<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 APRIL 4, 1999
( ) 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
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.
OUTSTANDING AT
CLASS May 10, 1999
----- ------------
Common Stock, Par Value $0.01 29,468,973
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE FIRST QUARTER ENDED
-----------------------------
APR. 4, 1999 MAR. 29, 1998
------------ -------------
<S> <C> <C>
Net sales:
Systems assembly and distribution $ 150,913 150,419
Printed wiring boards 71,321 50,708
Other 25,234 34,247
------------ ------------
Total net sales 247,468 235,374
Cost of sales:
Cost of sales 209,539 201,932
Non-recurring charges -- 52,156
------------ ------------
Total cost of sales 209,539 254,088
------------ ------------
Gross profit (loss) 37,929 (18,714)
Selling, general and administrative expenses 20,110 19,176
Non-recurring charges -- 1,844
Interest income (394) (927)
Interest expense 6,482 4,719
Amortization of intangibles 1,295 1,121
Other, net (14) (168)
------------ ------------
Income (loss) before income taxes 10,450 (44,479)
Income tax expense (benefit) 1,567 (12,432)
------------ ------------
Net income (loss) $ 8,883 (32,047)
============ ============
Earnings (loss) per common share:
Basic $ 0.32 (1.27)
Diluted $ 0.31 (1.27)
Weighted average number of common shares and equivalents outstanding:
Basic 27,352 25,303
Diluted 30,477 25,303
</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>
APRIL 4, JANUARY 3,
1999 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 42,522 55,972
Accounts receivable, net 144,480 153,861
Inventories 70,891 66,745
Prepaid expenses 13,214 11,570
Other 11,560 7,249
------------ ------------
Total current assets 282,667 295,397
Property, plant and equipment, net 328,122 326,226
Goodwill, net 95,882 97,475
Debt issue costs, net 7,388 9,319
Investments in minority owned entities 20,507 --
Other 18,044 18,892
------------ ------------
$ 752,610 747,309
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 122,022 122,536
Accrued expenses 37,840 44,134
Accrued interest payable 2,400 6,769
Current portion of capital lease obligations 2,421 5,617
Current portion of long-term debt 23,086 29,031
------------ ------------
Total current liabilities 187,769 208,087
Capital lease obligations, net of current portion 1,488 1,820
Long-term debt, net of current portion 287,069 271,864
Convertible subordinated notes payable -- 86,235
Other 3,705 3,582
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; 90,000,000 shares
authorized; 30,930,260 and 26,169,344 shares issued
and 29,283,260 and 24,522,344 shares outstanding 309 262
Additional paid-in capital 211,367 124,410
Retained earnings 101,954 93,071
Treasury stock, at cost; 1,647,000 shares (28,544) (28,544)
Accumulated other comprehensive loss (4,254) (4,139)
Deferred compensation (8,253) (9,339)
------------ ------------
Total stockholders' equity 272,579 175,721
------------ ------------
$ 752,610 747,309
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 4
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE FIRST QUARTER ENDED
-----------------------------
APR. 4, 1999 MAR. 29, 1998
------------ -------------
<S> <C> <C>
Net cash provided (used) by operating activities $ 4,843 (585)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (21,342) (15,153)
Proceeds from sales of property, plant and equipment 9,104 3,352
Proceeds from business divestitures 12,000 --
Investments in minority owned entities (20,507) --
------------ ------------
Net cash used by investing activities (20,745) (11,801)
------------ ------------
Cash flows from financing activities:
Payments to acquire treasury stock -- (9,170)
Repayments of capital lease obligations (3,528) (1,235)
Repayments of long-term debt (15,504) (2,044)
Long-term debt borrowings 20,000 --
Proceeds from stock issued under stock plans 1,568 2,834
Other (101) --
------------ ------------
Net cash provided (used) by financing activities 2,435 (9,615)
------------ ------------
Effect of exchange rate changes on cash 17 (29)
------------ ------------
Net decrease in cash and cash equivalents (13,450) (22,030)
Cash and cash equivalents at beginning of period 55,972 85,067
------------ ------------
Cash and cash equivalents at end of period $ 42,522 63,037
============ ============
</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)
(UNAUDITED)
(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 January 3, 1999 has been derived
from the audited consolidated financial statements of The DII Group, Inc. and
subsidiaries (the "Company").
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 January 3, 1999 included in
the annual report on Form 10-K previously filed with the Securities and Exchange
Commission. 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 April 4, 1999 are not
necessarily indicative of the results that may be expected for the year ending
January 2, 2000.
The Company's fiscal year consists of either a 52-week or 53-week period ending
on the Sunday nearest to December 31. Fiscal 1998 comprised 53 weeks and ended
on January 3, 1999 and fiscal 1999 will comprise 52 weeks and will end on
January 2, 2000. The accompanying condensed consolidated financial statements
are therefore presented as of and for the quarters ended April 4, 1999 and March
29, 1998, both of which are 13-week periods.
(2) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1999 1999
------------ ------------
<S> <C> <C>
Raw materials $ 44,311 44,669
Work in process 31,875 24,922
Finished goods 3,627 6,622
------------ ------------
79,813 76,213
Less allowance 8,922 9,468
------------ ------------
$ 70,891 66,745
============ ============
</TABLE>
The Company made provisions to the allowance for inventory impairment (including
non-recurring charges, see Note 7) of $40 and $6,028 during the quarters ended
April 4, 1999 and March 29, 1998, respectively.
(3) BUSINESS COMBINATIONS, ASSET PURCHASES AND STRATEGIC INVESTMENTS
In August 1998, the Company acquired Greatsino Electronic Technology, a printed
wiring board fabricator and contract electronics manufacturer with operations in
the People's Republic of China. The cash purchase price, net of cash acquired,
amounted to $51,795. The initial purchase price is subject to adjustments for
contingent consideration of no more than approximately $40,000 based upon the
business achieving specified levels of earnings through August 31, 1999. The
fair value of the assets acquired, excluding cash acquired, amounted to $55,699
and liabilities assumed were $21,801, including estimated acquisition costs. The
cost in excess of net assets acquired amounted to $17,897.
The cost of the acquisition has been allocated on the basis of the estimated
fair value of assets acquired and liabilities assumed. Goodwill is subject to
future adjustments from contingent purchase price adjustments for varying
periods, all of which end no later than June 2001. The Company increased
goodwill and notes payable to sellers of businesses acquired in the amount of
$5,000 for contingent purchase price adjustments
<PAGE> 6
during the quarter ended April 4, 1999. There were no contingent purchase price
adjustments during the quarter ended March 29, 1998.
The above acquisition was accounted for as a purchase with the results of
operations from the acquired business included in the Company's results of
operations from the acquisition date forward. Pro forma results of operations
would not be materially different from the historical results reported. The
costs of this acquisition has been allocated on the basis of the estimated fair
value of the assets acquired and the liabilities assumed.
In October 1998, the Company acquired Hewlett-Packard Company's ("HP") printed
wiring board fabrication facility located in Boeblingen, Germany, and its
related production equipment, inventory and other assets for a purchase price of
approximately $89,900. The purchase price was allocated to the assets acquired
based on the relative fair values of the assets at the date of acquisition.
During the first quarter of fiscal 1999, the Company made two strategic minority
investments amounting to $20,507. First, the Company entered into a joint
venture with Virtual IP Group ("VIP"), a complex integrated circuit design
company with locations in Hyderabad, India and Sunnyvale, California. The
Company acquired a 49% interest in VIP for approximately $5,007. The Company
accounts for its investment in VIP under the equity method.
The Company also acquired a minority interest in a subsidiary that is primarily
owned by Capetronic, a Hong Kong publicly traded company, through the purchase
of preferred stock for approximately $15,500. The preferred stock can be
exchanged into common stock of Capetronic at any price above $4.80 Hong Kong
("HK") per share any time after 15 months from the date of agreement.
Additionally, any time after 15 months Capetronic can force conversion at $10 HK
per share. The Company accounts for its investment under the cost method.
Through this strategic partnership, the Company has obtained the rights to
manufacture the majority of the set-top boxes for the delivery of video
entertainment, data and educational materials to the Mandarin Chinese-speaking
markets in China, Singapore, Taiwan and Hong Kong.
(4) DIVESTITURES
The Company has undertaken an initiative to divest of its non-core business unit
known as Process Technologies International ("PTI"). PTI is a group of
manufacturing companies that produce equipment and tooling used in the printed
circuit board assembly process. The Company is divesting of this non-core
business unit in order to sharpen its focus on the Company's core businesses of
design and semiconductor services, fabrication of printed wiring boards, and
systems assembly and distribution.
In March 1999, the Company completed the divestiture of TTI Testron, Inc., its
subsidiary that manufactures in-circuit and functional test hardware and
software. The Company received cash proceeds from the sale amounting to $12,000,
which approximated the book value of the disposed assets.
(5) LONG-TERM DEBT
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1999 1999
------------ ------------
<S> <C> <C>
Senior subordinated notes $ 150,000 150,000
Bank term loan 96,000 100,000
Outstanding under line-of-credit 57,500 37,500
Notes payable to sellers of businesses acquired 6,373 11,550
Other 282 1,845
------------ ------------
Total long-term debt 310,155 300,895
Less current portion 23,086 29,031
------------ ------------
Long-term debt, net of current portion $ 287,069 271,864
============ ============
</TABLE>
<PAGE> 7
(6) CONVERTIBLE SUBORDINATED DEBT
As of February 18, 1999, substantially all of the Company's convertible
subordinated notes were converted into approximately 4,600,000 shares of common
stock and the unconverted portion was redeemed for $101. Stockholders' equity
was increased by the full amount of the convertible subordinated notes less the
unamortized issuance costs. The conversion was a non-cash addition to
stockholders' equity during the first quarter of fiscal 1999.
(7) NON-RECURRING CHARGES
During fiscal 1998, the Company recognized non-recurring pre-tax charges of
$76,636, substantially all of which related to the operations of the Company's
wholly owned subsidiary, Orbit Semiconductor. The Company decided to sell
Orbit's 6-inch, 0.6 micron wafer fabrication facility ("Fab") and adopt a
fabless manufacturing strategy to complement Orbit's design and engineering
services. The charges were primarily due to the impaired recoverability of
inventory, intangible assets and fixed assets, and other costs associated with
the exit of semiconductor manufacturing. The manufacturing facility was sold in
January 1999 and the Company has successfully adopted a fabless manufacturing
strategy. The Company recorded $54,000 and $22,636 of the charges in the first
and fourth quarters of fiscal 1998, respectively. As discussed below, $52,156 of
the non-recurring pre-tax charges had been classified as a component of cost of
sales in the first quarter 1998.
The Company purchased Orbit in August of 1996, and, as a precondition to the
merger, supported Orbit's previously made decision to replace its wafer
fabrication facility (fab) with a higher technology fab. The transition to the
6-inch fab was originally scheduled for completion during the summer of 1997,
but the changeover took longer than expected and was finally completed in
January 1998.
The missed plan for the changeover and running both fabs simultaneously put
pressure on the work force, with resulting quality problems. Compounding these
problems, the semiconductor industry was characterized by excess capacity that
arose about the time Orbit was acquired, which led larger competitors to invade
Orbit's niche market. Further, many of Orbit's customers migrated faster than
expected to a technology in excess of Orbit's fabrication capabilities,
requiring Orbit to outsource more of its manufacturing requirements than
originally expected. Based upon these continued conditions and the future
outlook, the Company took this first quarter 1998 charge to correctly size
Orbit's asset base to allow its recoverability based upon its then current
business size.
The first quarter 1998 non-recurring charge included approximately $38,258 for
the write-down of long-lived assets to fair value. The fair value of these
assets was based on estimated market value at the date of the charge. These
assets primarily related to the property, plant and equipment. This amount was
classified as a component of cost of sales.
Additionally, the first quarter 1998 non-recurring charge included approximately
$7,900 for losses on sales contracts, incremental amounts of uncollectible
accounts receivable, and estimated incremental sales returns and allowances,
primarily resulting from the fab changeover quality issues. This amount was
classified as a component of cost of sales.
The first quarter 1998 non-recurring pre-tax charge also included approximately
$7,842 primarily associated with inventory write-downs. This write-down
primarily resulted from excess inventory created by deciding to downsize
operations.
As previously stated, the Company subsequently decided to sell the manufacturing
facility (which occurred in January 1999). This decision resulted in an
additional non-recurring pre-tax charge in the fourth quarter of 1998 of
$22,636. As of April 4, 1999, the Company has paid all employee termination
costs associated with its exit from the fab. Included in accrued expenses at
April 4, 1999 is $500 related to allowances for sales returns and $1,439 of
other items such as litigation, environmental clean-up costs and other facility
exit costs. These remaining accruals relate to the charge taken in the fourth
quarter of fiscal 1998 and, in management's opinion, are adequate and are
expected to be paid out during fiscal 1999.
<PAGE> 8
(8) COMPREHENSIVE INCOME
The components of comprehensive income were as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
----------------------------
APRIL 4, MARCH 29,
1999 1998
------------ ------------
<S> <C> <C>
Net income (loss) $ 8,883 (32,047)
Other comprehensive loss-
Foreign currency translation adjustments (115) (9)
------------ ------------
Comprehensive income (loss) $ 8,768 (32,056)
============ ============
</TABLE>
The foreign currency translation adjustments are not currently adjusted for
income taxes since they relate to investments that are permanent in nature.
(9) EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share ("EPS") data were computed as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
------------------------------
APRIL 4, 1999 MARCH 29, 1998
------------- --------------
<S> <C> <C>
BASIC EPS:
Net income (loss) $ 8,883 (32,047)
============= ==============
Weighted-average common shares outstanding 27,352 25,303
============= ==============
Basic EPS $ 0.32 (1.27)
============= ==============
DILUTED EPS:
Net income (loss) $ 8,883 (32,047)
Plus income impact of assumed conversions:
Interest expense (net of tax) on convertible subordinated 400 --
notes
Amortization (net of tax) of debt issuance cost on
convertible subordinated notes 33 --
------------- --------------
Net income (loss) available to common stockholders $ 9,316 (32,047)
============= ==============
Shares used in computation:
Weighted-average common shares outstanding 27,352 25,303
Shares applicable to exercise of dilutive options 1,101 --
Shares applicable to deferred stock compensation 182 --
Shares applicable to convertible subordinated notes 1,812 --
------------- --------------
Shares applicable to diluted earnings 30,447 25,303
============= ==============
Diluted EPS $ 0.31 (1.27)
============= ==============
</TABLE>
The common equivalent shares from common stock options, deferred stock
compensation and convertible subordinated notes were antidilutive for the
quarter ended March 29, 1998, and therefore not assumed to be converted for
diluted earnings per share computations.
(10) COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
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
January 3, 1999. 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 the litigation and
environmental 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
<PAGE> 9
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 $10,336 of capital commitments as of April 4,
1999.
As of April 4, 1999, there were $57,500 in borrowings outstanding under the
Company's $110,000 senior secured revolving line-of-credit facility. This credit
facility requires compliance with certain financial covenants and is secured by
substantially all of the Company's assets. As of April 4, 1999, the Company was
in compliance with all loan covenants.
Subsequent to April 4, 1999, the Company sold IRI International and Chemtech
(U.K.) Limited, manufacturers of surface mount printed circuit board solder
cream stencils. Additionally, in April 1999, the Company signed a letter of
intent to sell Cencorp, its subsidiary that manufactures depaneling equipment
for fully assembled printed circuit boards. The aggregate proceeds from these
sales are expected to approximate $30,000. The Company does not believe that
these sales will have any adverse impact on its consolidated financial position.
On May 4, 1999, the Company announced that it has signed a memorandum of
understanding with Ericsson Austria AG to purchase Ericsson's manufacturing
facility and related assets located in Kindberg, Austria. Subject to concluding
this transaction, the Company will enter into a long-term supply agreement with
Ericsson to provide printed circuit board assembly, box build, and the
associated logistics and distribution activities. The transaction is expected to
be completed during the Company's third fiscal quarter of 1999. Completion of
the transaction is subject to applicable government approvals and various
conditions of closing. The transaction will be accounted for as a purchase of
assets. Subject to final negotiations, due diligence and working capital levels
at the time of closing, the estimated purchase price is approximately $20,000.
(11) INCOME TAXES
The Company's estimated effective income tax rate differs from the U.S.
statutory rate due to domestic income tax credits and lower effective income tax
rates on foreign earnings considered permanently invested abroad. The effective
tax rate for a particular year will vary depending on the mix of foreign and
domestic earnings, income tax credits and changes in previously established
valuation allowances for deferred tax assets based upon management's current
analysis of the realizability of these deferred tax assets. As foreign earnings
considered permanently invested abroad increase as a percentage of consolidated
earnings, the overall consolidated effective income tax rate will usually
decrease because the foreign earnings are generally taxed at a lower rate than
domestic earnings. The mix of foreign and domestic income from operations before
income taxes, the recognition of income tax loss and tax credit carryforwards,
management's current assessment of the required valuation allowance and the
implementation of several tax planning initiatives resulted in an estimated
effective income tax rate of 15% for the quarter ended April 4, 1999.
(12) BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company's businesses are organized, managed, and internally reported as
three reportable segments. These segments, which are based on differences in
products, technologies, and services are Systems Assembly and Distribution,
Printed Wiring Boards, and Other (which includes Dii Semiconductor and PTI).
These segments offer products and services across most sectors of the
electronics industry in order to reduce exposure to downturn in any particular
sector.
Transactions between segments are recorded at cost. The Company's businesses are
operated on an integrated basis and are characterized by substantial
intersegment cooperation, cost allocations, and marketing efforts. Substantially
all interest expense is incurred at Corporate. Therefore, management does not
represent that these segments, if operated independently, would report the
operating income and other financial information shown.
<PAGE> 10
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-------------------------------
APRIL 4, 1999 MARCH 29, 1998
------------- --------------
<S> <C> <C>
NET SALES:
Systems assembly and distribution $ 150,913 150,419
Printed wiring boards 71,321 50,708
Other 25,234 34,247
------------- --------------
$ 247,468 235,374
============= ==============
INCOME (LOSS) BEFORE INCOME TAXES*:
Systems assembly and distribution $ 7,631 8,950
Printed wiring boards 8,996 8,402
Other 2,702 (1,362)
Unallocated general corporate (8,879) (6,469)
------------- --------------
$ 10,450 9,521
============= ==============
DEPRECIATION AND AMORTIZATION:
Systems assembly and distribution $ 3,349 1,666
Printed wiring boards 5,046 2,648
Other 940 3,902
Unallocated general corporate 306 303
------------- --------------
$ 9,641 8,519
============= ==============
CAPITAL EXPENDITURES:
Systems assembly and distribution $ 11,307 6,131
Printed wiring boards 8,436 4,524
Other 899 4,446
Unallocated general corporate 700 52
------------- --------------
$ 21,342 15,153
============= ==============
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS AT THE END OF
EACH PERIOD: APRIL 4, 1999 JANUARY 3, 1999
------------- ---------------
<S> <C> <C>
Systems assembly and distribution $ 225,915 238,027
Printed wiring boards 406,355 390,194
Other 61,901 79,453
Unallocated general corporate 58,439 39,635
------------- ---------------
$ 752,610 747,309
------------- ---------------
</TABLE>
- ---------------------------
* Excludes non-recurring charge of $54,000 for the quarter ended March 29, 1998,
which related primarily to Other Services. See Note 6 for additional information
regarding the non-recurring charges.
<PAGE> 11
The following summarizes financial information by geographic areas:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-------------------------------
APRIL 4, 1999 MARCH 29, 1998
------------- --------------
<S> <C> <C>
NET SALES:
North America $ 141,277 169,503
Europe 56,369 41,415
Asia 49,822 24,456
------------- --------------
$ 247,468 235,374
============= ==============
INCOME (LOSS) BEFORE INCOME TAXES*:
North America $ 6,957 9,837
Europe 6,640 4,827
Asia 5,732 1,326
Unallocated general corporate (8,879) (6,469)
------------- --------------
$ 10,450 9,521
============= ==============
</TABLE>
<TABLE>
<CAPTION>
LONG-LIVED ASSETS AT THE END OF EACH PERIOD: APRIL 4, 1999 JANUARY 3, 1999
------------- ---------------
<S> <C> <C>
North America $ 217,198 232,134
Europe 112,018 110,296
Asia 93,388 80,635
Unallocated general corporate 8,788 9,955
------------- ---------------
$ 431,392 433,020
============= ===============
</TABLE>
- --------------------------
* Excludes non-recurring charge of $54,000 for the quarter ended March 29, 1998,
which related to businesses operated in North America. See Note 6 for additional
information regarding the non-recurring charges.
<PAGE> 12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Dollars in thousands)
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
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. Words such as "expects," "anticipates,"
"forecasts," "intends," "plans," "believes," "projects," and "estimates" and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements include, but are not limited to,
statements regarding prospective sales growth, new customers, integration of
acquired businesses, contingencies, Year 2000 readiness, environmental matters
and liquidity under "Part I, Financial Information - Item 2 Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere herein. These statements are not guarantees of future performance and
involve risks and uncertainties and are based on a number of assumptions that
could ultimately prove to be wrong. Actual results and outcomes may vary
materially from what is expressed or forecast in such statements. Among the
factors that could cause actual results to differ materially are: general
economic and business conditions; the Company's dependence on the electronics
industry; changes in demand for the Company's products and services or the
products of the Company's customers; the risk of delays or cancellations of
customer orders; fixed asset utilization; the timing of orders and product mix;
availability of components; competition; the risk of technological changes and
of the Company's competitors developing more competitive technologies; the
Company's dependence on certain important customers; the Company's ability to
integrate acquired businesses; the Company's ability to manage growth; risks
associated with international operations; the availability and terms of needed
capital; risks of loss from environmental liabilities; and other risks detailed
in this report. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
A. OVERVIEW
The Company is a leading provider of electronics design and manufacturing
services, which operates through a global network of independent business units
in North America, Europe, and Asia. These business units are uniquely linked to
provide the following related core products and services to original equipment
manufacturers ("OEMs"): custom semiconductor design; design and manufacture of
printed wiring boards; assembly of printed circuit boards; final systems
assembly ("box build"); and distribution. By offering comprehensive and
integrated design and manufacturing services, the Company believes that it is
better able to differentiate its product and service offerings from those of its
competitors, develop long-term relationships with its customers and enhance its
profitability.
The Company provides the following related products and services to customers in
the global electronics manufacturing industry:
Design and Semiconductor Services-- Through Dii Technologies, the
Company provides printed circuit board and backpanel design services,
as well as design for manufacturability and test and total life cycle
planning.
Through Dii Semiconductor (formerly known as Orbit Semiconductor), the
Company provides the following application specific integrated circuit
("ASIC") design services to its OEM customers:
o Conversion services from field programmable gate arrays ("FPGAs") to
ASICs. These services focus on designs that utilize primarily
digital signals, with only a small amount of analog signals.
o Design services for mixed-signal ASICs. These services focus on
designs that utilize primarily analog signals, with only a small
amount of digital signals.
o Silicon integration design services. These services utilize silicon
design modules that are used to accelerate complex ASIC designs,
including system-on-a-chip.
<PAGE> 13
Dii Semiconductor utilizes external foundry suppliers for its
customers' silicon manufacturing requirements, thereby using a
"fabless" manufacturing approach.
By integrating the combined capabilities of design and semiconductor
services, the Company can compress the time from product concept to
market introduction and minimize product development costs. The Company
believes that its semiconductor design expertise provides it with a
competitive advantage by enabling the Company to offer its customers
reduced costs through the consolidation of components onto silicon
chips.
Printed Wiring Boards-- The Company manufactures high density, complex
multilayer printed wiring boards and back panels through Multek.
Systems Assembly and Distribution-- The Company assembles complex
electronic circuits and provides final system assembly and distribution
services through Dovatron International ("Dovatron").
With the above core competencies, the Company has the ability to provide
customers with total design and manufacturing outsourcing solutions. The
Company's ability to offer fully integrated solutions with value-added front-and
back-end product and process development capabilities, coupled with global
volume assembly capabilities, provides customers with significant
speed-to-market and product cost improvements.
In addition, the Company manufactures machine tools and process automation
equipment through its non-core business unit known as Process Technologies
International ("PTI"). In March 1999, the Company sold TTI Testron, Inc., a
manufacturer of functional and in-circuit test fixtures. In April 1999, the
Company sold IRI International and Chemtech (U.K.) Limited, manufacturers of
surface mount printed circuit board solder cream stencils. Additionally, in
April 1999, the Company signed a letter of intent to sell Cencorp, its
subsidiary that manufactures depaneling equipment for fully assembled printed
circuit boards. The Company is divesting this non-core business unit in order to
sharpen its focus on the Company's core businesses of design and semiconductor
services, fabrication of printed wiring boards, and systems assembly and
distribution. The Company does not believe that the sale of PTI will have any
adverse impact on its consolidated financial position. However, the Company's
consolidated revenues and operating results will be adversely impacted (by less
than 10%) until such time as the proceeds are reinvested back into the Company's
core businesses of design and semiconductor services, design and fabrication of
printed wiring boards, and systems assembly and distribution.
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
employed 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; the integration of acquired businesses;
start-up 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. Each of these factors has had in the past, and may have in the
future, an adverse effect on the Company's operating results.
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 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 has
historically been cyclical and subject to economic downturns at various times,
which have been characterized by diminished product demand, accelerated erosion
of average selling prices and overcapacity. The Company's customers also are
subject to short product life cycles and pricing and margin pressures, which
risks are borne by the Company. The Company seeks a well-balanced customer
profile across most sectors of the electronics industry in order to reduce
exposure to a downturn in any particular sector. The primary sectors within the
electronics industry served by the Company are office automation, mainframes and
mass storage, data communications, computer and peripherals, telecommunications,
industrial, instrumentation, and medical.
The Company offers manufacturing capabilities in three major electronics markets
of the world (North America, Europe and Asia). The Company's European and Asian
operations, combined, generated approximately 43% and 28% of total net sales for
the quarters ended April 4, 1999 and March 29, 1998, respectively. 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
<PAGE> 14
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 and economic instability.
Substantially all of the Company's business outside the United States is
conducted in U.S. dollar-denominated transactions. Some transactions of the
Company and its subsidiaries are made in currencies different from their
functional currencies. 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 non-functional currency
monetary assets and liabilities. 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. Gains and losses on
these foreign currency hedges are generally offset by corresponding losses and
gains on the underlying transaction. To date, the Company's hedging activity has
been immaterial, and there were no open foreign exchange contracts as of the
balance sheet dates included in the accompanying Consolidated Financial
Statements. As of April 4, 1999, the Company had the following unhedged net
foreign currency monetary asset (liability) positions:
<TABLE>
<CAPTION>
NET NET
FOREIGN U.S. DOLLAR
CURRENCY EQUIVALENT
ASSETS ASSETS
(LIABILITY) (LIABILITY)
-------------- --------------
<S> <C> <C>
British Pound Sterling 230 $ 369
Chinese Renminbi (28,370) (3,546)
Czech Krown 3,761 106
Euro (5,124) (4,662)
Irish Punt (52) (73)
Hong Kong Dollar (6,748) (875)
Malaysian Ringgit (7,050) (1,865)
Mexican Peso (708) (75)
</TABLE>
At any given time, certain customers may account for significant portions of the
Company's business. International Business Machines Corporation ("IBM"),
Hewlett-Packard Company ("HP") and Mylex Corporation accounted for approximately
10%, 16% and 11% of net sales during the quarter ended April 4, 1999,
respectively. HP and IBM accounted for 12% and 10% of net sales during the
quarter ended March 29, 1998, respectively. No other customer accounted for more
than 10% of net sales during the quarters ended April 4, 1999 or March 29, 1998.
The Company's top ten customers accounted for approximately 58% and 53% of net
sales for the quarters ended April 4, 1999 and March 29, 1998, 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
would have a material adverse effect on the Company's operating results.
Although management believes the Company has a broad diversification of
customers and markets, the Company has few material firm long-term commitments
or volume guarantees from its customers. In addition, customer orders can be
canceled and volume levels can be changed or delayed. From time to time, some of
the Company's customers have terminated their manufacturing arrangements with
the Company, and other customers have reduced or delayed the volume of design
and manufacturing services performed by the Company. The timely replacement of
canceled, delayed or reduced contracts with new business cannot be assured, and
termination of a manufacturing relationship or change, reduction or delay in
orders could have a material adverse effect on the Company's operating results.
In the past, changes in customer orders have had a significant impact on the
Company's results of operations due to corresponding changes in the level of
overhead absorption.
The Company has actively pursued acquisitions in furtherance of its strategy to
be the fastest and most comprehensive provider of custom electronics design and
manufacturing services, ranging from microelectronics design through the
fabrication, final assembly, and distribution of printed circuits and finished
products for customers. The Company's acquisitions have enabled the Company to
provide more integrated outsourcing technology solutions with time-to-market and
lower cost advantages. OEM divestitures and acquisitions have also played an
important part in expanding the Company's presence in the global electronics
marketplace.
<PAGE> 15
OEM divestitures and acquisitions involve numerous risks including difficulties
in assimilating 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 Company 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. There can be no assurance that the Company will be able to successfully
integrate newly acquired businesses. Such failures could have a material adverse
effect on the Company's business, financial condition and results of operations.
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. The Company also continues to experience
rapid internal growth and expansion, and with continued expansion, it may become
more difficult for the Company's management to manage geographically dispersed
operations. The Company's failure to effectively manage growth could have a
material adverse effect on the Company's results of operations.
B. RESULTS OF OPERATIONS
Total net sales for the quarter ended April 4, 1999 increased $12,094 (5%) to
$247,468 from $235,374 for the comparable period in 1998.
Net sales from systems assembly and distribution, which represented 61% of net
sales for the quarter ended April 4, 1999, increased $494 to $150,913, from
$150,419 (64% of net sales) for the corresponding period in 1998. The slight
increase in net sales is the result of the Company's ability to continue to
expand sales to its existing customer base as well as sales to new customers,
which offset reduced orders from certain product lines from some of the
Company's major customers.
Net sales from printed wiring board manufacturing operations, which represented
29% of net sales for the quarter ended April 4, 1999, increased $20,613 (41%) to
$71,321 from $50,708 (22% of net sales) for the comparable period in 1998. This
increase is primarily attributable to the August 1998 Greatsino acquisition and
the October 1998 purchase of the HP printed wiring board fabrication facility
located in Boeblingen, Germany.
Net sales for the Company's other products and services, which represented 10%
of net sales for the quarter ended April 4, 1999, decreased $9,013 (26%) to
$25,234 from $34,247 (14% of net sales) for the comparable period in 1998. This
decrease is primarily attributable to (i) the sale of the assets and the
business of the Company's subsidiary, TTI Testron, Inc. and (ii) the sale of Dii
Semiconductor's 6-inch, 0.6 micron wafer fabrication facility ("Fab"), both of
which occurred during the first quarter of fiscal 1999.
Excluding non-recurring charges, gross profit for the quarter ended April 4,
1999 increased $4,487 to $37,929 from $33,442 for the comparable period in 1998.
Excluding non-recurring charges, gross margin improved to 15.3% for the quarter
ended April 4, 1999 from 14.2% for the quarter ended March 29,1998. The gross
margin increase was primarily the result of (i) significantly improved margin
performance from Dii Semiconductor resulting from a more focused and efficient
business model since divesting of its Fab and (ii) the change in sales mix
resulting from an increase in printed wiring board revenues, which generate
higher margins than the Company's systems assembly and distribution, which
revenues remained relatively flat.
Selling, general and administrative (SG&A) expense increased $934 to $20,110 for
the quarter ended April 4, 1999 from $19,176 for the comparable period in 1998.
The percentage of SG&A expense to net sales remained unchanged at 8.1% for both
the quarter ended April 4, 1999 and March 29, 1998. The slight increase in
absolute dollars was primarily attributable to the addition of Multek's August
1998 Greatsino acquisition and October 1998 purchase of the HP printed wiring
board fabrication facility located in Boeblingen, Germany, combined with the
continued investment in the Company's sales and marketing, finance, and other
general and administrative infrastructure necessary to support the Company's
business expansion.
During fiscal 1998, the Company recognized non-recurring pre-tax charges of
$76,636, of which $54,000 was recognized during the quarter ended March 29,
1998, substantially all of which related to the operations of the Company's
wholly owned subsidiary, Orbit Semiconductor ("Orbit"). The Company decided to
sell Orbit's 6-inch, 0.6 micron wafer fabrication facility and adopt a fabless
manufacturing strategy to complement Orbit's design and engineering services.
The charges were primarily due to the impaired recoverability of inventory,
intangible assets and fixed assets, and other costs associated with the exit of
semiconductor manufacturing. The sale of the manufacturing facility was
completed in January 1999.
<PAGE> 16
The non-recurring pre-tax charges recognized in March 1998 consisted of (i)
$38,258 associated with the write-down of long-lived assets to fair value, (ii)
$7,900 for losses on sales contracts, incremental amounts of uncollectible
accounts receivable, and estimated incremental costs for sales returns and
allowances, (iii) $5,500 for losses associated with inventory write-downs, and
(iv) $2,342 of employee termination costs and costs related to the exiting of
semiconductor manufacturing. See Note 7 of the condensed consolidated financial
statements for information regarding the non-recurring pre-tax charges.
Interest expense increased $1,763 to $6,482 for the quarter ended April 4, 1999
from $4,719 for the comparable period in 1998. This increase is primarily
associated with the increased borrowings used to fund the business acquisitions,
purchases of manufacturing facilities and strategic investments as described in
Note 3 of the condensed consolidated financial statements. In February 1999,
substantially all of the Company's convertible subordinated notes were converted
into approximately 4,600,000 shares of common stock and the unconverted portion
was redeemed for $101.
Interest income decreased $533 to $394 for the quarter ended April 4, 1999 from
$927 for the comparable period in 1998. This decrease is attributable to the
earnings generated on the lower average balances of invested cash and cash
equivalents.
Amortization expense increased $174 to $1,295 for the quarter ended April 4,
1999 from $1,121 for the comparable period in 1998. This increase is
attributable to the amortization of debt issue costs associated with the
increased borrowings as well as amortization of goodwill associated with
acquisitions.
Other income (net) decreased $154 for the quarter ended April 4, 1999 from the
comparable period of 1998, due primarily to decreased net gains realized on
foreign currency transactions in the three months ended April 4, 1999 as
compared with the three months ended March 29, 1998.
The Company's estimated effective income tax rate differs from the U.S.
statutory rate due to domestic income tax credits and lower effective income tax
rates on foreign earnings considered permanently invested abroad. The effective
tax rate for a particular year will vary depending on the mix of foreign and
domestic earnings, income tax credits and changes in previously established
valuation allowances for deferred tax assets based upon management's current
analysis of the realizability of these deferred tax assets. As foreign earnings
considered permanently invested abroad increase as a percentage of consolidated
earnings, the overall consolidated effective income tax rate will usually
decrease because the foreign earnings are generally taxed at a lower rate than
domestic earnings. The mix of foreign and domestic income from operations before
income taxes, the recognition of income tax loss and tax credit carryforwards,
management's current assessment of the required valuation allowance and the
implementation of several tax planning initiatives resulted in an estimated
effective income tax rate of 15% for the quarter ended April 4, 1999. The
Company's effective income tax rate was 28% for the quarter ended March 29, 1998
resulting from the mix of foreign and domestic earnings, income tax credits, and
changes in previously established valuation allowances for deferred tax assets.
C. BUSINESS COMBINATIONS, ASSET PURCHASES AND STRATEGIC INVESTMENTS
In August 1998, the Company acquired Greatsino Electronic Technology, a printed
wiring board fabricator and contract electronics manufacturer with operations in
the People's Republic of China. The cash purchase price, net of cash acquired,
amounted to $51,795. The initial purchase price is subject to adjustments for
contingent consideration of no more than approximately $40,000 based upon the
business achieving specified levels of earnings through August 31, 1999. The
fair value of the assets acquired, excluding cash acquired, amounted to $55,699
and liabilities assumed were $21,801, including estimated acquisition costs. The
cost in excess of net assets acquired amounted to $17,897.
The costs of acquisitions have been allocated on the basis of the estimated fair
value of assets acquired and liabilities assumed. Goodwill is subject to future
adjustments from contingent purchase price adjustments for varying periods, all
of which end no later than June 2001. The Company increased goodwill and notes
payable to sellers of businesses acquired in the amount of $5,000 for contingent
purchase price adjustments during the quarter ended April 4, 1999. There were no
contingent purchase price adjustments during the quarter ended March 29, 1998.
The above acquisition was accounted for as a purchase with the results of
operations from the acquired business included in the Company's results of
operations from the acquisition dates forward. Pro forma results of operations
would not be materially different from the historical results reported. The
costs of
<PAGE> 17
these acquisitions have been allocated on the basis of the estimated fair value
of the assets acquired and the liabilities assumed.
In October 1998, the Company acquired Hewlett-Packard Company's ("HP") printed
wiring board fabrication facility located in Boeblingen, Germany, and its
related production equipment, inventory and other assets for a purchase price of
approximately $89,900. The purchase price was allocated to the assets acquired
based on the relative fair values of the assets at the date of acquisition.
During the first quarter of fiscal 1999, the Company made two strategic minority
investments amounting to $20,507. First, the Company entered into a joint
venture with Virtual IP Group ("VIP"), a complex integrated circuit design
company with locations in Hyderabad, India and Sunnyvale, California. The
Company acquired a 49% interest in VIP for approximately $5,007.
The Company also acquired a minority interest in a subsidiary that is primarily
owned by Capetronic, a Hong Kong publicly traded company, through the purchase
of preferred stock for approximately $15,500. The preferred stock can be
exchanged into common stock of Capetronic at any price above $4.80 Hong Kong
("HK") per share any time after 15 months from the date of agreement.
Additionally, any time after 15 months Capetronic can force conversion at $10 HK
per share. Through this strategic partnership, the Company has obtained the
rights to manufacture the majority of the set-top boxes for the delivery of
video entertainment, data and educational materials to the Mandarin
Chinese-speaking markets in China, Singapore, Taiwan and Hong Kong.
D. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS
At April 4, 1999, the Company had working capital of $94,898 and a current ratio
of 1.5x compared with working capital of $87,310 and a current ratio of 1.4x at
January 3, 1999. Cash and cash equivalents at April 4, 1999 were $42,522, a
decrease of $13,450 from $55,972 at January 3, 1999. This decrease resulted
primarily from cash used by investing activities of $20,745, offset by cash
provided by operations and financing activities of $4,843 and $2,435,
respectively.
The Company's net cash flows used by investing activities amounted to $20,745
and $11,801 for the quarters ended April 4, 1999 and March 29, 1998,
respectively. Capital expenditures amounted to $21,342 and $15,153 for the
quarters ended April 4, 1999 and March 29, 1998, respectively. The capital
expenditures represent the Company's continued investment in state-of-the-art,
high-technology equipment, which enables the Company to accept increasingly
complex and higher-volume orders and to meet current and expected production
levels, as well as to replace or upgrade older equipment that was either
returned or sold. The Company received proceeds of $9,104 and $3,352 from the
sale of property, plant and equipment during the quarters ended April 4, 1999
and March 29, 1998, respectively, to allow for the potential replacement of
older property, plant and equipment with state-of-the-art, high-technology
equipment. A significant portion of the proceeds in the quarter ended April 4,
1999 was related to the sale of Dii Semiconductor's wafer fabrication facility
in January 1999.
In March 1999, in accordance with its initiative to divest of its non-core
business unit PTI, the Company completed the divestiture of TTI Testron, Inc.,
its subsidiary that manufactures in-circuit and functional test hardware and
software. The Company received cash proceeds from the sale amounting to $12,000,
which approximated the book value of the disposed assets.
During the quarter ended April 4, 1999, the Company made two strategic minority
investments amounting to $20,507. See Note 3 of the condensed consolidated
financial statements for information regarding the two strategic minority
investments.
The Company's net cash flows provided by financing activities amounted to $2,435
for the quarter ended April 4, 1999. The Company's net cash flows used by
financing activities amounted to $9,615 for the quarter ended March 29, 1998.
The Company repaid $3,528 and $1,235 in capital lease obligations in the
quarters ended April 4, 1999 and March 29, 1998, respectively. The Company also
repaid $15,504 and $2,044 in long-term debt in the quarters ended April 4, 1999
and March 29, 1998, respectively. The Company received $1,568 and $2,834 in
proceeds from stock issued under its stock plans in the quarters ended April 4,
1999 and March 29, 1998, respectively.
Additionally, during the quarter ended April 4, 1999, the Company borrowed an
additional $20,000 under its $110,000 senior secured revolving line-of-credit
facility. As of April 4, 1999, there were $57,500 in borrowings outstanding
under the Company's $110,000 senior secured revolving line-of-credit facility.
<PAGE> 18
This credit facility requires compliance with certain financial covenants and is
secured by substantially all of the Company's assets. As of April 4, 1999, the
Company was in compliance with all loan covenants.
During the quarter ended March 29, 1998, the Company repurchased 435,000 shares
of its common stock at a cost of $9,170.
As of February 18, 1999, substantially all of the Company's convertible
subordinated notes were converted into approximately 4,600,000 shares of common
stock and the unconverted portion was redeemed for $101.
In April 1999, in accordance with its initiative to divest of its non-core
business unit PTI, the Company sold IRI International and Chemtech (U.K.)
Limited, manufacturers of surface mount printed circuit board solder cream
stencils. Additionally, in April 1999, the Company signed a letter of intent to
sell Cencorp, its subsidiary that manufactures depaneling equipment for fully
assembled printed circuit boards. The Company is divesting this non-core
business unit in order to sharpen its focus on the Company's core businesses of
design and semiconductor services, fabrication of printed wiring boards, and
systems assembly and distribution. The aggregate proceeds from these sales are
expected to approximate $30,000. The Company does not believe that the sale of
PTI will have any adverse impact on its consolidated financial position.
However, the Company's consolidated revenues and operating results will be
adversely impacted (by less than 10%) until such time as the proceeds are
reinvested back into the Company's core businesses of design and semiconductor
services, design and fabrication of printed wiring boards, and systems assembly
and distribution.
On May 4, 1999, the Company announced that it has signed a memorandum of
understanding with Ericsson Austria AG to purchase Ericsson's manufacturing
facility and related assets located in Kindberg, Austria. Subject to concluding
this transaction, the Company will enter into a long-term supply agreement with
Ericsson to provide printed circuit board assembly, box build, and the
associated logistics and distribution activities. The transaction is expected to
be completed during the Company's third fiscal quarter of 1999. Completion of
the transaction is subject to applicable government approvals and various
conditions of closing. The transaction will be accounted for as a purchase of
assets. Subject to final negotiations, due diligence and working capital levels
at the time of closing, the estimated purchase price is approximately $20,000.
Management believes that its current level of working capital, together with
cash generated from operations, existing cash reserves, leasing capabilities,
and line-of-credit availability will be adequate to fund the Company's current
capital expenditure plan for fiscal 1999. The Company intends to continue its
acquisition strategy and it is possible that future acquisitions may be
significant. If available resources are not sufficient to finance the Company's
acquisitions, the Company would be required to seek additional equity or debt
financing. There can be no assurance that such funds, if needed, will be
available on terms acceptable to the Company or at all.
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, results
from operations 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 10 of the condensed consolidated financial statements for a description
of commitments, contingencies and environmental matters.
E. YEAR 2000 ISSUE
The Year 2000 date conversion issue is the result of computer programs being
written using two digits rather than four to define the applicable year. This
issue affects computer systems that have time-sensitive
<PAGE> 19
programs that may not properly recognize the Year 2000. This could result in
major system failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in normal business activities.
Management has implemented a company-wide program to prepare its financial,
manufacturing, and other critical systems and applications for the Year 2000.
This comprehensive program was developed to ensure the Company's information
technology assets, including embedded microprocessors ("IT assets") and non-IT
assets are Year 2000 ready. The Company has formed a Year 2000 project team of
approximately 75 employees, overseen by a corporate officer, which team is
responsible for monitoring the progress of the program and ensuring timely
completion. The team has a detailed project plan in place with tasks,
milestones, critical paths, and dates identified.
The Company's comprehensive program covers the following six phases: (i)
inventory of all IT and non-IT assets; (ii) assessment of repair requirements;
(iii) repair of IT and non-IT assets; (iv) testing of individual IT and non-IT
assets to determine the correct manipulation of dates and date-related data; (v)
communication with the Company's significant suppliers and customers to
determine the extent to which the Company is vulnerable to any failures by them
to address the Year 2000 issue; and (vi) creation of contingency plans in the
event of Year 2000 failures.
Implementation of the program is ongoing with all of the operating entities
having completed the inventory phase. Each operating company has identified
those software programs and related hardware that are non-compliant and is in
the process of developing remediation or replacement plans and establishing
benchmark dates for completion of each phase of those plans. The Company
anticipates that all mission-critical software and hardware will be compliant by
the third quarter of 1999. The Company has yet to begin system testing. Until
system testing is substantially in process, the Company cannot fully estimate
the risks of its Year 2000 issue. To date, management has not identified any IT
assets that present a material risk of not being Year 2000-ready, or for which a
suitable alternative cannot be implemented. However, as the program proceeds
into subsequent phases, it is possible that the Company may identify assets that
do present a risk of a Year 2000-related disruption. It is also possible that
such a disruption could have a material adverse effect on financial condition
and results of operations.
The Company is continually contacting suppliers who provide both critical IT
assets and non-information technology related goods and services (e.g.
transportation, packaging, production materials, production supplies, etc.). The
Company mailed surveys to its suppliers in order to (i) evaluate the suppliers'
Year 2000 compliance plans and state of readiness and (ii) determine whether a
Year 2000-related event will impede the ability of such suppliers to continue to
provide such goods and services as the Year 2000 is approached and reached. For
a vast majority of those suppliers of IT assets that have responded, the Company
has received assurances that these assets will correctly manipulate dates and
date-related data as the Year 2000 is approached and reached. The Company is in
the process of reviewing responses for accuracy and adequacy, and sending
follow-up surveys or contacting suppliers directly via phone for those
non-responsive suppliers.
The Company also relies, both domestically and internationally, upon government
agencies, utility companies, telecommunications services, and other service
providers outside of the Company's control. There is no assurance that such
suppliers, governmental agencies, or other third parties will not suffer a Year
2000 business disruption. Such failures could have a material adverse affect on
the Company's financial condition and results of operations.
Further, the Company has initiated formal communications with its significant
suppliers, customers and critical business partners to determine the extent to
which the Company may be vulnerable in the event those parties fail to properly
remediate their own Year 2000 issues. The Company has taken steps to monitor the
progress made by those parties, and intends to test critical system interfaces
as the Year 2000 approaches. The Company will develop appropriate contingency
plans in the event that a significant exposure is identified relative to the
dependencies on third-party systems. While the Company is not presently aware of
any such significant exposure, there can be no guarantee that the systems of
third parties on which the Company relies will be converted in a timely manner,
or that a failure to properly convert by another company would not have a
material adverse effect on the Company.
The program calls for the development of contingency plans for the Company's
at-risk business functions. The Company is finalizing its Y2K contingency plans
for all of its business critical systems world wide. These plans will address
any business critical failure, both internal and external dependencies,
including but not limited to transportation, banking, telecommunications,
suppliers, manufacturing, accounting and payroll. Because the Company has not
completed testing of mission critical systems, and, accordingly, has
<PAGE> 20
not fully assessed its risks from potential Year 2000 failures, the Company has
not yet developed specific Year 2000 contingency plans. The Company will develop
such plans if the results of testing mission-critical systems identify a
business function risk. In addition, as a normal course of business, the Company
maintains and deploys contingency plans to address various other potential
business interruptions. These plans may be applicable to address the
interruption of support provided by third parties resulting from their failure
to be Year 2000-ready.
To date, the Company estimates that it has spent approximately $4,100 on
implementation of the program, with the majority of the work being performed by
Company employees. Less than $7,000 has been allocated to address the Year 2000
issue. The Company's aggregate cost estimate includes certain internal recurring
costs, but does not include time and costs that may be incurred by the Company
as a result of the failure of any third parties, including suppliers, to become
Year 2000-compliant or costs to implement any contingency plans. The Company is
expensing as incurred all costs related to the assessment and remediation of the
Year 2000 issue. These costs are being funded through operating cash flows.
Certain inventory and manufacturing software-related projects were accelerated
to ensure Year 2000 compliance. However, such acceleration did not increase the
anticipated costs of the projects. The Company has not deferred any specific
information technology project as a result of the implementation of the program.
The Company is committed to achieving Year 2000 compliance; however, because a
significant portion of the problem is external to the Company and therefore
outside its direct control, there can be no assurances that the Company will be
fully Year 2000 compliant. If the modifications and conversions required to make
the Company Year 2000-ready are not made, or are not completed on a timely
basis, the resulting problems could have a material impact on the operations of
the Company. This impact could, in turn, have a material adverse effect on the
Company's results of operations and financial condition.
F. NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in its statement of financial position and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative (that is, gains and losses) are recognized in earnings or in other
comprehensive income each reporting period, depending on the intended use of the
derivative and the resulting designation. Generally, changes in the fair value
of derivatives not designated as a hedge, as well as changes in fair value of
fair-value designated hedges (and the item being hedged), are required to be
reported in earnings. Changes in fair value of other types of designated hedges
are generally reported in other comprehensive income. The ineffective portion of
a designated hedge, as defined, is reported in earnings immediately.
The Company will be required to adopt SFAS 133 as of January 3, 2000. The
Company has not completed the process of evaluating the impact, if any, that
will result from adopting SFAS 133.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposures are in the areas of interest-rate
risk and foreign currency exchange rate risk. To manage the volatility relating
to these exposures, the Company may enter into various derivative transactions
to hedge the exposures. The Company does not hold or issue any derivative
financial instruments for trading or speculative purposes.
The Company incurs interest expense on loans made under its Credit Agreement at
interest rates that are fixed for a maximum of six months. Borrowings under the
Credit Agreement bear interest, at the Company's option, at either: (i) the
Applicable Base Rate ("ABR") (as defined in the Credit Agreement) plus the
Applicable Margin for ABR Loans ranging between 0.00% and 0.75%, based on
certain financial ratios of the Company, or (ii) the Eurodollar Rate (as defined
in the Credit Agreement) plus the Applicable Margin for Eurodollar Loans ranging
between 1.00% and 2.25%, based on certain financial ratios of the Company. The
Eurodollar Rate is subject to market risks and will fluctuate. There has been no
material change in the Eurodollar Rate and the fair value of the Company's fixed
rate debt since January 3, 1999. The Company had no open interest rate hedge
positions to reduce its exposure to changes in interest rates at April 4, 1999.
The Company conducts a significant amount of its business and has a number of
operating facilities in countries outside of the United States. Substantially
all of the Company's business outside the United States is conducted in U.S.
dollar-denominated transactions. Some transactions of the Company and its
<PAGE> 21
subsidiaries are made in currencies different from their functional currencies.
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 non-functional currency monetary assets and
liabilities. 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. Gains and losses on these
foreign currency hedges are generally offset by corresponding losses and gains
on the underlying transaction. To date, the Company's hedging activity has been
immaterial, and there were no open foreign exchange contracts as of the balance
sheet dates included in the accompanying Consolidated Financial Statements. As
of April 4, 1999, the Company had the following unhedged net foreign currency
monetary asset (liability) positions:
<TABLE>
<CAPTION>
NET NET
FOREIGN U.S. DOLLAR
CURRENCY EQUIVALENT
ASSETS ASSETS
(LIABILITY) (LIABILITY)
------------- --------------
<S> <C> <C>
British Pound Sterling 230 $ 369
Chinese Renminbi (28,370) (3,546)
Czech Krown 3,761 106
Euro (5,124) (4,662)
Irish Punt (52) (73)
Hong Kong Dollar (6,748) (875)
Malaysian Ringgit (7,050) (1,865)
Mexican Peso (708) (75)
</TABLE>
The Company believes that its revenues and operating expenses currently incurred
in foreign currencies are immaterial, and therefore any associated market risk
is unlikely to have a material adverse affect on the Company's business, results
of operations or financial condition.
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 2000 trial date has been set
for the state court action. 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 an agreement to settle the case on a classwide basis, which is
subject to final court approval.
In addition to the above matters, 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 9 of the 1998 Consolidated Financial Statements included in Part II, Item 8
of the Company's Form 10-K Annual Report for the fiscal year ended January 3,
1999 for contingencies and environmental matters.
<PAGE> 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual shareholders' meeting, which was held on May 6, 1999,
the Company's shareholders elected the following six persons as directors to
one-year terms: Ronald R. Budacz, Chairman and Chief Executive Officer, Carl R.
Vertuca, Jr., Executive Vice President, Robert L. Brueck, Constantine S.
Macricostas, Gerard T. Wrixon, Alexander W. Young. Not less than 24,552,710
shares were cast for each of the Directors.
The shareholders approved the proposal to amend the Company's 1994 Stock
Incentive Plan to increase the number of shares of common stock reserved for
issuance thereunder from 4,000,000 to 5,500,000 shares. Voting in favor were
17,294,803, opposed were 2,388,960, abstaining were 79,497, and broker non-votes
were 5,519,715.
The shareholders ratified the selection of Deloitte & Touche LLP as the
Company's independent auditors. Voting in favor were 24,880,856, opposed were
352,601, abstaining were 49,518, and broker non-votes were zero.
ITEM 6(a). EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1 Restated Bylaws of Registrant, as amended through March 10, 1999.
10.1 Employment Agreement dated as of January 1, 1997 between The DII
Group, Inc. and Steven C. Schlepp.
10.2 First Amendment to Employment Agreement dated as of January 1, 1997
between The DII Group, Inc. and Steven C. Schlepp.
10.3 Senior Executive Severance Agreement dated as of January 1, 1997
between The DII Group, Inc. and Steven C. Schlepp.
10.4 1994 Stock Incentive Plan as amended through May 6, 1999.
15 Letter re: Unaudited Interim Financial Information.
23.1 Report of Independent Accountants - Deloitte & Touche LLP.
27 Financial Data Schedule.
- ----------------
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> 24
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 13, 1999 By: /s/ Carl R. Vertuca, Jr.
------------ --------------------------------------
Carl R. Vertuca, Jr.
Executive Vice President - Finance,
Administration and Corporate
Development
Date: May 13, 1999 By: /s/ Thomas J. Smach
------------ --------------------------------------
Thomas J. Smach
Chief Financial Officer
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Bylaws of Registrant, as amended through March 10, 1999.
10.1 Employment Agreement dated as of January 1, 1997 between The DII
Group, Inc. and Steven C. Schlepp.
10.2 First Amendment to Employment Agreement dated as of January 1, 1997
between The DII Group, Inc. and Steven C. Schlepp.
10.3 Senior Executive Severance Agreement dated as of January 1, 1997
between The DII Group, Inc. and Steven C. Schlepp.
10.4 1994 Stock Incentive Plan as amended through May 6, 1999.
15 Letter re: Unaudited Interim Financial Information.
23.1 Report of Independent Accountants - Deloitte & Touche LLP.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
RESTATED
BY-LAWS
OF
THE DII GROUP, INC.
(AS AMENDED THROUGH MARCH 10, 1999)
ARTICLE I
OFFICES
1. The corporation may have offices at such places within or
without the State of Delaware as the board of directors may from time to time
determine or as the business of the corporation may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
1. Place of all meetings. (a) All meetings of stockholders for
the election of directors shall be held at the principal office of the
corporation in Delaware unless otherwise determined by the board of directors in
accordance with the laws of Delaware, or unless otherwise consented to by a
waiver of notice or other document signed by all the stockholders entitled to
vote thereon.
(b) All meetings of stockholders, other than for the
election of directors, shall be held at such place or places in or outside the
State of Delaware as the board of directors may from time to time determine or
as may be designated in the notice of meeting or waiver of notice thereof,
subject to any provisions of the laws of Delaware.
2. Annual meeting of stockholders. The annual meeting of
stockholders shall be held each year on the fourth Wednesday in the fourth month
following the close of the fiscal year commencing at some time between 10 A.M.
and 3 P.M., if not a legal holiday, and if a legal holiday, then on the day
following at the same time; or on such other date and at such other time as may
be determined by the board of directors. In the event that such annual meeting
is not held as herein provided for, the annual meeting may be held as soon
thereafter as conveniently may be. Such subsequent meeting shall be called in
the same manner as hereinafter provided for special meetings of stockholders.
Written notice of the time and place of the annual meeting shall be given by
mail to each stockholder entitled to vote at least ten days prior to the date
thereof, unless waived as provided by Article IX of these By-laws.
<PAGE> 2
3. Notice of Stockholder Proposals. (a) At an annual meeting
of stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been brought before the annual meeting (i)
by, or at the direction of, the board of directors or (ii) by any stockholder
who complies with the notice procedures set forth in this Section of the
By-laws. For a proposal to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary and such proposal must be a proper matter for stockholder action
under the Delaware General Corporation Law and a proper matter for consideration
at such meeting under the Certificate of Incorporation and these By-laws. To be
timely, a stockholder's notice must be delivered to, or mailed and received at,
the principal executive offices of the corporation not less than forty-five (45)
days prior to the date on which the corporation first mailed its proxy materials
for the prior year's annual meeting of stockholders. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (i) a brief description of the proposal desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares which are beneficially owned by the stockholder on the date
of such stockholder notice and (iv) any material interest of the stockholder in
such proposal.
(b) If the presiding officer of the annual meeting
determines that a stockholder proposal was not made in accordance with the terms
of this Section, he shall so declare at the annual meeting and any such proposal
shall not be acted upon at the annual meeting.
(c) This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees of the board of directors, but, in connection
with such reports, no business shall be acted upon at such annual meeting unless
stated, filed and received as herein provided.
4. Special meetings of stockholders. Special meetings of
stockholders may be called at any time pursuant to a resolution adopted by a
majority of the board of directors or the executive committee. Notice of all
such meetings of the stockholders, stating the time, place, and the purposes
thereof shall be given by mail as soon as possible to each stockholder entitled
to vote thereat at his last known address or by delivering the same personally
at least ten days before the meeting. Meetings of the stockholders may be held
at any time without notice when all of the stockholders entitled to vote thereat
are represented in person or by proxy.
5. Voting at stockholders' meetings. At all meetings of the
stockholders, each stockholder entitled to vote shall be entitled to one vote
for each share of stock standing on record in his name, subject to any
restrictions or qualifications set forth in the Restated Certificate of
Incorporation or any amendment thereto.
-2-
<PAGE> 3
6. Quorum at stockholders' meetings. At any stockholders'
meeting, a majority of the stock outstanding and entitled to vote thereat
represented in person or by proxy shall constitute a quorum, but a smaller
interest may adjourn any meeting from time to time, and the meeting may be held
as adjourned without further notice. When a quorum is present at any meeting, a
majority in interest of the stock entitled to vote represented thereat shall
decide any question brought before such meeting unless the question is one upon
which, by express provision of law or of the Restated Certificate of
Incorporation or of these By-laws, a different vote is required, in which case
such express provision shall govern.
7. List of stockholders to be filed, etc. At least ten days
before every election of directors, a complete list of the stockholders entitled
to vote at the election, arranged in alphabetical order, shall be prepared by
the secretary. Such list shall be open at the place where such election is to be
held for ten days, subject to examination by any stockholder, and shall be
produced and kept at the time and place of election during the whole time
thereof and subject to the inspection of any stockholder who may be present.
Upon the willful neglect or refusal of the directors to produce such a list at
any election, they shall be ineligible to any office at such election. The
original or duplicate stock ledger shall be the only evidence as to who are the
stockholders entitled to examine such list or the books of this corporation or
to vote in person or by proxy at such election. The original or duplicate stock
ledger containing the names and addresses of the stockholders and the number of
shares held by them, respectively, shall, at all times during the usual hours of
business, be open to the examination of every stockholder at the corporation's
principal office or place of business in Delaware.
ARTICLE III
BOARD OF DIRECTORS
1. Number and qualification. A board of directors shall be
elected at each annual meeting of stockholders, or at a special meeting held in
lieu thereof as above provided, who shall serve until the election and
qualification of their successors. The number of directors shall be fixed from
time to time exclusively pursuant to a resolution adopted by a majority of the
board of directors but in no event shall such number be less than three or more
than thirteen. In case of any increase in the number of directors between
elections by the stockholders, the additional directorships shall be considered
vacancies and shall be filled in the manner prescribed in Article V of these
By-laws. Directors need not be stockholders.
2. Powers of directors. The board of directors shall have the
entire management of the affairs of the corporation and is hereby vested with
all the powers possessed by the corporation itself so far as this delegation of
authority is not inconsistent with the laws of the State of Delaware, with the
Restated Certificate of Incorporation, or with these By-laws. The board of
directors shall have authority from time to time to set apart out of any assets
of the corporation otherwise available for dividends a reserve or reserves as
working capital, or for any other proper purpose or purposes, and to abolish or
add to any such reserve or reserves from time
-3-
<PAGE> 4
to time as the board may deem to be in the interests of the corporation; and the
board shall likewise have power, subject to the provisions of the Restated
Certificate of Incorporation, to determine in its discretion what part of the
earned surplus and/or net assets of the corporation in excess of such reserve or
reserves shall be declared in dividends and paid to the stockholders of the
corporation.
3. Compensation of directors. The board of directors may from
time to time by resolution authorize the payment of fees or compensation to the
directors for services as such to the corporation, including, but not limited
to, fees and traveling expenses for attendance at all meetings of the board or
of the executive or other committees, and determine the amount of such fees and
compensation. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
4. Directors' meetings. Meetings of the board of directors may
be held either within or outside the State of Delaware. A quorum shall be at
least one-third of the number of directors, but not less than two directors.
The board of directors elected at any stockholders' meeting
shall at the close of that meeting, without further notice if a quorum of
directors be then present, or as soon thereafter as may be convenient, hold a
meeting for the election of officers and the transaction of any other business.
At such meeting they shall elect a president, one or more vice presidents, a
secretary and a treasurer, and such other officers as they may deem proper, none
of whom except the president need be members of the board of directors.
The board of directors may from time to time provide for the
holding of regular meetings with or without notice and may fix the times and
places at which such meetings are to be held. Meetings other than regular
meetings may be called at any time by the president and must be called by the
president or by the secretary upon the written request of any director.
Notice of each meeting, other than a regular meeting (unless
required by the board of directors), shall be given to each director by mailing
the same to each director at his residence or business address at least two days
before the meeting or by delivering the same to him personally or by telephone
or telegraph to him at least one day before the meeting unless, in case of
exigency, the president or secretary shall prescribe a shorter notice to be
given personally or by telephone, telegraph, cable or wireless to all or any one
or more of the directors at their respective residences or places of business.
Notice of all meetings shall state the time and place of such
meeting, but need not state the purposes thereof unless otherwise required by
statute, the Restated Certificate of Incorporation, the By-laws, or the board of
directors.
-4-
<PAGE> 5
5. Executive committee. The board of directors may provide for
an executive committee of two or more directors and shall elect the members
thereof to serve during the pleasure of the board and may designate one of such
members to act as chairman. The board shall have the power at any time to change
the membership of the committee, to fill vacancies in it, or to dissolve it.
During the intervals between the meetings of the board of
directors, the executive committee shall possess and may exercise any or all of
the powers of the board of directors in the management of the business and
affairs of the corporation to the extent authorized by resolution adopted by a
majority of the entire board of directors.
The executive committee may determine its rules of procedure
and the notice to be given of its meetings, and it may appoint such committees
and assistants as it shall from time to time deem necessary. A majority of the
members of the committee shall constitute a quorum.
6. Other committees. The board of directors by resolution may
provide for such other standing or special committees as it deems desirable and
may discontinue the same at its pleasure. Each such committee shall have the
powers and perform such duties, not inconsistent with law, as may be assigned to
it by the board of directors.
7. Notice of Nominations. At any annual meeting of
stockholders, only persons who are nominated in accordance with the procedures
set forth in the By-laws shall be eligible to serve as directors. Nominations of
persons for election to the board of directors may be made at a meeting of
stockholders (a) by or at the direction of the board of directors or (b) by any
stockholder who is a stockholder of record at the time of giving of notice
provided for in this Section, who shall be entitled to vote for the election of
directors at the meeting and who complies with the notice procedures set forth
in this Section. Such nominations, other than those made by or at the direction
of the board of directors, shall be made pursuant to timely notice in writing to
the Secretary. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the corporation not
less than forty-five (45) days prior to the date on which the corporation first
mailed its proxy materials for the prior year's annual meeting of stockholders.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the stockholder giving the notice (i) the name and address, as they appear on
the corporation's books, of such stockholder to be supporting such nomination
and (ii) the class and number of shares which are beneficially owned by such
stockholder. At the request of the board of directors, any person nominated to
the board of directors for election as a director shall furnish to the Secretary
that information required to be set forth in a stockholder' a notice of
nomination
-6-
<PAGE> 6
which pertains to the nominee. No person shall be eligible to serve as a
director unless nominated in accordance with the procedures set forth in this
By-law. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed in the By-laws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section, a stockholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Section.
8. Chairman of the Board. The Chairman of the Board
(hereinafter sometimes called the "Chairman") if appointed by the board of
directors, when present shall preside at all meetings of the stockholders, the
board of directors and the Executive Committee. The Chairman shall perform such
other duties as the board of directors or Executive Committee may prescribe from
time to time.
ARTICLE IV
OFFICERS
1. Titles and election. The officers of this corporation shall
be a president, one or more vice presidents, a secretary and a treasurer who
shall be elected at the annual meeting of the board of directors and who shall
hold office until the election and qualification of their successors. Any person
may hold more than one office if the duties thereof can be consistently
performed by the same person, and to the extent permitted by law.
The board of directors, in its discretion, may at any time
elect or appoint a chairman of the board of directors, who shall be a director,
and one or more vice presidents, assistant secretaries and assistant treasurers
and such other officers or agents, as it may deem advisable, all of whom shall
hold office at the pleasure of the board and shall have such authority and shall
perform such duties as the board shall prescribe from time to time.
The board of directors may require any officer, agent or
employee to give bond for the faithful performance of his duties in such form
and with such sureties as the board may require.
2. Duties. Subject to such extension, limitations, and other
provisions as the board of directors, or the By-laws may from time to time
prescribe, the following officers shall have the following powers and duties:
(a) President. The president shall be the chief
executive officer of the corporation, and shall be in charge of the general
management of the corporation, subject to the
-6-
<PAGE> 7
control of the board of directors and Executive Committee. In the absence or
inability to act of the Chairman, the president shall preside at all meetings of
the stockholders and the board of directors and the Executive Committee, and
shall have and perform all the powers and duties of the Chairman, subject to the
control of the board of directors and Executive Committee. The Chairman,
president or a vice president, unless some other person is authorized by the
board of directors or Executive Committee, shall sign all certificates
representing shares of stock of the corporation and all bonds, deeds, and
contracts of the corporation. In general, the president shall exercise the
powers and authority and perform all the duties commonly incident to the office
of president and shall have such other powers and perform such other duties as
may be assigned to him from time to time by the board of directors or Executive
Committee. The same individual may be elected or appointed Chairman of the Board
and president.
(b) Vice President. The vice president or vice
presidents shall perform such duties as may be assigned to them by the board of
directors and, in the absence or disability of the president, the vice
presidents in order of seniority shall exercise all powers and duties pertaining
to the office of president.
(c) Secretary. The secretary shall keep the
minutes of all meetings of stockholders and of the board of directors, give and
serve all notices, attend to such correspondence as may be assigned to him, keep
in safe custody the seal of the corporation, and affix such seal to all such
instruments properly executed as may require it, and shall have such other
duties and powers as the board of directors shall prescribe from time to time.
(d) Treasurer. The treasurer, subject to the order
of the board of directors, shall have the care and custody of the moneys, funds,
valuable papers and documents of the corporation (other than his own bond, if
any, which shall be in the custody of the president), and shall have and
exercise, under the supervision of the board of directors, all the powers and
duties commonly incident to his office. He shall deposit all funds of the
corporation in such bank or banks, trust company or trust companies, or with
such firm or firms doing a banking business as the board of directors shall
designate. He may endorse for deposit or collection all checks, notes, etc.,
payable to the corporation or to its order. He shall keep accurate books of
account of the corporation's transactions, which shall be the property of the
corporation, and, together with all its property in his possession, shall be
subject at all times to the inspection and control of the board of directors.
The treasurer shall be subject in every way to the order of the board of
directors, and shall render to the board of directors and/or the president of
the corporation, whenever they may require it, an account of all his
transactions and of the financial condition of the corporation.
3. Delegation of authority. The board of directors or the
Executive Committee may at any time delegate the powers and duties of any
officer for the time being to any other officer, director or employee.
-7-
<PAGE> 8
4. Salaries. The salaries of all officers shall be fixed by
the board of directors or the Executive Committee, and the fact that any officer
is a director shall not preclude him from receiving a salary or from voting upon
the resolution providing the same.
ARTICLE V
RESIGNATIONS, REMOVALS AND VACANCIES
1. Resignation. Any director, officer, or agent may resign at
any time by giving written notice thereof to the board of directors, the
president, or the secretary. Any such resignation shall take effect at the time
specified therein or, if the time be not specified, upon receipt thereof; and
unless otherwise specified therein, the acceptance of any resignation shall not
be necessary to make it effective.
2. Removals. The stockholders at any meeting called for the
purpose may, by vote of the holders of at least 80% of the issued and
outstanding shares of stock entitled to vote, voting together as a single class,
remove from office, for cause only, any director, and elect his successor.
3. Vacancies. When the office of any director or officer
becomes vacant, whether by reason of increase in the number of directors or
otherwise, the remaining director or directors, although less than a quorum, may
elect a successor for such office who shall hold the same for the unexpired
term, or the directors may reduce their number by the number of such vacancies
in the board, provided such reduction shall not reduce the board to less than
three.
ARTICLE VI
CAPITAL STOCK
1. Certificates of stock. Every stockholder shall be entitled
to a certificate or certificates for shares of the capital stock of the
corporation in such form as may be prescribed by the board of directors, duly
numbered and setting forth the number and kind of shares represented thereby.
Such certificates shall be signed by the president or a vice president and by
the treasurer or an assistant treasurer or by the secretary or an assistant
secretary. Any of such signatures and the corporate seal affixed to any stock
certificate may be in facsimile.
In case any officer who has signed, or whose facsimile
signature has been used on a certificate, has ceased to be an officer before the
certificate has been delivered, such certificate may nevertheless be adopted and
issued and delivered by the corporation, or its transfer agent, as though the
officer who signed such certificate or certificates, or whose facsimile
signature or signatures shall have been used thereon, had not ceased to be such
officer of the corporation.
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2. Transfer of stock. Shares of the capital stock of the
corporation shall be transferable only upon the books of the corporation by the
holder in person or by attorney duly authorized and upon the surrender of the
certificate or certificates properly assigned and endorsed. If the corporation
has a transfer agent or agents or transfer clerk and registrar of transfers
acting on its behalf, the signature of any officer or representative thereof may
be in facsimile.
The board of directors may appoint a transfer agent and one or
more co-transfer agents and a registrar of transfer and may make all such rules
and regulations as it deems expedient concerning the issue, transfer and
registration of shares of stock. The transfer books shall be closed for such a
period as the board shall direct previous to and on the day of the annual or any
special meeting of the stockholders and may also be closed by the board for such
period as may be advisable for dividend purposes, and during such time no stock
shall be transferable.
3. Transfer books. The board of directors, in lieu of closing
the stock transfer books as aforesaid, may fix in advance a date, not exceeding
sixty days preceding the date of any meeting of stockholders, or the date for
the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall come into
effect, as a record date for the determination of the stockholders entitled to
notice of and to vote at any such meeting, or entitled to receive payment of any
such dividend, or any such allotment of rights, or to exercise the rights in
respect to any such change, conversion or exchange of capital stock, and in such
case only stockholders of record on the date so fixed shall be entitled to such
notice of and vote at such meeting or to receive payment of such dividend, or
allotment of rights, or exercise such rights, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation after
any such record date fixed as aforesaid.
4. Lost certificates. In case of loss or mutilation or
destruction of a certificate of stock of this corporation, a duplicate
certificate may be issued upon such terms as the board of directors may
determine.
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ARTICLE VII
FISCAL YEAR, BANK DEPOSITS, CHECKS, ETC.
1. Fiscal year. The fiscal year of the corporation shall end
on the Sunday closest to December 31 of each year, and the next succeeding
fiscal year shall commence on the first calendar day following such date.
2. Bank deposits, checks, etc. The funds of the corporation
shall be deposited in the name of the corporation in such banks or trust
companies as the board of directors may from time to time designate.
All checks, drafts, notes or other obligations for the payment
of money shall be signed by such persons as the board of directors from time to
time by resolution may direct or authorize.
ARTICLE VIII
BOOKS AND RECORDS
1. Place of keeping books. Unless otherwise expressly required
by the laws of Delaware, the books and records of this corporation may be kept
outside of the State of Delaware at such place or places as may be designated
from time to time by the board of directors.
2. Examination of books. Except as otherwise provided in the
Restated Certificate of Incorporation or in these By-laws, the board of
directors shall have power to determine from time to time whether and to what
extent and at what times and places and under what conditions and regulations
the accounts, records and books of this corporation, or any of them, shall be
open to the inspection of the stockholders, and no stockholder shall have any
right to inspect any account or book or document of this corporation except as
prescribed by statute or authorized by express resolution of the stockholders or
of the board of directors.
ARTICLE IX
NOTICES
1. Requirements of notice. Whenever notice is required to be
given by statute or by these By-laws, it shall not mean personal notice unless
so specified, but such notice may be given in writing by depositing the same in
a post office or letter box, postpaid and addressed to the person to whom such
notice is directed at the address of such person on the
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records of the corporation, and such notice shall be deemed given at the time
when the same shall be thus mailed.
2. Waivers. Any stockholder, director or officer may, in
writing or by telegram or cable, at any time waive any notice or other formality
required by statute or these By-laws. Such waiver of notice, whether given
before or after any meeting, shall be deemed equivalent to notice. Presence of a
stockholder either in person or by proxy at any stockholders' meeting and
presence of any director at any meeting of the board of directors shall
constitute a waiver of such notice as may be required by any statute or these
By-laws.
ARTICLE X
SEAL
The corporate seal of the corporation shall consist of two
concentric circles between which shall be the name of the corporation and in the
center of which shall be inscribed "Corporate Seal, Delaware".
ARTICLE XI
POWERS OF ATTORNEY
The board of directors may authorize one or more of the
officers of the corporation to execute powers of attorney delegating to named
representatives or agents power to represent or act on behalf of the
corporation, with or without power of substitution.
ARTICLE XII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Right to Indemnification. Each person who was
or is made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to
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such amendment) against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that except
as provided in paragraph (b) hereof with respect to proceedings seeking to
enforce rights to indemnification, the corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the board of directors of the corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise.
(b) Right of Claimant to Bring Suit. If a claim
under paragraph (a) of this Section is not paid in full by the corporation
within sixty days after a written claim has been received by the corporation,
except in the case of a claim for expenses incurred in defending a proceeding in
advance of its final disposition, in which case the applicable period shall be
twenty days, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its board of
directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(c) Non-Exclusivity of Rights. The right to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition
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conferred in this Section shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Restated Certificate of Incorporation, By-Law, agreement, vote of stockholders
or disinterested directors or otherwise.
(d) Insurance. The corporation may maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation, or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
(e) Amendment or Repeal. Any repeal or modification
of the foregoing eprovisions of this Article XII shall not adversely affect any
right or prosecution of a director, officer, employee or agent of the
corporation in respect of any act or omission occurring prior to the time of
such repeal or modification.
ARTICLE XIII
AMENDMENTS
These By-laws may be altered, amended or repealed at any
meeting of the board of directors or of the stockholders, provided notice of the
proposed change was given in the notice of the meeting, and, provided, further,
that, in the case of amendments by stockholders, notwithstanding any other
provisions of these By-laws or any provision of law which might otherwise permit
a lesser vote or no vote, but in addition to any affirmative vote of the holders
of any particular class or series of the capital stock of the corporation
required by law, the Restated Certificate of Incorporation or these By-laws, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then outstanding shares of the capital stock, voting together as a single
class, shall be required to alter, amend or repeal any provision of these
By-laws.
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EXHIBIT 10.1
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 Steven C. Schlepp
(the "Executive").
RECITALS
A. The Company desires to continue to employ Executive as Vice President
and President, Multilayer Technology, 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 Vice President (and President, Multilayer Technology, 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, Executive shall report to the Chief Executive Officer
of the Company and shall be responsible for the duties of the Vice President and
President, Multilayer Technology, Inc.
<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-Two Thousand Five Hundred Dollars ($22,500), 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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(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 for election by the
Company's stockholders of each new director was approved by a vote of at
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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 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
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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 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
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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 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
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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.
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
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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 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
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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 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
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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.
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.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE DII GROUP, INC.
By:
--------------------------------
Title:
-----------------------------
-----------------------------------
STEVEN C. SCHLEPP
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<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
Agreement, made as of the 12th day of August 1997, by and
between The DII Group, Inc., a Delaware corporation (the "Company"), and Steven
C. Schlepp (the "Executive").
RECITALS
A. The Company and the Executive are parties to an Employment
Agreement, dated as of January 1, 1997 (the "Employment Agreement); and
B. The Company desires to continue to employ the Executive pursuant to
the Employment Agreement and the Executive is willing to accept such employment
on the terms and conditions set forth in the Employment Agreement, in each case
as amended hereby. THE PARTIES AGREE as follows:
1. The Employment Agreement is hereby amended by inserting the
following Section 3.3.:
"3.3. Forgiveness of Indebtedness. The Company agrees to forgive the
outstanding indebtedness of Executive to the Company in the principal amount of
$134,496, together with interest accrued and accruing thereon (collectively,
the "Aggregate Indebtedness"), subject to the following terms. On the first
anniversary of the date of the Employment Agreement, 25% of the Aggregate
Indebtedness then outstanding shall be forgiven; on the second anniversary of
the date of the Employment Agreement, 33-1/3% of the Aggregate Indebtedness
then outstanding shall be forgiven; on the third anniversary of the date of the
Employment Agreement, 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 of the Employment Agreement. In addition, the
Company shall make certain payments on
<PAGE> 2
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 3.3 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."
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<PAGE> 3
2. Except as amended hereby, the Employment Agreement shall continue
in full force and effect in accordance with its terms.
3. This First Amendment may be executed in one or more separate
counterparts, all of which taken together shall constitute one and the same
First Amendment Agreement.
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the day and year first above written.
THE DII GROUP, INC.
By:
------------------------------------
Title:
---------------------------------
------------------------------
Steven C. Schlepp
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<PAGE> 1
EXHIBIT 10.3
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made as of the first day of January 1997 by and between THE DII GROUP,
INC., a Delaware corporation (the "Corporation"), and Steven C. Schlepp (the
"Executive").
W I T N E S S E T H
WHEREAS, the Board of Directors of the Corporation (the
"Board") has determined that the Executive is a key executive of the Corporation
or of a direct or indirect subsidiary of the Corporation (a "Subsidiary");
WHEREAS, the Board considers the establishment and maintenance
of a sound and vital management to be essential to protecting and enhancing the
best interests of the Corporation and its shareholders;
WHEREAS, the possibility of an unsolicited tender offer or
other takeover bid for the Corporation and the consequent change of control, and
the uncertainty and questions which such possibility may raise among management,
may result in the departure or distraction of the Executive to the detriment of
the Corporation and its shareholders;
WHEREAS, the Corporation desires to provide the Executive with
severance benefits in the event that the Executive's employment with the
Corporation or with a Subsidiary, as the case may be, is terminated under
certain circumstances in order to assure a continuing dedication by the
Executive to his duties notwithstanding the occurrence of a tender offer or
other takeover bid for the Corporation and, particularly, to ensure that the
Executive will be in a position to assess and advise the Board whether proposals
from third persons would be in the best interests of the Corporation and its
shareholders without being influenced by the uncertainties of his own situation;
WHEREAS, the Executive has agreed that in addition to his
regular duties he will, in the best interests of the Corporation and its
shareholders, assist the Corporation in the evaluation of any such takeover or
tender offer proposal or potential combination or acquisition and render such
other assistance in connection therewith as the Board may determine to be
appropriate, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. Services During Certain Events.
In the event any Person begins a tender or exchange offer,
circulates a proxy to shareholders, or takes other steps seeking to effect a
Change of Control (as hereinafter defined), the Executive will not voluntarily
terminate his employment with the Corporation or a Subsidiary, as the case may
be, and will continue to render services to the Corporation or such Subsidiary
until such Person has abandoned or terminated his or its efforts to effect a
Change of Control or until 180 days after a Change of Control has occurred. For
purposes of this Agreement, the term "Person" shall mean and include any
individual, corporation, partnership,
<PAGE> 2
group, association or other "person," as such term is used in Sections 13 and 14
of the Securities Exchange Act of 1934.
2. Definition of Change of Control.
(a) A Change of Control shall be deemed to have taken
place upon the occurrence of any of the following events:
(i) any Person is, becomes, or has the right to
become the beneficial owner, directly or indirectly, of securities of the
Corporation representing 20% or more of the shares of Common Stock of the
Corporation 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 Corporation 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 Corporation or any successor to the Corporation (a "Change in the Board");
or
(iii) the shareholders of the Corporation approve any
merger, consolidation, reorganization, liquidation, dissolution, or sale of all
or substantially all of the Corporation's assets in which neither the
Corporation nor a successor resulting from a change in domicile or form of
organization will survive as an independent, publicly owned corporation.
(b) 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 of the Corporation by (A) the
Executive or a Person including the Executive, (B) the Corporation, (C) a
Subsidiary, or (D) any employee benefit plan of the Corporation or of a
Subsidiary, or any entity holding securities of the Corporation recognized,
appointed, or established by the Corporation 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 Executive or a Person including the Executive
participates directly or indirectly with any party to the Transaction other than
the Corporation.
3. Termination After Change of Control.
(a) No benefits shall be payable under this Agreement
except in the event of a Termination. For purposes of this Agreement, a
Termination shall be deemed to have occurred if any of the following events
occur within 18 months after a Change of Control:
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<PAGE> 3
(i) The termination by the Corporation or a
Subsidiary, as the case may be, of the Executive's employment for any reason
other than Cause (as defined herein), death, Disability (as defined herein), or
retirement at or after his normal retirement date; or
(ii) The termination by the Executive of the
Executive's employment for Good Reason. Good Reason shall be deemed to exist
upon the occurrence, without the Executive's express written consent, of any of
the following events:
(A) A significant reduction or alteration in the
duties and responsibilities held by the Executive prior to the Change of
Control, or a change in the Executive's reporting responsibilities, titles or
status in effect immediately prior to the Change of Control, or any removal of
the Executive from or any failure to reelect the Executive to any of such
positions, except in connection with the termination of the Executive's
employment for Cause, Disability, retirement at or after his normal retirement
date, or death; or
(B) The reduction of the Executive's base salary
and/or incentive compensation in effect on the date hereof or as the same may be
increased from time to time, which is not remedied within 30 days after receipt
by the Corporation of written notice from the Executive; or the Executive's
being required to be based in any location that is more than thirty (30) miles
from the location at which the Executive performed his duties prior to the
Change of Control, except for required travel on business to an extent
substantially consistent with the Executive's present business travel
obligations; or
(C) The failure by the Corporation to continue in
effect any benefit or compensation plan in which the Executive is participating
immediately prior to the Change of Control, the taking of any action by the
Corporation which would adversely affect the Executive's participation in or
materially reduce the Executive's benefits under any of such plans, or deprive
the Executive of any material fringe benefit enjoyed by the Executive prior to
the Change of Control, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan with the
Executive, or the failure by the Corporation to provide the Executive with
vacation time to which the Executive is then entitled in accordance with the
Corporation's normal vacation policy in effect on the date hereof; or
(D) Any material breach by the Corporation of any
provision of this Agreement.
(b) The termination of the Executive's employment shall
be deemed to have been for Cause only if the termination shall have been based
on (i) the Executive having willfully and continually failed to perform
substantially his duties with the Corporation (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 Corporation which specifically identifies
the manner in which the Executive is not substantially performing his duties; or
(ii) the Executive having willfully engaged in conduct which is materially and
demonstrably injurious to the Corporation. 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
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<PAGE> 4
Corporation. 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
Corporation 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 Corporation.
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.
(c) Disability shall mean the Executive's absence from
his duties on a full time basis for one hundred eighty (180) consecutive days as
a result of his incapacity due to physical or mental illness, unless within
thirty (30) days after notice of termination due to disability is given to the
Executive following such absence he shall have returned to the full time
performance of his duties.
4. Severance Benefits.
Upon Termination and upon the written demand of the Executive,
the Executive shall be entitled to, and the Corporation shall provide the
Executive immediately with, the following severance benefits:
(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.
(b) The Executive's participation in the life, accident
and health insurance plans of the Corporation prior to the Change of Control
shall be continued, or equivalent benefits provided by the Corporation, at no
direct cost to the Executive, for a period of one year from the date of
Termination (or until his normal retirement date, whichever is shorter.)
5. Stock Options and Other Plans.
The rights of the Executive at the date of Termination under
the Corporation's stock option, stock incentive, savings, cash incentive and
retirement plans or programs, including, but not limited to, any terminating
distributions and vesting of rights under such plans
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<PAGE> 5
or programs shall be governed by the terms of those respective plans or programs
and any agreements between the Corporation and the Executive with respect
thereto.
6. Term.
This Agreement shall commence on the date hereof and shall
continue in effect until the one year anniversary thereof; provided, however,
that commencing on the date of such anniversary and each anniversary thereafter,
the term of this Agreement shall automatically be extended for one additional
year unless at least 90 days prior to the last day of any term, the Corporation
or the Executive shall have given notice that this Agreement shall not be
extended; and provided, further, that this Agreement shall continue in effect
for a period of eighteen months beyond the term provided herein if a Change of
Control of the Corporation shall have occurred during such term. Notwithstanding
anything herein to the contrary, this Agreement shall terminate if the Executive
or the Corporation (or a Subsidiary) terminates the employment of the Executive
prior to a Change of Control.
7. Indemnification.
If litigation or arbitration shall be brought to enforce or
interpret any provision contained herein, whether by the Corporation, the
Executive, or any other person, the Corporation will indemnify the Executive for
any reasonable attorneys' fees and disbursements incurred by the Executive in
such litigation or arbitration, and hereby agrees to pay pre-judgment interest
on any money judgment obtained by the Executive in such litigation or
arbitration calculated at the prime interest rate charged by Chemical Bank, New
York, New York in effect from time to time from the date that payment to the
Executive should have been made under this Agreement.
8. Confidentiality.
The Executive shall retain in confidence any proprietary or
confidential information known to the Executive concerning the Corporation and
its subsidiaries and their respective businesses so long as such information is
not publicly available.
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
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<PAGE> 6
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 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
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<PAGE> 7
thereof) which should have been paid will not have been paid (an
"Underpayments"). An Underpayment shall be deemed to have occurred (i) upon
notice (formal or informal) to the Executive from any governmental taxing
authority that the 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 withholding, the amount
of the Excise Tax that the Corporation has actually withheld from the Payment or
Payments.
10. General.
(a) Obligations of the Corporation. In the event that
the Executive is employed by a Subsidiary, the Corporation while remaining as
primary obligor, may cause such Subsidiary to perform the Corporation's
obligations hereunder.
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<PAGE> 8
(b) Payment Obligations Absolute. The Corporation's
obligation to pay the Executive the amounts due hereunder and to make the
arrangements provided for herein shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which the Corporation
may have against him or anyone else under this Agreement or otherwise. Each and
every payment made hereunder by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such payment from the
Executive or from whomsoever may be entitled thereto for any reason whatsoever.
In no event shall the Executive be obligated to seek other employment in
mitigation of the amounts payable to the Executive under any of the provisions
of this Agreement, and the obtaining of any such other employment shall in no
event effect any reduction of the Corporation's obligation to make the payments
and arrangements required to be made under this Agreement.
(c) Successors; Binding Agreement.
(i) As used in this Agreement, the Corporation refers
not only to itself but also to its successors by merger or otherwise. The
Corporation will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of its business
and/or assets, by written agreement in binding form and substance, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had occurred. Failure of the Corporation to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement, and shall entitle the Executive to make demand upon and require the
Corporation, if it is not already required to do so, to provide the severance
benefits required by Section 4 above.
(ii) This Agreement shall be binding upon and inure
to the benefit of the Executive and his estate and to the benefit of the
Corporation and any successor to the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the Executive.
(d) Severability. Any provision in this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective, and then only to the extent of such prohibition or
unenforceability without affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
(e) Controlling Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York
without reference to the principles of conflict of laws, except insofar as it
may require application of the corporation law of the State of Delaware.
(f) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered by hand to the other party, or sent by registered or certified mail,
return receipt requested, postage prepaid, addressed to the respective party at
the address stated below or to such other address as the addressee may have
given by a similar notice:
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<PAGE> 9
If to the Executive:
Steven C. Schlepp
------------------------
------------------------
If to the Corporation:
The DII Group, Inc.
6273 Monarch Park Place
Suite 200
Niwot, Colorado 80503
Attention: Chief Executive Officer
(g) Amendment. This Agreement may be modified or amended
only by an agreement in writing executed by both of the parties hereto.
(h) No Employment. Except as otherwise expressly
provided in this Agreement, this Agreement shall not confer any right or impose
any obligation on the Executive to continue in the employ of the Corporation nor
shall it limit the right of the Corporation or the Executive to terminate the
Executive's employment at any time prior to a Change of Control.
(i) Arbitration. Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in New York, New York by three arbitrators, of which each party
shall appoint one, in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes then in effect. Any arbitrator
not appointed by a party shall be selected from the CPR Panels of Distinguished
Neutrals. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. ss. 1-16. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The Corporation shall bear all costs and expenses
arising in connection with any arbitration proceeding pursuant hereto. The
arbitrators are not empowered to award damages in excess of actual damages.
(j) Conflict in Benefits. This Agreement is not intended
to and shall not repeal or terminate any other written agreement between the
Executive and the Corporation presently in effect or hereafter executed. Any
benefits provided hereunder and not provided under any other written agreement
shall be in addition to the benefits provided by any other written agreement. In
the event that the same type of benefits are covered under this Agreement and
under any other written agreement, the Executive shall have the right to elect
which benefits the Executive shall receive. Such election shall be made in
writing at the same time that the Executive makes his written demand under
Section 4 of this Agreement.
(k) Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, understandings and arrangements, whether
written or oral, between the parties hereto with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first written above.
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<PAGE> 10
---------------------------------------
Steven C. Schlepp
THE DII GROUP, INC.
By:
------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.4
THE DII GROUP, INC.
1994 STOCK INCENTIVE PLAN
AS AMENDED THROUGH MAY 6, 1999
I. PURPOSES AND SCOPE OF PLAN.
The DII Group, Inc. (the "Company") desires to afford certain salaried
officers and other salaried 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 an opportunity to acquire a proprietary interest
in the Company, and thus to create in such persons interest in and a greater
concern for the welfare of the Company. Directors who are salaried key
employees within the meaning of the foregoing are eligible to participate in
the 1994 Stock Incentive Plan (the "Plan"). These objectives will be promoted
through the granting to such key employees of equity instruments including (i)
incentive stock options ("Incentive Options") which are intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"); (ii) options which are not intended to so qualify ("NQSOs"); and (iii)
performance shares ("Performance Shares").
The awards offered pursuant to this Plan are a matter of separate
inducement and are not in lieu of any salary or other compensation for
services.
The Company, by means of the Plan, seeks to retain the services of
persons now holding key positions and to secure the services of persons capable
of filling such positions.
II. AMOUNT OF STOCK SUBJECT TO THE PLAN
The total number of shares of common stock of the Company reserved and
available for distribution pursuant to options and awards granted hereunder
shall not exceed, in the aggregate, 5,500,000 shares of the authorized common
stock, $0.01 par value, per share, of the Company (the "Shares"), subject to
adjustment described below.
Shares which may be acquired under the Plan may be either authorized
but unissued Shares or Shares of issued stock held in the Company's treasury,
or both, at the discretion of the Company. Whenever any outstanding option or
award or portion thereof expires, is canceled, is forfeited or is otherwise
terminated for any reason without having been exercised or payment having been
made in respect of the entire option or award, the Shares allocable to the
expired, canceled, forfeited or otherwise terminated portion of the option or
award may again be the subject of options or awards granted hereunder.
In the event of any stock dividend, stock split, combination or
exchange of Shares, 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 aggregate number of Shares reserved
for issuance under the Plan, the number and option price of Shares subject to
outstanding options, the financial performance goals of the Shares contained in
a Performance Share award, the number of Shares subject to a Performance Share
award agreement and any other characteristics or terms of the options and
awards as the Committee (as hereinafter defined) shall deem necessary or
appropriate to reflect equitably the effects of such changes to the holders of
options and awards, shall be appropriately substituted for new shares or
adjusted, as determined by the Committee in its discretion. Notwithstanding the
foregoing, (i) each such adjustment with respect to an Incentive Option shall
comply with the rules of Section 424(a) of the Code, and (ii) in
<PAGE> 2
no event shall any adjustment be made which would render any Incentive Option
granted hereunder other than an incentive stock option for purposes of Section
422 of the Code without the consent of the grantee.
III. ADMINISTRATION
The Compensation Committee (the "Committee"), or the Board of
Directors of the Company (the "Board of Directors") if there is no Committee,
will have sole and exclusive authority to administer the Plan. The Committee
shall consist of no fewer than two (2) members of the Board of Directors, each
of whom shall be a "non-employee Director" within the meaning of Rule 16b-3 or
any successor rule or regulation ("Rule 16b-3") promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee
shall administer the Plan so as to comply at all times with Rule 16b-3. A
majority of the members of the Committee shall constitute a quorum, and the act
of a majority of the members of the Committee shall be the act of the
Committee. Any member of the Committee may be removed at any time, either with
or without cause, by resolution adopted by a majority of the Board of
Directors, and any vacancy on the Committee may at any time be filled by
resolution adopted by a majority of the Board of Directors.
Subject to the express provisions of the Plan, the Board of Directors
or the Committee, as the case may be, shall have authority, in its discretion,
to (i) select employees of the Company as recipients of options or awards; (ii)
determine the number and type of options or awards to be granted; (iii)
determine the terms and conditions, not inconsistent with the terms hereof, of
any options or awards granted; (iv) adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; (v) interpret the terms and provisions of the Plan and
any option or award granted and any agreements relating thereto; and (vi)
otherwise supervise the administration of the Plan.
The determination of the Board of Directors or the Committee, as the
case may be, on matters referred to in this Article III shall be conclusive.
The Board of Directors or the Committee, as the case may be, may
employ such legal counsel, consultants and agents as it may deem desirable for
the administration of the Plan and may rely upon any opinion received from any
such counsel or consultant and any computation received from any such
consultant or agent. Expenses incurred by the Board of Directors or the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company. No member or former member of the Committee or of the Board of
Directors shall be liable for any action or determination made in good faith
with respect to the Plan or any option or award granted hereunder.
The Company shall indemnify each member of the Committee for all costs
and expenses and, to the extent permitted by applicable law, any liability
incurred in connection with defending against, responding to, negotiation for
the settlement of, or otherwise dealing with any claim, cause of action or
dispute of any kind arising in connection with any actions in administering the
Plan or in authorizing or denying authorization to any transaction hereunder.
IV. ELIGIBILITY
Options and Performance Share awards may be granted only to certain
salaried officers and other salaried key employees of the Company and its
subsidiaries who are not members of the Committee; provided, that no person
shall be eligible for any award if the granting of such award to such person
would prevent the satisfaction by the Plan of the general exemptive conditions
of Rule 16b-3. No employee shall be granted or awarded stock option and
Performance Shares covering, in aggregate, more than 300,000 Shares in any
fiscal year of the Company (subject to adjustment as provided in II. above).
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<PAGE> 3
V. STOCK OPTIONS
1. General. Options may be granted alone or in addition to other
awards granted under the Plan. Any options granted under the Plan shall be in
such form as the Committee may from time to time approve and the provisions of
the option grants need not be the same with respect to each optionee. Options
granted under the Plan may be either Incentive Options or NQSOs. The Committee
may grant to any optionee Incentive Options, NQSOs or both types of options.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions not
inconsistent with the terms of the Plan, as the Committee deems appropriate.
Each option grant shall be evidenced by an agreement executed on behalf of the
Company by an officer designated by the Committee and accepted by the optionee.
Such agreement shall describe the options and state that such options are
subject to all the terms and provisions of the Plan and shall contain such
other terms and provisions, consistent with the Plan, as the Committee may
approve.
2. Exercise Price and Payment. The price per Share under any option
granted hereunder shall be such amount as the Board of Directors or the
Committee, as the case may be, shall determine, provided, however, that such
price shall not be less than one hundred percent (100%) of the fair market
value of the Shares subject to such option, as determined below, at the date
the option is granted (110% in the case of an Incentive Option granted to any
person who, at the time the option is granted, owns stock of the Company or any
subsidiary or parent of the Company possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of
any subsidiary or parent of the Company (a "10% Shareholder")).
If the Shares are listed on a national securities exchange in the
United States on the date any option is granted, the fair market value per
Share shall be deemed to be the highest sales price at which such Shares are
sold on such national securities exchange in the United States on the date upon
which the option is granted, but if the Shares are 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 closing price per share determined as
of the closest preceding date on which such exchange shall have been open for
business and the Shares were traded. If the Shares are listed on more than one
national securities exchange in the United States on the date any such option
is granted, the Board of Directors or the Committee, as the case may be, shall
determine which national securities exchange shall be used for the purpose of
determining the fair market value per Share. If the Shares are not listed on a
national securities exchange but are reported on the National Association of
Securities Dealers, Inc. Automated Quotation System ("Nasdaq"), the fair market
value per share shall be deemed to be the average of the high bid and low asked
prices on the date upon which the option is granted as reported by Nasdaq.
For purposes of this Plan, the determination by the Board of Directors
or the Committee, as the case may be, of the fair market value of a Share shall
be conclusive.
3. Term of Options and Limitations on the Right of Exercise. The term
of each option will be for such period as the Board of Directors or the
Committee, as the case may be, shall determine, provided that, except as
otherwise provided herein, in no event may any option granted hereunder be
exercisable more than ten (10) years from the date of grant of such option
(five years in the case of an Incentive Option granted to a 10% Shareholder).
Each option shall become exercisable in such installments and at such times as
may be designated by the Board of Directors or the Committee, as the case may
be, and set forth in the agreement related to the grant of options. To the
extent not exercised, installments shall accumulate and be exercisable, in
whole or in part, at any time after becoming exercisable, but not later than
the date the option expires.
The Board of Directors or the Committee, as the case may be, shall
have the right to limit, restrict or prohibit, in whole or in part, from time
to time, conditionally or unconditionally, rights to exercise any option
granted hereunder.
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To the extent that an option is not exercised within the period of
exercisability specified therein, it shall expire as to the then unexercised
part.
4. Exercise of Options. Options granted under the Plan shall be
exercised by the optionee as to all or part of the Shares covered thereby by
the giving of written notice of the exercise thereof to the Secretary of the
Company at the principal business office of the Company, specifying the number
of Shares to be purchased, accompanied by payment therefor made to the Company
for the full purchase price of such Shares. The date of actual receipt by the
Company of such notice shall be deemed the date of exercise of the option with
respect to the Shares being purchased.
Upon the exercise of an option granted hereunder, the Company shall
cause the purchased Shares to be issued only when it shall have received the
full purchase price for the Shares in cash; provided, however, that in lieu of
cash, the holder of an option may, to the extent permitted by applicable law,
exercise an option in whole or in part, by delivering to the Company
unrestricted Shares (in proper form for transfer and accompanied by all
requisite stock transfer tax stamps or cash in lieu thereof) owned by such
holder having a fair market value equal to the cash exercise price applicable
to that portion of the option being exercised. The fair market value of the
Shares so delivered shall be determined as of the date immediately preceding
the date on which the option is exercised, or as may be required in order to
comply with or to conform to the requirements of any applicable laws or
regulations. For purposes of this paragraph, the provisions of Paragraph 2
hereof relating to the fair market value of Shares shall apply in all respects.
Notwithstanding the foregoing, the Company, in its sole discretion,
may establish cashless exercise procedures whereby an option holder, subject to
the requirements of Rule 16b-3, Regulation T, federal income tax laws, and
other federal, state and local tax and securities laws, can exercise an option
or a portion thereof without making a direct payment of the option price to the
Company, including a program whereby option shares would be sold on behalf of
and at the request of an option holder by a designated broker and the exercise
price would be satisfied out of the sale proceeds and delivered to the Company.
If the Company so elects to establish a cashless exercise program, the Company
shall determine, in its sole discretion, and from time to time, such
administrative procedures and policies as it deems appropriate and such
procedures and policies shall be binding on any option holder wishing to
utilize the cashless exercise program.
5. Nontransferability of Options. An option granted hereunder shall
not be transferable, whether by operation of law or otherwise, other than by
will or the laws of descent and distribution, and any option granted hereunder
shall be exercisable, during the lifetime of the holder, only by such holder.
The option of any person to acquire Shares and all his rights
thereunder shall terminate immediately if the holder: (a) attempts to or does
sell, assign, transfer, pledge, hypothecate or otherwise dispose of the option
or any rights thereunder to any other person except as permitted above; or (b)
becomes insolvent or bankrupt or becomes involved in any manner so that the
option or any rights thereunder becomes subject to being taken from him to
satisfy his debts or liabilities.
6. Termination of Employment. Upon termination of employment of any
option holder, any option previously granted to such option holder, unless
otherwise specified by the Board of Directors or the Committee, as the case may
be, shall, to the extent not theretofore exercised, terminate and become null
and void, provided that:
(a) if the option holder shall die while in the
employ of the Company or any subsidiary of the Company, and at a time
when such employee was entitled to exercise an option as herein
provided, his estate or the legatees or distributees of his estate or
of the option, as the case may be, of such option holder, may, within
one (1) year following the date of death, but not beyond that time and
in no event later than the expiration date of the option, exercise
such option, to the extent not theretofore exercised, in respect of
any or all of such number of Shares which the option holder was
entitled to purchase; and
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<PAGE> 5
(b) if the employment of any option holder to whom
such option shall have been granted shall terminate by reason of the
option holder's retirement on or after he reaches the age of 60 years
in such manner as would entitle him to receive full Social Security
benefits if he were then 65 years of age, or disability (as described
in Section 22(e)(3) of the Code), and while such employee is entitled
to exercise such option as herein provided, such option holder shall
have the right to purchase under the option the number of Shares, if
any, which he was entitled to purchase at the time of such
termination, at any time up to and including three (3) months after
the date of such termination of employment, but not beyond that time
and in no event shall an option be exercised later than the expiration
date of the option.
In no event shall any person be entitled to exercise any option after
the expiration of the period of exercisability of such option as specified
therein.
Except as otherwise determined by the Board of Directors or the
Committee, as the case may be, and other than as set forth above, if an option
holder voluntarily terminates his or her employment, or is discharged, any
option granted hereunder shall be canceled and the option holder shall have no
further rights to exercise any such option and all of the option holder's
rights thereunder shall terminate as of the effective date of such termination
of employment.
If an option granted hereunder shall be exercised by the legal
representative of a deceased option holder or former option holder or by a
person who acquired an option granted hereunder by bequest or inheritance or by
reason of the death of any option holder or former option holder, written
notice of such exercise shall be accompanied by a certified copy of letters
testamentary or equivalent proof of the right of such legal representative or
other person to exercise such option.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an "employee" of such corporation for
purposes of Section 422(a) of the Code.
A termination of employment shall not be deemed to occur by reason of
(i) the transfer of an employee from employment by the Company to employment by
a subsidiary of the Company or (ii) the transfer of an employee from employment
by a subsidiary of the Company to employment by the Company or by another
subsidiary of the Company.
7. Maximum Allotment of Incentive Options. If the aggregate fair
market value of Shares with respect to which Incentive Options are exercisable
for the first time by an employee during any calendar year (under all stock
option plans of the Company and any parent or any subsidiary of the Company)
exceeds $100,000, any options which otherwise qualify as Incentive Options, to
the extent of the excess, will be treated as NQSOs.
VI. PERFORMANCE SHARES
1. General. Performance Shares may be granted alone or in addition to
any other awards granted under the Plan. The provisions of Performance Share
awards need not be the same with respect to each recipient. Performance Share
awards granted under the Plan shall be in such form as the Board of Directors
or the Committee, as the case may be, may from time to time approve. Each grant
of a Performance Share award shall be evidenced by an agreement executed on
behalf of the Company by an officer designated by the Board of Directors or the
Committee, as the case may be, and accepted by the recipient. Such agreement
shall describe the Performance Share award and state that such award is subject
to all the terms and provisions of the Plan and shall contain such other terms
and provisions, consistent with the Plan, as the Board of Directors or the
Committee, as the case may be, may approve.
2. Price. The purchase price for Performance Shares shall be such
amount as the Board of Directors or the Committee, as the case may be, shall
determine, and subject to applicable law, such purchase price may be
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<PAGE> 6
zero. The purchase price for Performance Shares, if any, may be made in cash,
in Shares valued at their fair market value (as determined above) on the date
of purchase, or in any combination thereof at the election of the grantee.
3. Restrictions. Each Performance Share award shall be subject to
restrictions related to (A) the passage of time and/or (B) the attainment by
the Company of specified performance objectives. Company financial performance
objectives may be expressed in terms of (i) earnings per Share, (ii) pre-tax
profits, (iii) net earnings or net worth, (iv) return on equity or assets, (v)
any combination of the foregoing, or (vi) any other standard or standards
deemed appropriate by the Board of Directors or the Committee, as the case may
be, at the time the award is granted. Such time periods (the "Performance
Period") and financial performance goals shall be set by the Board of Directors
or the Committee, as the case may be, in its sole discretion.
Performance Shares shall become vested in a recipient upon the lapse
of the Performance Period, if any, and the attainment of the associated
financial performance goals set forth in the agreement between the recipient
and the Company or, in the discretion of the Board of Directors or the
Committee, as the case may be, upon the death, disability or retirement of the
recipient.
4. Stock Certificate and Legends. Performance Shares shall be
registered in the name of the recipient of an award thereof, provided that the
recipient has executed a Performance Share agreement evidencing the award,
appropriate blank stock powers and, in the discretion of the Board of Directors
or the Committee, as the case may be, an escrow agreement and any other
documents which the Board of Directors or the Committee, as the case may be,
may require as a condition to the issuance of such Shares. If a recipient shall
fail to execute the agreement evidencing a Performance Share award, the
appropriate blank stock powers and, in the discretion of the Board of Directors
or the Committee, as the case may be, an escrow agreement and any other
documents which the Board of Directors or the Committee, as the case may be,
may require within the time period prescribed by the Board of Directors or the
Committee, as the case may be, at the time the award is granted, the award
shall be null and void. At the discretion of the Board of Directors or the
Committee, as the case may be, Shares issued in connection with a Performance
Share award shall be deposited together with the stock powers with an escrow
agent (which may be the Company) designated by the Board of Directors or the
Committee, as the case may be.
5. Treatment of Dividends. At the time the Performance Share award is
granted, the Board of Directors or the Committee, as the case may be, may, in
its discretion, determine that the payment to the recipient of dividends, or a
specified portion thereof, declared or paid on such Shares by the Company shall
be (i) deferred until the lapsing of the restrictions imposed upon such
Performance Shares and (ii) held by the Company for the account of the
recipient until such time. Payment of deferred dividends in respect of
Performance Shares shall be made upon the lapsing of restrictions imposed on
the Performance Shares in respect of which the deferred dividends were paid,
and any dividends deferred in respect of any Performance Shares shall be
forfeited upon the forfeiture of such Performance Shares.
6. Stock Restrictions. Subject to the provisions of this Plan and the
applicable agreement, during the period when the Performance Shares have not
vested, the recipient shall not be permitted to sell, transfer, pledge, assign
or otherwise encumber Performance Shares awarded under the Plan. In the event
of a forfeiture of Performance Shares, the recipient (i) shall be deemed to
have resold such Shares to the Company at a price equal to the lesser of (i)
the purchase price paid therefor, if any, and (ii) the fair market value
thereof on the date of forfeiture, (b) the Company shall pay to the recipient
the amount determined above, and (c) such Shares shall no longer be outstanding
and shall no longer confer on the recipient any rights as a stockholder of the
Company from and after the date of forfeiture.
7. Shareholder Rights. The recipient shall have no rights, with
respect to the Performance Shares until they have vested, including no right to
vote the Performance Shares.
8. Termination of Employment. Upon termination of employment with the
Company because of death, disability or retirement, the Committee, at its
discretion, may provide for waiver of all or a portion of the
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restrictions applicable to unvested Performance Shares. If termination occurs
for any other reason, all shares still subject to restriction shall be
forfeited by the recipient.
VII. CHANGE OF CONTROL
Notwithstanding anything to the contrary contained herein, upon a
Change of Control (as defined below) of the Company, (i) all options shall
immediately vest and become exercisable in full during the remaining term
thereof, and shall remain so, whether or not the option holder to whom such
options have been granted remains an employee of the Company or its
subsidiaries, and (ii) the restrictions applicable to any or all Performance
Share awards shall lapse and such awards shall be fully vested.
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 Exchange Act) 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 then outstanding, whether or not
such Person continues to be the beneficial owner of securities representing 20%
or more of the outstanding Shares; 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.
Notwithstanding anything herein to the contrary, no Change of Control
(only with respect to the particular option holder or award grantee referred to
therein in the case of (i)(A) and (ii) below) 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 by (A) the option holder or Performance Share
recipient or a person including the option holder or Performance Share
recipient, (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
option holder or Performance Share recipient or a Person including the option
holder or Performance Share recipient participates directly or indirectly with
any party to the Transaction other than the Company.
VIII. PURCHASE FOR INVESTMENT
Except as hereafter provided, the Company may require the recipient of
Shares pursuant to an option or award granted hereunder, upon receipt thereof,
to execute and deliver to the Company a written statement, in form satisfactory
to the Company, in which such holder represents and warrants that such holder
is purchasing or acquiring the Shares acquired thereunder for such holder's own
account, for investment only and not with a view to
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<PAGE> 8
the resale or distribution thereof, and agrees that any subsequent offer for
sale or sale or distribution of any of such Shares shall be made only pursuant
to either (a) a Registration Statement on an appropriate form under the
Securities Act of 1993, as amended (the "Act"), which Registration Statement
has become effective and is current with regard to the Shares being offered or
sold, or (b) a specific exemption from the registration requirements of the
Act, but in claiming such exemption the holder shall, prior to any offer for
sale or sale of such Shares, obtain a prior favorable written opinion, in form
and substance satisfactory to the Company, from counsel for or approved by the
Company, as to the applicability of such exemption thereto. The foregoing
restriction shall not apply to (i) issuances by the Company so long as the
Shares being issued are registered under the Act and a prospectus in respect
thereof is current or (ii) reofferings of Shares by affiliates of the Company
(as defined in Rule 405 or any successor rule or regulation promulgated under
the Act) if the Shares being reoffered are registered under the Act and a
prospectus in respect thereof is current.
IX. ISSUANCE OF CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
The Company may endorse such legend or legends upon the certificates
for Shares issued pursuant to a grant hereunder and may issue such "stop
transfer" instructions to its transfer agent in respect of such Shares as, in
its discretion, it determines to be necessary or appropriate to (i) prevent a
violation of, or to perfect an exemption from, the registration requirements of
the Act, (ii) implement the provisions of the Plan and any agreement between
the Company and the optionee or grantee with respect to such Shares, or (iii)
permit the Company to determine the occurrence of a disqualifying disposition,
as described in Section 421(b) of the Code, of Shares transferred upon exercise
of an Incentive Option granted under the Plan.
The Company shall pay all issue or transfer taxes with respect to the
issuance or transfer of Shares upon exercise of an option or issuance of
Performance Shares, as well as all fees and expenses necessarily incurred by
the Company in connection with such issuance or transfer, except fees and
expenses which may be necessitated by the filing or amending of a Registration
Statement under the Act, which fees and expenses shall be borne by the
recipient of the Shares unless such Registration Statement has been filed by
the Company for its own corporate purposes (and the Company so states) in which
event the recipient of the Shares shall bear only such fees and expenses as are
attributable solely to the inclusion of the Shares he or she receives in the
Registration Statement, provided that the Company shall have no obligation to
include any Shares in any Registration Statement.
All Shares issued as provided herein shall be fully paid and
non-assessable to the extent permitted by law.
X. WITHHOLDING TAXES
The Company may require an employee exercising an NQSO or disposing of
Shares acquired pursuant to the exercise of an Incentive Option in a
disqualifying disposition (within the meaning of Section 421(b) of the Code) or
pursuant to the award of Performance Shares to reimburse the Company for any
taxes required by any government to be withheld or otherwise deducted and paid
by the Company in respect of the issuance or disposition of Shares. In lieu
thereof, the Company shall have the right to withhold the amount of such taxes
from any other sums due or to become due from the Company to the employee upon
such terms and conditions as the Board of Directors or the Committee, as the
case may be, shall prescribe. Notwithstanding the foregoing, the Committee may,
by the adoption of rules or otherwise, modify the provisions of this Article X
or impose such other restrictions or limitations as may be necessary to ensure
that the withholding transactions described above will be exempt transactions
under Section 16(b) of the Exchange Act. An employee exercising an NQSO or
acquiring Shares pursuant to the vesting of Performance Shares may elect to
have a specified percentage of shares withheld by the Company in order to
satisfy tax obligations. Any such election shall be made pursuant to a written
notice signed by the employee.
If an optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any Share or
Shares issued to such optionee pursuant to the exercise of an Incentive Option
within the two-year period commencing on the day after the date of the grant or
within the one-year
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period commencing on the day after the date of transfer of such Share or Shares
to the optionee pursuant to such exercise, the optionee shall, within ten (10)
days of such disposition, notify the Company thereof, by delivery of written
notice to the Company at its principal executive office.
XI. LISTING OF SHARES AND RELATED MATTERS
If at any time the Board of Directors or the Committee, as the case
may be, shall determine in its discretion that the listing, registration or
qualification of the Shares covered by the Plan upon any national securities
exchange or under any state or federal law or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or
in connection with, the sale or purchase of Shares under the Plan, no Shares
shall be issued unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained, or otherwise provided
for, free of any conditions not acceptable to the Board of Directors or the
Committee, as the case may be.
XII. AMENDMENT OF THE PLAN
The Board of Directors or the Committee, as the case may be, may, from
time to time, amend the Plan, provided that no amendment shall be made, without
the approval of the stockholders of the Company, that will (i) increase the
total number of Shares which may be issued under the Plan (other than an
increase resulting from an adjustment provided for in Article II), (ii) modify
the provisions of the Plan relating to eligibility, (iii) materially increase
the benefits accruing to participants under the Plan, or (iv) extend the
maximum period of the Plan. The Board of Directors or the Committee, as the
case may be, shall be authorized to amend the Plan and the awards granted
hereunder to permit the Incentive Options granted hereunder to qualify as
incentive stock options within the meaning of Section 422 of the Code. The
rights and obligations under any option or award granted before amendment of
the Plan or any unexercised portion of such option shall not be adversely
affected by amendment of the Plan or the option without the consent of the
holder of the option.
XIII. TERMINATION OR SUSPENSION OF THE PLAN
The Board of Directors or the Committee, as the case may be, may at
any time suspend or terminate the Plan. The Plan, unless sooner terminated by
action of the Board of Directors or the Committee, as the case may be, shall
terminate at the close of business on March 14, 2004. An option or award may
not be granted while the Plan is suspended or after it is terminated. Rights
and obligations under any option or award granted while the Plan is in effect
shall not be altered or impaired by suspension or termination of the Plan,
except upon the consent of the person to whom the option or award was granted.
The power of the Board of Directors or the Committee, as the case may be, to
construe and administer any options and awards granted prior to the termination
or suspension of the Plan under Article III nevertheless shall continue after
such termination or during such suspension.
XIV. GOVERNING LAW
The Plan, such options and awards as may be granted thereunder and all
related matters shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware.
XV. PARTIAL INVALIDITY
The invalidity or illegality of any provision herein shall not be
deemed to affect the validity of any other provision.
9
<PAGE> 10
XVI. EFFECTIVE DATE
The Plan shall become effective upon the adoption by the Board of
Directors, subject only to the approval by the affirmative vote of the holders
of a majority of the securities of the Company present, or represented, and
entitled to vote at a meeting of stockholders duly held. Grants made prior to
such stockholder approval shall be contingent on such approval.
XVII. DEFERRAL
An employee may elect to defer (i) all or part of his Performance
Shares upon vesting or (ii) the Option Profit (as hereinafter defined) with
respect to any Shares subject to an NQSO, all 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 the employee shall be issued to
the Trust established pursuant to the Deferred Compensation Plan. For purposes
of this provision, Option Profit shall mean the amount by which the fair market
value of a Share subject to an NQSO exceeds the exercise price of an NQSO, as
calculated under the Deferred Compensation Plan.
10
<PAGE> 1
EXHIBIT 15
May 17, 1999
The DII Group, Inc.
6273 Monarch Park Place
Niwot, Colorado
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of The DII Group, Inc. and subsidiaries for the periods ended April
4, 1999 and March 29, 1998, as indicated in our report dated May 12, 1999;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended April 4, 1999, is
incorporated by reference in Registration Statement Nos. 33-73556, 33-90572,
33-79940, 333-10999, 333-11001, 333-11005, and 333-11007 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Denver, Colorado
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
The DII Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of The
DII Group, Inc. and subsidiaries (the Company) as of April 4, 1999, and the
related condensed consolidated statements of income and cash flows for the
thirteen weeks ended April 4, 1999 and March 29, 1998. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The DII Group, Inc. and
subsidiaries as of January 3, 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the 53 weeks then ended
(not presented herein); and in our report dated January 28, 1999 (February 18,
1999 as to the redemption of convertible subordinate notes described in Note
6), we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of January 3, 1999 is fairly stated, in
all material respects, in relation to the consolidated balance sheet from which
it has been derived.
DELOITTE & TOUCHE LLP
Denver, Colorado
May 12, 1999
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<FISCAL-YEAR-END> JAN-02-2000
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0
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