<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
THE DII GROUP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate Number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
<PAGE> 2
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1999
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of The DII Group, Inc. (the "Company")
will be held at 10:00 A.M., Mountain Daylight Time, on Thursday, May 6, 1999 at
the Executive Offices of the Company, 6273 Monarch Park Place, Niwot, Colorado,
for the following purposes:
1. To elect six directors to hold office until the next Annual Meeting
and until their successors are duly elected and qualified;
2. To consider and act upon a proposal to amend the Company's 1994
Stock Incentive Plan to increase the number of shares of common stock
reserved for issuance thereunder by 1,500,000 shares;
3. To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as the Company's independent auditors for the fiscal
year ending January 2, 2000; and
4. To transact such other business as may properly come before the
Annual Meeting or at any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on March 19, 1999 as
the record date for the determination of the stockholders entitled to notice of
and to vote at the Annual Meeting of Stockholders and at any adjournments or
postponements thereof.
By Order of the Board of Directors,
/s/ CARL R. VERTUCA, JR.
-------------------------
Carl R. Vertuca, Jr.
Executive Vice President - Finance,
Administration and Corporate Development
and Secretary
Niwot, Colorado
March 31, 1999
YOUR VOTE IS IMPORTANT
IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL MEETING, OR IF YOU DO PLAN TO ATTEND
BUT WISH TO VOTE BY PROXY, PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 3
THE DII GROUP, INC.
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1999
GENERAL
This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of The DII Group, Inc., a Delaware
corporation (the "Company"), of proxies for use at the Annual Meeting of
Stockholders to be held on May 6, 1999, commencing at 10:00 A.M., Mountain
Daylight Time, at the Executive Offices of the Company, 6273 Monarch Park Place,
Niwot, Colorado, and at any adjournments or postponements thereof. The matters
to be considered and acted upon at the meeting are described below in this Proxy
Statement.
The principal executive offices of the Company are located at 6273 Monarch
Park Place, Niwot, Colorado 80503. The approximate mailing date of this Proxy
Statement and the accompanying proxy is March 31, 1999.
VOTING RIGHTS AND VOTES REQUIRED
Only stockholders of record at the close of business on March 19, 1999
will be entitled to notice of and to vote at the Annual Meeting. As of the
record date, the Company had outstanding 29,034,830 shares of common stock. Each
stockholder is entitled to one vote for each share of common stock held. The
holders of a majority of the outstanding shares will constitute a quorum for the
transaction of business at the meeting. Shares of common stock present in person
or represented by proxy (including shares which abstain or do not vote with
respect to one or more of the matters presented for stockholder approval) will
be counted for purposes of determining whether a quorum exists at the meeting.
The affirmative vote of the holders of a plurality of the shares of common
stock present or represented at the meeting is required for the election of
directors. The affirmative vote of the holders of a majority of the shares of
common stock present or represented at the meeting and entitled to vote is
required for the approval of each of the amendment to the 1994 Stock Incentive
Plan and for the ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the current fiscal year. Abstentions will be
treated as shares that are present and entitled to vote for purposes of
determining the number of shares present and entitled to vote with respect to
any particular matter, but will not be counted as a vote in favor of such
matter. Accordingly, an abstention from voting on a matter will have the same
legal effect as a vote against the matter. If a broker or nominee holding stock
in "street name" indicates on the proxy that it does not have discretionary
authority to vote as to a particular matter, those shares will not be considered
as present and entitled to vote with respect to such matter.
The accompanying proxy may be revoked at any time before it is exercised
by giving a later proxy, notifying the Secretary of the Company in writing, or
voting in person at the meeting.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's common stock as of February 28, 1999
(except as otherwise noted) by (i) each person known by the Company to be the
beneficial owner of five percent or more of the outstanding shares of common
stock, (ii) each director of the Company, (iii) each executive officer of the
Company named in the Summary Compensation Table under the heading "Executive
Compensation" below, and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL AMOUNT AND NATURE OF PERCENT
OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------ ----------------------- --------
<S> <C> <C>
J. & W. Seligman & Co........................ 1,743,800 (2) 6.0
Goldman, Sachs & Co.......................... 1,600,000 (3) 5.5
Ronald R. Budacz............................. 756,792(4) 2.6
Robert L. Brueck ............................ 7,209(5) *
Constantine S. Macricostas .................. 162,990(6) *
Carl R. Vertuca, Jr. ........................ 251,466(7) *
Gerard T. Wrixon, Phd. ...................... 7,600 *
Alexander W. Young........................... 9,000 *
Dermott O'Flanagan .......................... 128,815(8) *
Steven C. Schlepp ........................... 59,076(9) *
Ronald R. Snyder ............................ 182,432(10) *
All directors and executive officers
as a group (14 persons).................... 1,889,647(6)(11) 6.5
</TABLE>
- --------------
*Less than one percent.
(1) Each individual or entity has sole voting and investment power, except as
otherwise indicated.
(2) Based upon information as of December 31, 1998 set forth in a Schedule 13G
filing dated February 2, 1999. According to its filing, J. & W. Seligman
has shared voting power with respect to 1,738,700 shares and shared
investment power with respect to 1,732,800 shares. The Schedule 13G was
filed jointly by J. & W. Seligman Co., Inc. and William C. Morris, holder
of the majority of its outstanding voting shares. J. & W. Seligman's
business address is 100 Park Avenue, New York, New York 10017.
(3) Based upon information as of December 31, 1998 set forth in a Schedule 13G
filing dated February 14, 1999. According to its filing, Goldman, Sachs &
Co. has shared voting and investment power with respect to such shares.
The Schedule 13G was filed jointly by Goldman, Sachs & Co. and The Goldman
Sachs Group, L.P. Their business address is 85 Broad Street, New York, New
York 10004.
(4) Includes 379,282 shares which are subject to options presently exercisable
or exercisable within 60 days.
(5) Mr. Brueck shares voting and investment power with his wife with respect
to 6,609 shares.
(6) Includes 125,000 shares owned by Photronics, Inc., of which Mr.
Macricostas is Chairman of the Board, as to which shares Mr. Macricostas
disclaims beneficial ownership.
(7) Includes 187,754 shares which are subject to options presently exercisable
or exercisable within 60 days.
(8) Includes 76,663 shares which are subject to options presently exercisable
or exercisable within 60 days.
(9) Includes 6,000 shares which are subject to options presently exercisable
or exercisable within 60 days.
(10) Includes 90,939 shares which are subject to options presently exercisable
or exercisable within 60 days and 12,500 performance shares which will
vest within 60 days.
(11) Includes 891,597 shares which are subject to options presently exercisable
or exercisable within 60 days and 12,500 performance shares which will
vest within 60 days.
-2-
<PAGE> 5
1. ELECTION OF DIRECTORS
At the Annual Meeting, six directors are to be elected, each to hold
office until the next annual meeting of stockholders and until his respective
successor has been duly elected and qualified. If no direction is given to the
contrary, all proxies received by the Board of Directors will be voted "FOR" the
election as directors of each of the following nominees. In the event that any
nominee declines or is unable to serve, the proxy solicited herewith may be
voted for the election of another person in his stead at the discretion of the
proxies. The Board of Directors has no reason to believe that any of the
nominees will not be available to serve. Set forth below is certain information
concerning each nominee. Each nominee is currently a director of the Company.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION OR DIRECTOR
NAME AND AGE EMPLOYMENT DURING PAST 5 YEARS; OTHER DIRECTORSHIPS SINCE
- ------------ --------------------------------------------------- -----
<S> <C> <C>
Ronald R. Budacz................. Chairman and Chief Executive Officer of the Company since 1993
52 March 1993.
Robert L. Brueck (1)............. Venture capital investments; business consultant. 1993
63
Constantine S. Macricostas (2)... Chairman of the Board of Photronics, Inc. since 1969 and Chief 1996
63 Executive Officer from 1969 until August 1997; Director of
Nutmeg Federal Savings and Loan Association.
Carl R. Vertuca, Jr. ........... Executive Vice President - Finance, Administration and 1993
52 Corporate Development of the Company since August 1997, and
Senior Vice President and Chief
Financial Officer of the Company from
March 1993 until August 1997.
Gerard T. Wrixon, Phd.(1)........ President, National University of Ireland, Cork; Director, 1993
58 National MicroElectronics Research Centre, Ireland
(1982-1999); Professor of MicroElectronics, University
College, Cork, Ireland (1982-1999); Chairman, Farran
Technology; Director, General Semiconductor, Inc.
Alexander W. Young (2)........... President, Services Business Unit (since March 1998), 1993
55 President and Chief Operating Officer (January 1991 - March
1998), and Director, Thomas Group, Inc. (business consulting).
</TABLE>
- --------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
BOARD AND COMMITTEE MEETINGS; DIRECTORS' COMPENSATION
The Board of Directors met six times during 1998. No director attended
fewer than 75 percent of the aggregate number of meetings of the Board and the
Board Committees on which such director served. The Board Committees include an
Audit Committee and a Compensation Committee. The Company does not have a
standing Nominating Committee of the Board of Directors.
The members of the Audit Committee are Mr. Brueck and Dr. Wrixon. The
Audit Committee reviews the services provided by the Company's independent
auditors, consults with the independent auditors on audits and proposed audits
of the Company, and reviews the need for internal auditing procedures and the
adequacy of the Company's internal control systems. In 1998, the Audit Committee
held two meetings.
The members of the Compensation Committee are Mr. Macricostas and Mr.
Young. The Compensation Committee administers the Company's stock option and
stock incentive plans, and reviews and recommends
-3-
<PAGE> 6
compensation levels of the Company's executive officers. In 1998, the
Compensation Committee held two meetings.
Directors who are full-time salaried employees of the Company are not
compensated for their service on the Board or on any Board Committee. The
Company's Non-Employee Directors' Stock Compensation Plan provides for the
payment, as the only form of compensation for regular service as a non-employee
director, of 2,000 shares of Company common stock per year. All directors are
reimbursed for their travel and other expenses incurred in attending Board and
Committee meetings.
CERTAIN LITIGATION
In 1997 two related complaints, as amended, were filed in the District
Court of Boulder, Colorado and the U.S. District Court for the District of
Colorado against the Company and certain of its officers. The lawsuits purport
to be brought on behalf of a class of persons who purchased the Company's common
stock during the period from April 1, 1996, through September 8, 1996, and claim
violations of Colorado and federal laws based on allegedly false and misleading
statements made in connection with the offer, sale or purchase of the Company's
common stock at allegedly artificially inflated prices, including statements
made prior to the Company's acquisition of Orbit. The complaints seek
compensatory and other damages, as well as equitable relief. The Company filed
motions to dismiss both amended complaints. The motion to dismiss the state
court complaint has been denied, and the Company has filed its answer denying
that it misled the securities market. The motion to dismiss the federal court
complaint is still pending. Both actions were brought by the same plaintiffs'
law firm as the Orbit action discussed below. A May 1999 trial date for the
state court action has been vacated, and a new trial date has not been set. No
trial date has been set for the federal court action. Discovery has commenced in
the state court action. The Company believes that the claims asserted in both
actions are without merit and intends to defend vigorously against such claims.
A class action complaint (as amended in March 1996) for violations of
federal securities law was filed against Orbit and three of its officers in 1995
in the U.S. District Court for the Northern District of California. The amended
complaint was dismissed on November 12, 1996, with leave to amend only as to
certain specified claims relating to statements made by securities analysts. In
January 1997, a second amended complaint was filed. The second amended complaint
alleges that Orbit and three of its officers are responsible for actions of
securities analysts that allegedly misled the market for Orbit's then existing
public common stock. The second amended complaint seeks relief under Sections
10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The
second amended complaint seeks compensatory and other damages, as well as
equitable relief. In September 1997, Orbit filed its answer to the second
amended complaint denying responsibility for the actions of securities analysts
and further denying that it misled the securities market. The parties have
entered into a Memorandum of Understanding reflecting a proposed settlement of
the action, the terms of which have been preliminarily approved by the court. A
final settlement hearing is scheduled for early summer, 1999.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information with respect to the
compensation paid or awarded by the Company to the Chief Executive Officer and
the four other most highly compensated executive officers (collectively, the
"Named Executive Officers") for services rendered in all capacities during 1996,
1997 and 1998.
-4-
<PAGE> 7
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS/PAYOUTS
------------------------------------- ----------------------------------------------
OTHER RESTRICTED NUMBER OF SHARES PERFORMANCE
NAME AND ANNUAL STOCK UNDERLYING SHARES
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) COMPENSATION(2) AWARDS(3) OPTIONS(#) VESTED(#)(1)(4)
- ------------------ ---- --------- -------- --------------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald R. Budacz, 1998 $ 500,000 - 0 - $ 130,556 - 0 - 170,000 - 0 -
Chairman and Chief 1997 $ 430,000 $ 430,000 $ 123,451 $ 2,250,000 134,286 46,668
Executive Officer 1996 $ 375,000 $ 129,938 - 0 - - 0 - - 0 - 46,666
Carl R. Vertuca, Jr., 1998 $ 296,000 - 0 - $ 87,988 - 0 - 25,000 - 0 -
Executive Vice President- 1997 $ 275,000 $ 220,000 $ 83,201 - 0 - 32,103 31,332
Finance, Administration 1996 $ 225,000 $ 51,975 - 0 - - 0 - - 0 - 31,334
and Corporate Development
Dermott O'Flanagan, 1998 $ 295,000 $ 75,000 $ 119,804 - 0 - 30,000 - 0 -
Senior Vice President 1997 $ 230,000 $ 184,000 - 0 - - 0 - 21,261 24,668
1996 $ 180,000 $ 40,800 - 0 - - 0 - - 0 - 24,666
Ronald R. Snyder, 1998 $ 250,000 $ 50,000 $ 47,207 - 0 - 70,000 - 0 -
Senior Vice President 1997 $ 170,000 $ 136,000 $ 44,640 $ 593,750 14,873 16,668
1996 $ 150,000 $ 28,875 - 0 - - 0 - - 0 - 16,666
Steven C. Schlepp, 1998 $ 292,000 $ 120,000 $ 36,315 - 0 - 35,000 - 0 -
Senior Vice President 1997 $ 275,000 $ 49,253 $ 34,170 - 0 - 16,000 24,000
1996 $ 138,316 - 0 - - 0 - - 0 - - 0 - 24,000
</TABLE>
<TABLE>
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION(5)
- ------------------ ---------------
<S> <C>
Ronald R. Budacz, $ 262,442
Chairman and Chief $ 223,571
Executive Officer $ 24,539
Carl R. Vertuca, Jr., $ 170,315
Executive Vice President- $ 130,197
Finance, Administration $ 9,441
and Corporate Development
Dermott O'Flanagan, $ 70,145
Senior Vice President $ 19,813
$ 16,484
Ronald R. Snyder, $ 91,672
Senior Vice President $ 67,799
$ 4,847
Steven C. Schlepp, $ 72,093
Senior Vice President $ 57,413
- 0 -
</TABLE>
- --------------
(1) Includes amounts deferred under the Company's Deferred Compensation Plan.
(2) Represents taxes reimbursed in connection with the forgiveness of loans
extended by the Company for the payment of taxes in connection with the
vesting of performance shares. In the case of Mr. O'Flanagan, represents
perquisites ($67,145), including housing allowance ($24,000) and education
assistance ($17,500).
(3) Value is calculated by multiplying the number of restricted shares awarded
by the last reported sale price for the Company's common stock on the
Nasdaq National Market on the respective grant dates. The aggregate number
and value (based upon the last reported sale price of $24.125 of the
Company's common stock on the Nasdaq National Market on December 31, 1998)
of restricted shares held as of January 3, 1999 were as follows: Ronald R.
Budacz, 100,000 ($2,412,500) and Ronald R. Snyder, 37,500 ($904,688).
Dividends are not paid on restricted shares.
(4) The aggregate number and value (based upon the last reported sale price of
$24.125 of the Company's common stock on the Nasdaq National Market on
December 31, 1998) of unvested performance shares held by the Named
Executive Officers as of January 3, 1999 were as follows: Ronald R.
Budacz, 89,000 ($2,147,125); Carl R. Vertuca, Jr., 50,000 ($1,206,250);
Dermott O'Flanagan, 50,000 ($1,206,250); Ronald R. Snyder, 50,000
($1,206,250); and Steven C. Schlepp, 50,000 ($1,206,250). Dividends are
not paid on unvested performance shares.
(5) All Other Compensation is comprised of the Company's matching
contributions under the Company's Retirement Savings and Investment Plan
and Deferred Compensation Plan and Company paid life insurance premiums.
Also includes, for 1998, loans extended by the Company for the payment of
taxes in connection with the vesting of performance shares, together with
interest thereon, to the extent forgiven, in the amounts of $152,954 for
Mr. Budacz, $103,083 for Mr. Vertuca, $55,305 for Mr. Snyder and $42,546
for Mr. Schlepp. For 1997, All Other Compensation also includes loans
extended by the Company for the payment of taxes in connection with the
vesting of performance shares, together with interest thereon, to the
extent forgiven, in the amounts of $144,629 for Mr. Budacz, $97,474 for
Mr. Vertuca, $52,298 for Mr. Snyder and $40,032 for Mr. Schlepp. In the
case of Mr. O'Flanagan, the amounts shown reflect the contributions by
DOVatron (Ireland) B.V. under its defined contribution plan.
-5-
<PAGE> 8
Option Grants Table
The following table sets forth information regarding options granted
during the fiscal year ended January 3, 1999 by the Company to each of the Named
Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald R. Budacz 170,000(1) 12.4% $10.2815 10/08/2008 $1,099,217 $2,785,631
Carl R. Vertuca, Jr 25,000(1) 1.8% $10.2815 10/08/2008 $ 161,650 $ 409,652
Dermott O'Flanagan 30,000(1) 2.2% $10.2815 10/08/2008 $ 193,979 $ 491,582
Ronald R. Snyder 50,000(1) 3.6% $18.0625 04/07/2008 $ 567,970 $1,439,349
20,000(2) 1.5% $10.2815 10/08/2008 $ 129,320 $ 327,721
Steven C. Schlepp 35,000(1) 2.5% $10.2815 10/08/2008 $ 226,309 $ 573,512
</TABLE>
- --------------
(1) These options vest 100% on the third anniversary of the grant date.
(2) These options vest in installments of 20%, 30% and 50% on the first,
second and third anniversary dates.
(3) The potential realizable value of the options reported was calculated by
assuming 5% and 10% compounded annual rates of appreciation of the common
stock from the date of grant of the options until the expiration of the
options, based on the market price on the date of grant. These assumed
annual rates of appreciation were used in compliance with the rules of the
Securities and Exchange Commission and are not intended to forecast future
price appreciation of the common stock.
Fiscal Year End Option Value Table
The following table sets forth information regarding the aggregate number
and value of options held by the Named Executive Officers as at January 3, 1999.
Mr. Budacz exercised options for 8,140 shares during 1998. The value realized
upon such exercise (fair market value on the date of exercise less the exercise
price) was $180,342.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT JANUARY 3, 1999(#) AT JANUARY 3, 1999($) (1)
------------------------------ -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald R. Budacz........ 356,425 264,095 $ 5,600,950 $ 3,377,326
Carl R. Vertuca, Jr. ... 181,087 48,016 2,855,776 567,930
Dermott O'Flanagan ..... 74,663 48,208 1,126,621 519,650
Ronald R. Snyder........ 93,129 81,098 1,491,697 663,581
Steven C. Schlepp....... 4,000 47,000 35,500 571,773
</TABLE>
- --------------
(1) The last reported sale price for the Company's common stock on the Nasdaq
National Market on December 31, 1998 was $24.125 per share. Value is
calculated on the basis of the difference between the respective option
exercise prices and $24.125, multiplied by the number of shares of common
stock underlying the respective options.
-6-
<PAGE> 9
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with each of Messrs. Ronald
R. Budacz, Carl R. Vertuca, Jr., Ronald R. Snyder and Steven C. Schlepp,
effective January 1, 1997, and Mr. Dermott O'Flanagan, effective January 1,
1998, providing for terms of employment of four (4) years (three (3) years in
the case of Mr. O'Flanagan). The agreements provide for base salaries for
Messrs. Budacz, Vertuca, O'Flanagan, Snyder and Schlepp, of $430,000, $250,000,
$295,000, $170,000 and $270,000 respectively, subject to increases established
from time to time by the Board of Directors. In the event of termination of
employment "without cause," the terminated executive will be entitled to receive
termination payments equal to 100% of his base salary and bonus (based on the
highest annual bonus payment within the prior three (3) years) for the remainder
of the term of the agreement (with a minimum of one year's salary plus bonus).
Any termination payments under the employment agreements may not be duplicated
under the severance compensation agreements described below. The agreements also
provide for annual performance bonuses in accordance with the Company's Senior
Executive Performance Bonus Plan and eligibility for stock option grants and
performance share awards under the Company's 1994 Stock Incentive Plan. The
agreements also provide for the forgiveness, over the term of employment and
provided the executives continue to remain employees of the Company, of loans
extended to the executives for the payment of taxes in connection with the
vesting of performance shares and the payment of additional amounts to the
executives equal to the executives' tax liability resulting from such
forgiveness of indebtedness. The full amount of the loans will be forgiven and
the additional payments for taxes will be made in the event of death,
disability, termination "without cause" or a change of control of the Company.
See "Certain Transactions and Relationships."
DEFERRED COMPENSATION PLAN
In 1997, the Company adopted a Deferred Compensation Plan (the "Plan")
pursuant to which executive officers of the Company may defer up to 100% of
their cash salary and bonus, their performance shares and profits resulting from
the exercise of non-qualified stock options. The Plan provides for Company
matching contributions of 100% of the first 5% of salary and bonus deferred and
25% of the next 5% of salary and bonus deferred, and permits the Company to make
additional matching contributions on a discretionary basis. Company matching
contributions vest in 20% increments, based on years of service, with full
vesting occurring after five years of service (with vesting credit for prior
years service). The Plan provides for accelerated vesting of Company matching
contributions upon a change in control.
SEVERANCE COMPENSATION ARRANGEMENTS
The Company has entered into severance compensation agreements with each
of Messrs. Budacz, Vertuca, O'Flanagan, Snyder and Schlepp. The agreements
provide that if within 18 months following a change of control of the Company,
the officer's employment is terminated either by the Company for other than
cause or disability or by such officer for good reason, then such officer will
receive a lump sum payment equal to (a) in the cases of Messrs. Budacz and
Vertuca, twice the aggregate of the highest base salary and highest bonus
received by such officer in any of the most recent five years or, (b) in the
cases of Messrs. O'Flanagan, Snyder and Schlepp, the aggregate of the highest
base salary and highest bonus received by such officer in any of the most recent
five years. Also, in the event of a change of control, the exercisability of
stock options and the vesting of performance shares held by such officers will
be accelerated.
The Internal Revenue Code of 1986, as amended (the "Code"), imposes
certain excise taxes on, and limits the deductibility of, certain compensatory
payments made by a corporation to or for the benefit of certain individuals if
such payments are contingent upon certain changes in the ownership or effective
control of the corporation or the ownership of a substantial portion of the
assets of the corporation provided that such payments to the individual have an
aggregate present value in excess of three times the individual's annualized
includible compensation for the base period, as defined in the Code. The
agreements limit the cash compensation payments that may be paid thereunder to
the extent that such cash payments would exceed (calculated without regard to
any other compensation or payments) the largest amount that can be paid by the
Company without the Company losing the deduction for such payments. The
agreements further provide for additional payments to the officers in order to
-7-
<PAGE> 10
fully offset any excise taxes payable by an officer as a result of the
acceleration of the exercisability of stock options and the vesting of
performance shares held by the officer caused by a change of control.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The Company made loans to certain of its executives in order to enable the
executives to satisfy their tax obligations in connection with the vesting of
their performance shares in 1996 and 1997. The loans were advanced in January
1996 and April 1997. Interest on the loans accrues at a rate of 5.7% per annum
and 6.5% per annum, respectively. As of January 3, 1999, the aggregate amount of
principal and interest outstanding with respect to each of the executives was as
follows: Ronald R. Budacz, $313,536; Carl R. Vertuca, Jr., $211,307; Ronald R.
Snyder, $113,367; Carl A. Plichta, $157,931; Thomas J. Smach, $108,905; Steven
C. Schlepp, $87,395; Mark D. Herbst, $49,272; and C.Y. Cheong, $41,075. The
loans are being forgiven in proportionate installments on January 1 of 2000 and
2001. In addition, the Company made an interest-free bridge housing loan to C.Y.
Cheong in September 1998 in the amount of $100,000. The loan was repaid in March
1999.
Messrs. Ronald R. Budacz and Carl R. Vertuca, Jr., Chairman and Chief
Executive Officer and Executive Vice President of the Company, respectively,
have leased to the Company usage of a resort property located in Arrowhead,
Colorado for purposes of holding corporate meetings and other corporate
purposes. The terms of the lease provide for usage for a period of 80 days per
year at a rental rate of $0.2 million. The lease is for a period of five years
commencing September 1, 1997. Messrs. Budacz and Vertuca, together with Mr.
Ronald R. Snyder, Senior Vice President of the Company, are members of a limited
liability company which has agreed to lease to one of the Company's subsidiaries
office in a building located in Boulder, Colorado. The terms of the agreement
provide for a five year lease term, commencing February 28, 1998, at annual
rental rates ranging from $109,680 for the first year to $123,444 for the fifth
year, together with additional payments in respect of the tenant's proportionate
share of the maintenance and insurance costs and property tax assessments for
the leased premises. The Company believes that the terms of both leases are
comparable to those that would be entered into between unrelated parties on an
arms' length basis.
REPORT OF THE COMPENSATION COMMITTEE
General
The Compensation Committee of the Board of Directors (the "Committee") is
comprised of non-employee directors. The current members of the Committee are
Mr. Constantine S. Macricostas and Mr. Alexander W. Young. The Committee reviews
and recommends to the Board of Directors compensation levels for the Company's
executive officers, and administers the Company's stock option and stock
incentive plans, including the awarding of grants thereunder. Section 162(m) of
the Code places a limit of $1,000,000 on the amount of compensation that may be
deducted by the Company in any one year with respect to each of the Company's
five most highly paid executive officers. Certain performance-based compensation
that has been approved by the Company's stockholders is not subject to the
deduction limit. The Company continues to administer its stock incentive and
annual cash bonus plans in a manner designed to qualify under Section 162(m) a
substantial portion of the compensation payable under such plans. Although
performance share awards under the Company's stock incentive plan may not
qualify under Section 162(m), the Company does not expect that the amount of any
non-deductible compensation under Section 162(m) in any year will be material.
Compensation Philosophy
The Company's compensation programs are tied to the corporate performance
of the Company, as well as business unit and individual performance.
Compensation is heavily weighted to annual incentive awards and long-term
performance awards in the form of stock options and performance shares in order
to provide "pay-for-performance" and to align management's and stockholders'
interests in the enhancement of stockholder value. The Company's compensation
programs are designed to attract, motivate and retain individuals of outstanding
ability who will contribute to the long-term success of the Company. The three
principal components of the Company's
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<PAGE> 11
"pay-for-performance" executive compensation program are: base salary, annual
incentive cash bonuses, and long-term incentive compensation.
Base Salary
The Committee annually reviews the salaries of the Company's executives.
Base salary levels are set at levels comparable to the average salary levels of
executives of technology companies with similar annual revenues to those of the
Company. Actual salary levels for each executive vary based on the Committee's
subjective assessment of individual performance, experience, level of
responsibility, and potential contribution to the Company's future growth. With
respect to salary levels for 1998, the Committee considered the recommendation
of an outside compensation consultant. The Committee has not found it
practicable to assign relative weights to specific factors in determining base
salary levels, and the specific factors used may vary among individual
executives.
Annual Incentive Awards
The Company has maintained an annual incentive award program designed to
reward management and other key employees for Company, business unit and
individual performance. Under the program, executive officers (including the
Chief Executive Officer) receive a percentage of their base salary based upon
the achievement of pre-determined levels of performance. For the Chief Executive
Officer, the base percentage for 1998 was 80% of base salary, and the base
percentage ranged from 35% to 50% for the other executive officers (including
the other Named Executive Officers). Base awards were subject to a multiplier,
based on the level of corporate earnings per share in the cases of the Chief
Executive Officer and the other executive officers with Company-wide
responsibility, and based on the levels of corporate earnings per share and
business unit earnings in the cases of executive officers with business unit
responsibility. In the cases of all executives other than the Chief Executive
Officer, awards were subject to adjustment based upon the recommendation of the
Chief Executive Officer. Based upon the Company's earnings per share in fiscal
1998, the Chief Executive Officer did not receive an annual incentive award;
based upon the Company's earnings per share, business unit and individual
performance, certain executive officers received annual incentive awards
generally below their base percentages.
Long-Term Incentive Compensation
The Committee believes that option grants and performance share awards
align executive interests with stockholder interests by creating a direct link
between compensation and stockholder return. Option grants and performance share
awards are made from time to time to executives whose contributions have or will
have a significant impact on the Company's long-term performance. The
Committee's determination of whether option grants and performance share awards
are appropriate each year is made with regard to competitive considerations, and
each executive's actual grant is based upon the criteria described in the
preceding paragraphs. The size of previous grants and the number of options and
performance shares held are not determinative of future grants. There were no
performance shares awarded in 1998. For information concerning options granted
in 1998, see "Option Grants Table." In 1997, in order to provide additional
incentive and in recognition of the importance of Messrs. Budacz and Snyder to
the future growth of the Company, the Company awarded Messrs. Budacz and Snyder
100,000 performance shares (on a pre-stock split basis) and 25,000 performance
shares (on a pre-stock split basis), respectively. These performance shares vest
in equal portions over a four-year period. In 1998, 50,000 shares (on a
post-stock split basis) and 12,500 shares (on a post-stock split basis) vested,
respectively. Based upon 1998 performance, determined by earnings per share, no
other performance shares vested.
Compensation of the Chief Executive Officer
Compensation for the Chief Executive Officer was determined in accordance
with the criteria set forth above. The Committee believes that CEO Compensation
was appropriately based upon the Company's financial performance.
Constantine S. Macricostas Alexander W. Young
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<PAGE> 12
PERFORMANCE GRAPH
The following line graph compares the Company's cumulative total return to
stockholders with the cumulative total return of the Nasdaq Composite Index and
the Nasdaq Stock Market Index for Electronic Component Companies from January 1,
1994 through January 3, 1999. These comparisons assume the investment of $100 on
January 1, 1994 and the reinvestment of dividends.
THE DII GROUP, INC.
Comparison of Cumulative Total Return to Stockholders
January 1, 1994 through January 3, 1999
[LINE CHART]
<TABLE>
<CAPTION>
1/1/94 12/31/94 12/31/95 12/29/96 12/28/97 1/3/99
<S> <C> <C> <C> <C> <C> <C>
NASDAQ Composite Index 100.00 97.75 138.26 170.03 208.53 293.83
NASDAQ Electronic Component Index 100.00 110.49 182.99 316.46 331.74 512.88
The DII Group, Inc. 100.00 93.64 122.73 84.55 174.55 164.09
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons owning more than ten percent of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission reports of ownership and changes in ownership of equity
securities of the Company. Such persons are also required to furnish the Company
with copies of all such forms.
Based solely upon a review of the copies of such forms furnished to the
Company and, in certain cases, upon written representations that no Form 5
filings were required, the Company believes that, with respect to the 1998
fiscal year, all required Section 16(a) filings were timely made, except that
Mr. Robert L. Brueck filed late a Form 4 reporting the sale of 2,000 shares and
Messrs. Ronald R. Budacz, C.Y. Cheong, Mark D. Herbst, Dermott O'Flanagan, Carl
A. Plichta, Steven C. Schlepp, Thomas J. Smach, Ronald R. Snyder and Carl R.
Vertuca filed amended Forms 5 with respect to the vesting of their performance
shares in 1997.
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2. AMENDMENT TO THE 1994 STOCK INCENTIVE PLAN
The Board of Directors adopted on March 10, 1999, subject to approval by
the stockholders, an amendment (the "1999 Amendment") to the Company's 1994
Stock Incentive Plan (as amended and presently in effect, the "1994 Plan"). The
1999 Amendment increases from 4,000,000 to 5,500,000 the number of shares of the
Company's common stock available for issuance under the 1994 Plan. The Company
has in the past used, and intends in the future to use, stock options and
performance shares as incentive devices to motivate and compensate its salaried
officers and other key employees, and believes that equity incentives
represented by stock options and performance shares enhance the Company's
ability to attract and retain needed personnel. Management further believes that
the availability of such equity incentives has served, and will continue to
serve, an important part in the implementation of the Company's acquisition
strategy. As of February 28, 1999, options to purchase an aggregate of 339,102
shares of common stock had been exercised under the 1994 Plan, and 660,500
shares had been issued upon the vesting of performance shares awarded under the
1994 Plan; as of such date, options to purchase 2,227,417 shares of common stock
and performance shares representing 643,500 unvested shares of common stock were
outstanding under the 1994 Plan. Accordingly, only 129,481 shares remained
available for future grants under the 1994 Plan as of such date.
The Board of Directors adopted on March 14, 1994, and the stockholders
approved on April 27, 1994, the 1994 Plan. On May 14, 1996 and on August 22,
1996, the stockholders approved amendments to increase the number of shares
available for issuance under the 1994 Plan from 550,000 shares to 925,000 shares
and from 925,000 shares to 2,000,000 shares, respectively. Under the terms of
the 1994 Plan, as amended, and giving effect to the two-for-one stock split on
September 9, 1997, the Company is authorized to make awards of performance
shares and to grant stock options that qualify as incentive stock options
("ISOs") under Section 422 of the Code and nonqualified stock options ("NQSOs")
to salaried officers and other key employees of the Company and its subsidiaries
who are in a position to affect materially the profitability and growth of the
Company and its subsidiaries, for up to an aggregate of 4,000,000 shares of
common stock. The following summary of certain features of the 1994 Plan is
qualified in its entirety by reference to the full text of the 1994 Plan, a copy
of which will be furnished to any stockholder, upon written request of such
stockholder directed to Mr. Carl R. Vertuca, Jr., Executive Vice President -
Finance, Administration and Corporate Development and Secretary, 6273 Monarch
Park Place, Niwot, Colorado 80503.
SUMMARY OF THE 1994 PLAN AND THE 1999 AMENDMENT
General. The 1994 Plan permits the Company to grant ISOs, NQSOs, and
performance shares (collectively, "Awards") to salaried officers and other key
employees. The 1994 Plan terminates on March 14, 2004 and no options or awards
may be granted after the termination date. The 1994 Plan covers a maximum of
4,000,000 shares of common stock (subject to share adjustments as described
below), which may be either authorized and unissued shares of common stock or
shares held in the Company's treasury. When a performance share or option
lapses, expires, terminates or is forfeited, the related shares of common stock
may be available for distribution in connection with future Awards. Adjustments
may be made in the number of shares reserved under the 1994 Plan, in the number
of shares granted pursuant to a performance share award, the financial
performance goals contained in a performance share award, in the option price
and in the number of shares subject to stock options, in the event of a merger,
reorganization, consolidation, recapitalization or stock dividend, and in the
event of certain other changes described in the 1994 Plan or any other changes
in the Company's corporate structure that affect the common stock or has an
effect similar to any of the foregoing. No employee may be granted awards
covering, in the aggregate, more than 150,000 shares of common stock in any
fiscal year of the Company (subject to adjustment as provided above).
Because grants under the 1994 Plan are discretionary, the Company cannot
now determine the number of options or performance share awards to be received
by any particular current executive officer, by all current executive officers
as a group or by non-executive officer employees or directors as a group. The
number of such options and awards shall be determined by the Compensation
Committee, pursuant to the terms of the 1994 Plan. It
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<PAGE> 14
is currently estimated that there are 7,300 employees eligible to participate in
the 1994 Plan. For information concerning the ownership of options by the Named
Executive Officers, see "Executive Compensation" above.
Administration. The 1994 Plan is administered by the Compensation
Committee. The Compensation Committee is comprised of directors who are
non-employee directors within the meaning of Rule 16b-3 promulgated under the
Exchange Act. The Compensation Committee has the sole and complete discretion,
subject to the terms of the 1994 Plan, to (i) select the individuals from among
the eligible employees of the Company and its subsidiaries to whom Awards may be
granted, (ii) determine the type of Awards to be granted and the terms and
conditions of any Awards granted, and (iii) determine the number of shares of
common stock subject to each Award granted. In addition, the Compensation
Committee will be authorized to interpret the 1994 Plan, to make and rescind
rules and regulations related thereto, and to make all determinations necessary
or advisable for the administration of the 1994 Plan.
Stock Options. Stock options granted under the 1994 Plan may be either
ISOs or NQSOs. Stock options may be granted alone or in addition to other Awards
granted under the 1994 Plan. The aggregate fair market value (determined as of
the time of the grant of an ISO) of the common stock with respect to which ISOs
are exercisable for the first time by a single optionee during any calendar year
under the 1994 Plan and any other stock option plan of the Company may not
exceed $100,000.
The exercise price for stock options shall be determined by the
Compensation Committee and shall be set forth in an option agreement entered
into with the optionee, provided, however, that the exercise price for an option
shall not be less than the fair market value of a share of common stock on the
date of grant (110% in the case of an ISO granted to a 10% or more stockholder
of common stock). On March 26, 1999, the closing sale price of the common stock,
as reported by Nasdaq, was $28.3750 per share.
The Compensation Committee is to specify the time or times at which such
options will be exercisable, except that the termination date for any stock
option shall not exceed 10 years from the date of grant (five years in the case
of an ISO granted to a 10% or more stockholder of common stock). Options may be
exercised within three months following the retirement or permanent disability
of an optionee and within twelve months following the death of an optionee;
provided, that no option may be exercised following the period of exercisability
set forth in the agreement related thereto.
Stock options may be exercised by an optionee in whole or in part by
giving notice to the Company and the exercise price therefor may be paid by
delivering cash or shares of unrestricted common stock having a fair market
value equal to the cash exercise price of the options being exercised. Optionees
may also utilize a cashless exercise feature which will enable them to exercise
their options without a concurrent payment of the option price, provided that
the purchased option shares are immediately sold by a designated broker and the
option price is paid directly to the Company out of the sale proceeds.
Stock options are nontransferable other than by will or by the laws of
descent and distribution, and stock options are exercisable during the
optionee's lifetime only by the optionee.
Performance Share Awards. The Compensation Committee may award performance
shares to eligible employees under the 1994 Plan. Performance shares may be
granted alone or in addition to other Awards granted under the 1994 Plan. Each
grant of performance shares shall be evidenced by an agreement executed by the
Company and the recipient thereof. Each such agreement shall contain such
restrictions, terms and conditions as the Compensation Committee may, in its
sole discretion, determine.
Performance shares are awarded in the form of shares of common stock. The
Compensation Committee will determine (i) the time or times at which performance
shares shall be issued and (ii) the time or times at which performance shares
shall become vested or forfeited. Vesting of performance shares shall be based
upon the Company's attainment of specified financial performance objectives
and/or the passage of time. Company financial performance objectives may be
expressed in terms of (i) earnings per share, (ii) pre-tax profits (either on
the Company or business unit level), (iii) net earnings or net worth, (iv)
return on equity or assets, (v) any combination
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<PAGE> 15
of the foregoing, or (vi) any other standard or standards deemed appropriate by
the Compensation Committee at the time the Award is granted. Until such time as
all restrictions on vesting related to the performance shares have lapsed, said
shares may not be sold, transferred, pledged, assigned or otherwise disposed of.
Performance shares shall become vested in such installments as the Compensation
Committee may determine.
At the discretion of the Compensation Committee, performance shares may be
held by the Company in escrow in the name of the recipient until such time as
all restrictions lapse. Dividends paid on performance shares may be deferred and
retained in escrow until such time as all restrictions on such shares lapse.
Upon the lapse of all restrictions, such shares and any dividends accrued
thereon shall be delivered to the recipient free of all restrictions. The
recipient of performance shares shall have no rights with respect thereto until
they have vested, including no right to vote the performance shares.
Upon termination of employment of a recipient, all performance shares
shall be forfeited, provided, however, that the Compensation Committee may
provide for the waiver of all or a portion of the restrictions related thereto
in the event of the death, disability or retirement of the recipient.
Change of Control. In the event of a "Change of Control," as defined in
the 1994 Plan, all options outstanding shall be immediately and fully
exercisable and all performance shares outstanding shall become fully vested.
Amendments. The Board of Directors may terminate, suspend or amend the
1994 Plan, provided that such amendment, suspension, or termination may not
affect the validity of the then outstanding options or performance shares, and
provided further that the Board may not, without the approval of stockholders
(i) increase the maximum number of shares which may be issued pursuant to the
provisions of the 1994 Plan, (ii) change the class of individuals eligible to
receive options or performance shares under the 1994 Plan, (iii) materially
increase the benefits accruing to participants under the 1994 Plan, or (iv)
extend the term of the 1994 Plan.
Withholding Taxes. The 1994 Plan provides that the Company may deduct from
any distribution to an employee an amount equal to all federal, state and local
income taxes or other amounts as may be required by law to be withheld with
respect to any Award. An employee exercising an NQSO or acquiring shares
pursuant to the vesting of performance shares may elect to have a specified
percentage of his shares withheld by the Company in order to satisfy tax
obligations.
Deferral. An employee may elect to defer (i) all or part of his
performance shares upon vesting or (ii) the option profit with respect to any
shares subject to an NQSO, all in accordance with the provisions of the
Company's Deferred Compensation Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following general description of federal income tax consequences is
based upon current statutes, regulations and interpretations. This description
is not intended to address specific tax consequences applicable to individual
participants.
Incentive Stock Options. No regular income tax consequences result from
the grant of an ISO or the exercise of an ISO by the employee, provided the
employee continues to hold the stock acquired on the exercise of an ISO for the
requisite holding periods described below. The employee will be taxed only upon
the sale or disposition of the stock acquired under an ISO and the gain
recognized at that time will be long-term capital gain. The holding period
requirements necessary for ISO treatment are as follows: (i) such shares may not
be disposed of within two years from the date the ISO is granted, and (ii) such
shares must be held for at least one year from the date the shares are
transferred to the employee upon the exercise of the ISO. In addition, to
receive ISO treatment, the option holder generally must be an employee of the
Company or a subsidiary of the Company from the date the stock option is granted
until three months before the date of exercise.
If an employee disposes of stock acquired upon exercise of an ISO before
expiration of the applicable holding periods, the employee will be taxed at
ordinary income tax rates on the date of disposition measured by the lesser of:
(i) the fair market value of the stock on the date of exercise of the ISO minus
the option price or (ii) the amount
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<PAGE> 16
realized on disposition minus the option price, and the Company will receive a
corresponding income tax deduction. In the case of a sale where a loss, if
sustained, would be recognized, the amount of the optionee's income, and the
amount of the Company's corresponding expense deduction, will not exceed the
difference between the sale price and the adjusted basis of the shares.
The amount by which the fair market value of shares received upon exercise
of an ISO exceeds the option price constitutes an item of tax preference that
may be subject to the alternative minimum tax. If an employee is subject to the
alternative minimum tax as a result of the exercise of an ISO, for purposes of
calculating the gain on a disposition of the stock solely for purposes of the
alternative minimum tax, the amount treated as a preference item will be added
to his tax basis for the stock. Gain realized by an employee upon the
disposition of stock acquired through the exercise of an ISO is taxable in the
year of disposition, but such income is not subject to income tax withholding if
the requisite holding periods have been satisfied. If either of the holding
periods is not satisfied, however, the disposition of the stock may result in
taxable income to the employee as additional compensation which is subject to
withholding.
Non-Qualified Stock Options. With regard to NQSOs, the employee will
recognize ordinary income at the time of the exercise of the option in an amount
equal to the difference between the exercise price and the fair market value of
the shares received on the date of exercise. Such income will be subject to
withholding. When the employee disposes of shares acquired upon the exercise of
the option, any amount received in excess of the fair market value of the shares
on the date of exercise will be treated as long-term or short-term capital gain,
depending upon the holding period of the shares. If the amount received upon
sale is less than the fair market value of the shares on the date of exercise,
the loss will be treated as long-term or short-term capital loss, depending upon
the holding period of the shares. The Company will be entitled to an income tax
deduction in the amount and at the time that the employee recognizes ordinary
income with respect to the exercise of the option.
Performance Share Awards. An employee granted a performance share award
will not recognize income at the time of grant but will recognize ordinary
income when the restrictions with respect to the shares of stock expire. The
amount of income recognized will be equal to the then fair market value of such
shares less any consideration paid by the employee. The Company generally will
be entitled to a deduction in an amount equal to the income recognized by the
employee at the time the employee recognizes such income, provided the Company
complies with applicable withholding requirements. Any dividends with respect to
the performance shares which are paid or made available to an employee while the
shares remain forfeitable are treated as additional compensation taxable as
ordinary income to the employee and deductible to the Company. The holder of
performance shares may elect under Section 83(b) of the Code to be taxed at the
time of grant of the performance shares on the market value of the performance
shares less any consideration paid by the employee, in which case (i) the
Company will be entitled to a deduction at the same time, subject to the
provisions of the Code, (ii) dividends paid to the employee on such performance
shares during the restriction period will be taxable as dividends and not
deductible to the Company, and (iii) there will be no further federal income tax
consequences when the restrictions lapse.
Section 162(m) of the Code generally prohibits the Company from deducting
compensation of a "covered employee" to the extent the compensation exceeds
$1,000,000 per year. For this purpose, "covered employee" means the chief
executive officer of the Company and the four other highest compensated officers
of the Company. Certain performance-based compensation (including, under certain
circumstances, stock option and performance share compensation) will not be
subject to, and will be disregarded in applying, the $1,000,000 deduction
limitation. It is the Company's intention that options granted under the 1994
Plan qualify as "performance-based" compensation under Section 162(m). However,
awards of performance shares will not generally qualify as "performance-based"
compensation unless the vesting of such awards is based exclusively on
achievement of qualifying performance goals.
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<PAGE> 17
RECOMMENDATION AND VOTE
An affirmative vote of the holders of a majority of shares of common stock
present in person or by proxy and entitled to vote at the Annual Meeting is
required to approve the 1999 Amendment. If no direction is given to the
contrary, all proxies received by the Board of Directors will be voted "FOR"
approval of the 1999 Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE 1999 AMENDMENT.
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP to act as the
Company's independent auditors for the current fiscal year, subject to the
ratification of such appointment by the stockholders at the Annual Meeting. If
no direction is given to the contrary, all proxies received by the Board of
Directors will be voted "FOR" ratification of the appointment of Deloitte &
Touche LLP as the Company's independent auditors for the current fiscal year.
KPMG LLP was previously the principal accountants for the Company. On
September 4, 1997, that firm's appointment as principal accountants was
terminated and Deloitte & Touche LLP was engaged as principal accountants. The
decision to change accountants was approved by the Audit Committee of the Board
of Directors.
During the Company's two most recent fiscal years and the subsequent
interim periods preceding such dismissal, there were no disagreements with KPMG
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures which disagreements if not resolved
to their satisfaction would have caused them to make reference thereof in
connection with their reports. None of the "reportable events" described under
Item 304(a)(l)(v) of Regulation S-K occurred within the Company's two most
recent fiscal years and the subsequent interim periods preceding September 4,
1997. The audit reports of KPMG LLP on the consolidated financial statements of
the Company and subsidiaries as of and for the 52 weeks ended December 29, 1996
and the year ended December 31, 1995 did not contain any adverse opinion, or
disclaimer of opinion nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting and will be available to respond to appropriate questions from
stockholders and to make a statement if they desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE CURRENT FISCAL YEAR.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any other matters which may come before the Annual Meeting, nor has the
Company received notice of any matter by the deadline prescribed by Rule
14a-4(c) under the Exchange Act. If any other matters properly come before the
meeting, the accompanying proxy confers discretionary authority with respect to
any such matters, and the persons named in the accompanying proxy intend to vote
in accordance with their best judgment on such matters.
All expenses in connection with the solicitation of proxies will be borne
by the Company. In addition to this solicitation, officers, directors and
regular employees of the Company, without any additional compensation, may
solicit proxies by mail, telephone or personal contact. Morrow & Co., Inc. has
been retained to assist in the solicitation of proxies for a fee of $5,000, plus
reasonable out-of-pocket expenses. The Company will, upon request, reimburse
brokerage houses and other nominees for their reasonable expenses in sending
proxy materials to their principals.
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<PAGE> 18
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the proxy materials for the Annual
Meeting in 2000 should be addressed to the Company's Secretary, 6273 Monarch
Park Place, Niwot, Colorado 80503, and must be received no later than December
15, 1999. In addition, the Company's By-laws currently require that for business
to be properly brought before an annual meeting by a stockholder, regardless of
whether included in the Company's proxy statement, the stockholder must give
written notice of his or her intention to propose such business to the Secretary
of the Company, which notice must be delivered to, or mailed and received at,
the Company's principal executive offices not less than forty-five (45) days
prior to the date on which the Company first mailed its proxy materials for the
prior year's Annual Meeting (which cut-off date will be February 15, 2000 in the
case of the Annual Meeting in 2000). Such notice must set forth as to each
matter the stockholder proposes to bring before the Annual Meeting: (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and address
of the stockholder proposing such business, (iii) the class and number of shares
which are beneficially owned by the stockholder, and (iv) any material interest
of the stockholder in such proposal. The By-laws further provide that the
chairman of the Annual Meeting may refuse to permit any business to be brought
before an Annual Meeting without compliance with the foregoing procedures.
By Order of the Board of Directors,
/s/ CARL R. VERTUCA, JR.
-------------------------
Carl R. Vertuca, Jr.
Executive Vice President - Finance,
Administration and Corporate Development
and Secretary
Niwot, Colorado
March 31, 1999
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON SOLICITED HEREBY,
UPON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3, 1999, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (WITHOUT EXHIBITS). REQUESTS SHOULD BE MADE
TO MR. CARL R. VERTUCA, JR., EXECUTIVE VICE PRESIDENT - FINANCE, ADMINISTRATION
AND CORPORATE DEVELOPMENT AND SECRETARY, 6273 MONARCH PARK PLACE, NIWOT,
COLORADO 80503.
-16-
<PAGE> 19
THE DII GROUP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING, MAY 6, 1999
The undersigned hereby appoints Ronald R. Budacz and Carl R. Vertuca, Jr.
the proxies (each with power to act alone and with power of substitution) of the
undersigned to vote at the Annual Meeting of Stockholders of The DII Group, Inc.
to be held on May 6, 1999, and at any adjournment, all shares of stock which the
undersigned is entitled to vote thereat upon all matters properly brought before
the meeting.
Dated:
- --------------------------------------------------------------------------, 1999
------------------------------
------------------------------
Signature of Stockholder
THIS PROXY MUST BE SIGNED
EXACTLY AS NAME APPEARS
HEREON. Executors,
administrators, trustees,
etc., should give full title
as such. For joint accounts,
each owner should sign. If the
signer is a corporation,
please sign full corporate
name by duly authorized
officer.
(over)
(Continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 THROUGH 3.
1. Election of Directors. The nominees are:
<TABLE>
<S> <C> <C>
Ronald R. Budacz Robert L. Brueck Constantine S. Macricostas
Carl R. Vertuca, Jr. Gerard T. Wrixon Alexander W. Young
</TABLE>
(Mark only one)
[ ] VOTE FOR all nominees listed above, except vote withheld from following
nominees (if any):
------------------------------------------------------------------------------
------------------------------------------------------------------------------
[ ] VOTE WITHHELD from all nominees.
<TABLE>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
2. Proposal to amend the Company's 1994 Stock Incentive Plan to
increase the number of shares of Class A Common Stock
reserved for issuance thereunder from 4,000,000 to
6,000,000. [ ] [ ] [ ]
3. Proposal to ratify the appointment of Deloitte & Touche LLP
as independent auditors. [ ] [ ] [ ]
4. In their discretion, upon such other matters as may properly
come before the meeting. [ ] [ ] [ ]
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
P
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