tax return or pay
taxes shown due on his return, imposed with respect to such
taxes), shall be equal to the Payments. Notwithstanding the
foregoing, the amount of the Gross-Up Payment otherwise
required pursuant to Section 9(b) of this Agreement shall be
reduced by an amount equal to the Gross-Up Payment (if any)
that would have been required under the preceding portion of
Section 9(b) of this Agreement if no payments or benefits
arising from or relating to the acceleration, vesting or
lapsing of restrictions on incentive awards (including, without
limitation, stock options, performance shares and restricted
stock) had been made.
(c) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and the amount
of such Gross-Up Payment shall be made at the Corporation's
expense by an accounting firm selected by the Corporation and
reasonably acceptable to the Executive which is designated as
one of the five largest accounting firms in the United States
(the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed
supporting calculations and documentation to the Corporation
and the Executive within five days of the termination date if
applicable, or such other time as requested by the Executive
(provided the Executive reasonably believes that any of the
Payments may be subject to the Excise Tax) and if the
Accounting Firm determines that no Excise Tax is payable by the
Executive as provided in Section 9(b) above, it shall furnish
the Executive with an opinion reasonably acceptable to the
Executive to such effect. Within ten days of the delivery of
the Determination to the Executive, the Executive shall have
the right to dispute the Determination (the "Dispute"). The
Gross-Up Payment, if any, as determined pursuant to this
Paragraph 9(c) shall be paid by the Corporation to the
Executive within five days of the receipt of the Accounting
Firm's determination. The existence of the Dispute shall not
in any way affect the Executive's right to receive the Gross-Up
Payment in accordance with the Determination. Upon the final
resolution of a Dispute, the Corporation shall promptly pay to
the Executive any additional amount required by such
resolution. If there is no Dispute, the Determination shall be
binding, final and conclusive upon the Corporation and the
Executive subject to the application of Section 9(d) below.
(d) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a
Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an "Excess Payment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will
not have been paid (an "Underpayment"). An Underpayment shall
be deemed to have occurred (i) upon notice (formal or informal)
to the Executive from any governmental taxing authority that
the
-3-
<PAGE> 4
Executive's tax liability (whether in respect of the
Executive's current taxable year or in respect of any prior
taxable year) may be increased by reason of the imposition of
the Excise Tax on a Payment or Payments with respect to which
the Corporation has failed to make a sufficient Gross-Up
Payment, (ii) upon a determination by a court, (iii) by reason
of a determination by the Corporation (which shall include the
position taken by the Corporation, together with its
consolidated group, on its federal income tax return) or (iv)
upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall
promptly notify the Corporation and the Corporation shall
promptly, but in any event, at least five days prior to the
date on which the applicable government taxing authority has
requested payment, pay to the Executive an additional Gross-Up
Payment equal to the amount of the Underpayment plus an amount
that, net of federal, state and local income taxes, is equal to
any interest and penalties (other than interest and penalties
imposed by reason of the Executive's failure to file timely a
tax return or pay taxes shown due on the Executive's return)
imposed on the Underpayment. An Excess Payment shall be deemed
to have occurred upon a Final Determination (as hereinafter
defined) that the Excise Tax shall not be imposed upon a
Payment or Payments (or portion thereof) with respect to which
the Executive had previously received a Gross-Up Payment. A
"Final Determination" shall be deemed to have occurred when the
Executive has received from the applicable government taxing
authority a refund of taxes or other reduction in the
Executive's tax liability by reason of the Excess Payment and
upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental
taxing authority which finally and conclusively binds the
Executive and such taxing authority, or in the event that a
claim is brought before a court of competent jurisdiction, the
date upon which a final determination has been made by such
court and either all appeals have been taken and finally
resolved or the time for all appeals has expired or (y) the
statute of limitations period with respect to the Executive's
applicable tax return has expired. If an Excess Payment is
determined to have been made, the amount of the Excess Payment
shall be treated as a loan by the Corporation to the Executive
and the Executive shall pay to the Corporation on demand (but
not less than 10 days after the determination of such Excess
Payment and written notice has been delivered to the Executive)
the amount of the Excess Payment plus interest at an annual
rate equal to the Applicable Federal Rate provided for in
Section 1274(d) of the Code from the date the Gross-Up Payment
(to which the Excess Payment relates) was paid to the Executive
until the date of repayment to the Corporation.
(e) Notwithstanding anything contained in this Agreement
to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any Payment or
Payments, the Corporation shall pay to the applicable
government taxing authorities as Excise Tax
-4-
<PAGE> 5
withholding, the amount of the Excise Tax that the Corporation
has actually withheld from the Payment or Payments."
5. Section 10(f) of the Severance Agreement is hereby amended to change the
addresses to which notices and other communications hereunder shall be sent as
follows:
If to the Executive:
Ronald R. Snyder
4962 Sundance Square
Boulder, Colorado 80301
If to the Corporation:
The DII Group, Inc.
6273 Monarch Park Place
Suite 200
Niwot, Colorado 80503
Attention: Chief Executive Officer
6. Except as otherwise expressly provided herein, the Severance Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
----------------------------------------
Ronald R. Snyder
THE DII GROUP, INC.
----------------------------------------
Name:
Title:
-5-
<PAGE> 1
EXHIBIT 10.12
AMENDMENT
TO
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT, made and entered into
as of the first day of January, 1997 by and between The DII Group, Inc., a
Delaware corporation (the "Corporation") and Dermott O'Flanagan. (the
"Executive").
W I T N E S S E T H
WHEREAS, the Corporation and Executive are parties to that certain Senior
Executive Severance Agreement, dated May 21, 1993 (the "Severance Agreement")
and wish to amend the Severance Agreement as herein set forth: and
WHEREAS, the Board of Directors of the Corporation has approved the
following amendments to the Severance Agreement at a meeting of the Board of
Directors duly held on May 9, 1995 and has further ratified the following
amendments by Unanimous Written Consent of the Board of Directors dated
February 28, 1997.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 4(a) of the Severance Agreement is hereby amended so that said
Section 4(a) shall be and read as follows:
"a) Payment to the Executive as compensation for services rendered
to the Corporation a lump sum cash amount (subject to any applicable
payroll or other taxes required to be withheld) equal to the sum of (i)
the highest annual base salary received by the Executive during the
five-year period prior to the Change of Control (or such shorter period
that the Executive was employed by the Corporation or a Subsidiary) or,
if the amount would be greater, the highest annualized base salary that
the Executive would have received based on the highest base annual salary
rate in effect during such period and (ii) the highest annual bonus
received by the Executive during such five-year period, in each case
calculated without regard to amounts deferred under the qualified and
non-qualified plans of the Corporation. In the event that there are
fewer than 12 whole or partial months remaining from the date of
Termination to the Executive's normal retirement date, the amount to be
paid hereunder will be reduced by multiplying it by a fraction the
numerator of which is the number of whole or partial months so remaining
and the denominator of which is 12."
<PAGE> 2
2. Section 5 of the Severance Agreement is hereby amended by replacing the
word "options" appearing in the second line thereof with the word "option" and
inserting the words "stock incentive," immediately after the word "option" in
the second line thereof.
3. Section 6 of the Severance Agreement is hereby amended by adding the
words "and each anniversary thereafter" immediately after the word
"anniversary" in the third line thereof.
4. Section 9 of the Severance Agreement is hereby amended so that said
Section 9 shall be and read as follows:
9. Taxes.
"(a) Notwithstanding anything herein to the contrary, if
any of the payments provided for under Section 4 of this
Agreement, calculated without regard to any other payments or
benefits which the Executive has the right to receive from the
Corporation (including acceleration of vesting of options and
performance shares), would constitute a "parachute payment" (as
defined in Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code")), the payments pursuant to Section 4 of
this Agreement shall be reduced to the largest amount as would
result in no payments or portions thereof being nondeductible
by the Corporation under Section 280G of the Code, calculated
without regard to any other payments which the Executive has
the right to receive from the Corporation (including
acceleration of vesting of options and peformance shares). In
the event that the Executive and the Corporation dispute
whether there should be any reduction in payments pursuant to
this Section 9, the determination of whether such reduction is
necessary shall be made by an independent accounting firm or
law firm mutually acceptable to the Executive and the
Corporation and such determination shall be conclusive and
binding on the Corporation and the Executive.
(b) In the event that any payment or benefit to the
Executive or for his benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his employment
with the Corporation or a change in ownership or effective
control of the Corporation or of a substantial portion of its
assets (each a "Payment" and collectively, the "Payments"),
would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the
Executive will be entitled to receive an additional payment (a
"Gross-Up Payment"), such that the net amount retained by the
Executive, after deduction and/or payment of any Excise Tax on
the Payments and the Gross-Up Payment and any federal, state
and local
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<PAGE> 3
income tax on the Gross-Up Payment (including any interest or
penalties, other than interest and penalties imposed by reason
of the Executive's failure to file timely a tax return or pay
taxes shown due on his return, imposed with respect to such
taxes), shall be equal to the Payments. Notwithstanding the
foregoing, the amount of the Gross-Up Payment otherwise
required pursuant to Section 9(b) of this Agreement shall be
reduced by an amount equal to the Gross-Up Payment (if any)
that would have been required under the preceding portion of
Section 9(b) of this Agreement if no payments or benefits
arising from or relating to the acceleration, vesting or
lapsing of restrictions on incentive awards (including, without
limitation, stock options, performance shares and restricted
stock) had been made.
(c) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and the amount
of such Gross-Up Payment shall be made at the Corporation's
expense by an accounting firm selected by the Corporation and
reasonably acceptable to the Executive which is designated as
one of the five largest accounting firms in the United States
(the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed
supporting calculations and documentation to the Corporation
and the Executive within five days of the termination date if
applicable, or such other time as requested by the Executive
(provided the Executive reasonably believes that any of the
Payments may be subject to the Excise Tax) and if the
Accounting Firm determines that no Excise Tax is payable by the
Executive as provided in Section 9(b) above, it shall furnish
the Executive with an opinion reasonably acceptable to the
Executive to such effect. Within ten days of the delivery of
the Determination to the Executive, the Executive shall have
the right to dispute the Determination (the "Dispute"). The
Gross-Up Payment, if any, as determined pursuant to this
Paragraph 9(c) shall be paid by the Corporation to the
Executive within five days of the receipt of the Accounting
Firm's determination. The existence of the Dispute shall not
in any way affect the Executive's right to receive the Gross-Up
Payment in accordance with the Determination. Upon the final
resolution of a Dispute, the Corporation shall promptly pay to
the Executive any additional amount required by such
resolution. If there is no Dispute, the Determination shall be
binding, final and conclusive upon the Corporation and the
Executive subject to the application of Section 9(d) below.
(d) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a
Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an "Excess Payment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will
not have been paid (an "Underpayment"). An Underpayment shall
be deemed to have occurred (i) upon notice (formal or informal)
to the Executive from any governmental taxing authority that
the
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<PAGE> 4
Executive's tax liability (whether in respect of the
Executive's current taxable year or in respect of any prior
taxable year) may be increased by reason of the imposition of
the Excise Tax on a Payment or Payments with respect to which
the Corporation has failed to make a sufficient Gross-Up
Payment, (ii) upon a determination by a court, (iii) by reason
of a determination by the Corporation (which shall include the
position taken by the Corporation, together with its
consolidated group, on its federal income tax return) or (iv)
upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall
promptly notify the Corporation and the Corporation shall
promptly, but in any event, at least five days prior to the
date on which the applicable government taxing authority has
requested payment, pay to the Executive an additional Gross-Up
Payment equal to the amount of the Underpayment plus an amount
that, net of federal, state and local income taxes, is equal to
any interest and penalties (other than interest and penalties
imposed by reason of the Executive's failure to file timely a
tax return or pay taxes shown due on the Executive's return)
imposed on the Underpayment. An Excess Payment shall be deemed
to have occurred upon a Final Determination (as hereinafter
defined) that the Excise Tax shall not be imposed upon a
Payment or Payments (or portion thereof) with respect to which
the Executive had previously received a Gross-Up Payment. A
"Final Determination" shall be deemed to have occurred when the
Executive has received from the applicable government taxing
authority a refund of taxes or other reduction in the
Executive's tax liability by reason of the Excess Payment and
upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental
taxing authority which finally and conclusively binds the
Executive and such taxing authority, or in the event that a
claim is brought before a court of competent jurisdiction, the
date upon which a final determination has been made by such
court and either all appeals have been taken and finally
resolved or the time for all appeals has expired or (y) the
statute of limitations period with respect to the Executive's
applicable tax return has expired. If an Excess Payment is
determined to have been made, the amount of the Excess Payment
shall be treated as a loan by the Corporation to the Executive
and the Executive shall pay to the Corporation on demand (but
not less than 10 days after the determination of such Excess
Payment and written notice has been delivered to the Executive)
the amount of the Excess Payment plus interest at an annual
rate equal to the Applicable Federal Rate provided for in
Section 1274(d) of the Code from the date the Gross-Up Payment
(to which the Excess Payment relates) was paid to the Executive
until the date of repayment to the Corporation.
(e) Notwithstanding anything contained in this Agreement
to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any Payment or
Payments, the Corporation shall pay to the applicable
government taxing authorities as Excise Tax
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<PAGE> 5
withholding, the amount of the Excise Tax that the Corporation
has actually withheld from the Payment or Payments."
5. Section 10(f) of the Severance Agreement is hereby amended to change
the addresses to which notices and other communications hereunder shall
be sent as follows:
If to the Executive:
Dermott O'Flanagan
7388 Windsor Drive
Boulder, Colorado 80301
If to the Corporation:
The DII Group, Inc.
6273 Monarch Park Place
Suite 200
Niwot, Colorado 80503
Attention: Chief Executive Officer
6. Except as otherwise expressly provided herein, the Severance
Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
----------------------------------------
Dermott O'Flanagan
THE DII GROUP, INC.
----------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 11.1
THE DII GROUP, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FIRST QUARTER ENDED
-----------------------------
MAR. 30, 1997 MAR. 31, 1996
------------- -------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Earnings Available for Primary Earnings Per Share:
Net income $ 5,077 5,067
======= =======
Shares Used in Computation:
Weighted average common shares outstanding 12,030 11,748
Common share equivalents outstanding:
Stock options 500 425
Deferred stock compensation 31 --
======= =======
12,561 12,173
======= =======
Primary Earnings Per Share $ 0.40 0.42
======= =======
FULLY DILUTED EARNINGS PER SHARE:
Earnings Available for Fully Diluted Earnings Per Share:
Net income $ 5,077 5,067
Interest expense (net of tax) on 6% convertible
subordinated notes 776 776
Amortization (net of tax) of debt issuance cost on
convertible subordinated notes 65 62
------- -------
Earnings available for fully diluted earnings per share $ 5,918 5,905
======= =======
Shares Used in Computation:
Weighted average common shares outstanding 12,030 11,748
Additional potentially dilutive securities (equivalent in
common stock):
Stock options 504 586
Deferred stock compensation 31 42
Convertible subordinated notes 2,300 2,300
------- -------
14,865 14,676
======= =======
Fully Diluted Earnings Per Share $ 0.40 0.40
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1997
<PERIOD-END> MAR-30-1997
<CASH> 17,447
<SECURITIES> 0
<RECEIVABLES> 92,366
<ALLOWANCES> 1,923
<INVENTORY> 55,285
<CURRENT-ASSETS> 171,840
<PP&E> 167,124
<DEPRECIATION> 50,071
<TOTAL-ASSETS> 356,538
<CURRENT-LIABILITIES> 89,474
<BONDS> 86,250
0
0
<COMMON> 121
<OTHER-SE> 165,759
<TOTAL-LIABILITY-AND-EQUITY> 356,538
<SALES> 137,080
<TOTAL-REVENUES> 137,080
<CGS> 110,900
<TOTAL-COSTS> 110,900
<OTHER-EXPENSES> 16,609
<LOSS-PROVISION> 179
<INTEREST-EXPENSE> 1,700
<INCOME-PRETAX> 7,692
<INCOME-TAX> 2,615
<INCOME-CONTINUING> 5,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,077
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
