<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000
REGISTRATION NO. 333-96227
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
MANUFACTURERS' SERVICES LIMITED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3679 04-3258036
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Identification No.)
Code Number)
</TABLE>
300 BAKER AVENUE, SUITE 106, CONCORD, MASSACHUSETTS 01742
(978) 287-5630
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
KEVIN C. MELIA
300 BAKER AVENUE, SUITE 106
CONCORD, MASSACHUSETTS 01742
(978) 287-5630
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO AGENT FOR
SERVICE, SHOULD BE SENT TO:
<TABLE>
<S> <C>
DAVID B. WALEK, ESQ. WINTHROP B. CONRAD, JR., ESQ.
Ropes & Gray Davis Polk & Wardwell
One International Place 450 Lexington Avenue
Boston, Massachusetts 02110 New York, New York 10017
(617) 951-7000 (212) 450-4000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered be Registered(1) Per Share(2) Offering Price(1)(2) Registration Fee(3)
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share............................ 12,650,000 $19.00 $240,350,000 $63,453
</TABLE>
(1) Includes 1,650,000 shares of common stock that the underwriters have the
option to purchase to cover over-allotment, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3) $39,600 of such fee was paid in connection with the original filing of the
Registration Statement on February 4, 2000.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
We will amend and complete the information in this prospectus. Although we are
permitted by US federal securities laws to offer these securities using this
prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating to these securities has been declared
effective by the SEC. This prospectus is not an offer to sell these securities
or our solicitation of your offer to buy these securities in any jurisdiction
where that would not be permitted or legal.
<PAGE>
SUBJECT TO COMPLETION--APRIL 28, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
, 2000
[LOGO]
MANUFACTURERS' SERVICES LIMITED
11,000,000 SHARES OF COMMON STOCK
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
MANUFACTURERS' SERVICES LIMITED: THE OFFERING:
- - We are a leading global provider of - We are offering 11,000,000 shares of our common
advanced electronics design, stock.
manufacturing and related services. - The underwriters have an option to purchase an
- - Manufacturers' Services Limited additional 1,650,000 shares from the selling
300 Baker Avenue, Suite 106 stockholders to cover
Concord, Massachusetts 01742 over-allotments.
(978) 287-5630 - This is our initial public offering, and no
public market currently exists for our shares.
PROPOSED SYMBOL & MARKET: - We anticipate that the initial public offering
- - We have applied to have our common price for our shares will be between $17.00 and
stock approved for listing on the $19.00 per share.
New York Stock Exchange under the - Closing: , 2000.
symbol "MSV."
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
<S> <C> <C>
Per Share Total
- ---------------------------------------------------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to Manufacturers' Services Limited:
- ---------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................. 1
Risk Factors....................... 6
Forward-Looking Statements......... 13
Use of Proceeds.................... 14
Dividend Policy.................... 14
Capitalization..................... 15
Dilution........................... 16
Selected Consolidated Financial
Data............................. 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 19
Business........................... 34
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Management......................... 51
Relationships and Transactions
with Related Parties............. 60
Principal and Selling
Stockholders..................... 63
Description of Indebtedness........ 65
Description of Capital Stock....... 68
Shares Eligible for Future Sale.... 74
Underwriting....................... 77
Legal Matters...................... 81
Experts............................ 81
Where You Can Find More
Information...................... 81
Index to Consolidated Financial
Statements....................... F-1
</TABLE>
------------------------
The industry data presented in this prospectus, except where otherwise
noted, has been compiled from an electronics manufacturing services industry
report--"Contract Manufacturing from a Global Perspective, 1999
Update"--prepared by Technology Forecasters, Inc., a California based management
consulting firm specializing in the electronics manufacturing services industry.
Technology Forecasters is commonly relied upon as an information source in the
electronics manufacturing services industry. Although we have not independently
verified any such data, we believe that the information provided by Technology
Forecasters in this prospectus is reliable. In addition, some MSL data presented
in this prospectus has been compiled from internal MSL surveys and schedules,
which, while believed by us to be reliable, have not been verified by any
independent sources.
In this prospectus, references to "MSL" and "Manufacturers' Services" refer
to Manufacturers' Services Limited and its subsidiaries, except where noted or
the context clearly suggests otherwise. Total Cost of
Ownership-Registered Trademark-, the globe symbol and the globe with the name
"Manufacturers' Services" are registered trademarks of Manufacturers' Services
Limited. This prospectus contains trademarks, service marks and trade names of
companies and organizations other than Manufacturers' Services Limited.
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS IMPORTANT INFORMATION REGARDING OUR BUSINESS AND
THIS OFFERING. BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, ESPECIALLY "RISK FACTORS" BEGINNING ON PAGE 6 AND OUR CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
MANUFACTURERS' SERVICES LIMITED
Overview
We are a leading global provider of advanced electronics design,
manufacturing and related services. We provide these services to original
equipment manufacturers primarily in the voice and data communications, computer
and related peripherals, medical equipment and industrial and consumer
electronics industries. The services that we provide are commonly referred to as
electronics manufacturing services. We provide original equipment manufacturers,
or OEMs, with a comprehensive range of services, including:
- product design and new product introduction services;
- materials procurement and management;
- assembly and manufacturing;
- testing services;
- order fulfillment and distribution; and
- after-market support.
We assist our customers in the design and product introduction phases of
development to reduce the time it takes to bring their products to market and
optimize their design for high volume manufacturing. We obtain competitive
component pricing and greater sourcing flexibility for our customers through our
material and inventory management expertise and our global information systems.
We utilize sophisticated assembly and manufacturing techniques in order to
provide the complex functionality and small product size that is required by
OEMs. We subject our manufactured products to a comprehensive set of tests for
quality, functionality and reliability, including, in some instances,
product-specific tests that we design for our customers. Additionally, we assist
our customers in packaging and distributing the final products directly into
their distribution channels and to their end users. We also provide a wide range
of after-market support services such as repair, refurbishment, exchange, system
upgrades and spare part manufacturing. By providing these services, we allow our
customers to focus on their core competencies, and we enhance their
competitiveness by reducing the cost of their products and shortening the time
from product conception to product introduction in the marketplace.
We have established a network of manufacturing facilities in the world's
major electronics markets--North America, Europe and Asia--to serve the
increasing outsourcing needs of both multinational and regional OEMs. We have
strategically located our manufacturing facilities near
1
<PAGE>
our customers and their end-markets, which benefits our customers by reducing
the time required to get their products to market and by increasing their
flexibility to respond to changing market conditions. We believe that the
combination of our services and our global manufacturing network has enabled us
to become integral to our customers' product development and manufacturing
strategies.
We target leading OEMs in rapidly growing industries. We seek to establish
long-term, integrated relationships with OEMs that have chosen outsourcing as a
core manufacturing strategy. Due to our focus on rapidly growing industries, our
prospects are influenced by recent trends, such as the buildout of the
communications and Internet infrastructure, the proliferation of personal
computing devices and other technological trends. Our most significant customers
include industry leaders such as:
<TABLE>
<S> <C>
3Com Corporation Iomega Corporation
ADC Telecommunications, Inc. NEC Gunma Ltd.
Hewlett-Packard Company Palm, Inc.
International Business Machines Philips NV
Corporation Rockwell International
Corporation
</TABLE>
We also serve selected emerging companies in order to establish an early
outsourcing relationship that will provide us with attractive growth
opportunities as the products of these emerging companies gain market
acceptance.
OEMs, which once pursued fully integrated business strategies, have begun
outsourcing their new product design, materials procurement and management,
assembly and manufacturing, order fulfillment and distribution and after-market
support functions. As a result of this increasing trend by OEMs to outsource
these functions, the electronics manufacturing services industry has experienced
significant growth over the past several years. We have capitalized on this
industry growth through a combination of strategic acquisitions and internal
expansion. Our total net sales have increased from $183.2 million in 1995, our
first full year of operations, to $920.7 million in 1999, a compound annual
growth rate of approximately 50%. While we experienced net losses of
approximately $9.7 million, $17.3 million and $6.2 million in 1996, 1997 and
1998, respectively, we reported net income of approximately $2.0 million in
1999.
Technology Forecasters projects that electronics manufacturing services
industry revenues will grow annually at 20% from 1998 through 2003, reaching
$149 billion in 2003. Technology Forecasters also projects that the twelve
electronics manufacturing services providers with revenues of greater than $500
million in 1998 will have an annual growth rate of 30% over the 1998 to 2003
period. We believe that we are well positioned to benefit from this forecasted
growth.
Our Business Strategy
Our objective is to be the premier provider of value-added electronics
design, manufacturing and related services to leading OEMs in rapidly growing
industries. Our strategy to achieve this objective includes the following key
elements:
2
<PAGE>
- establish and maintain long-term relationships with leading OEMs in
rapidly growing industries;
- expand our global presence;
- expand our integrated design, manufacturing and related services;
- continually reduce our customers' overall product costs;
- reduce our customers' time-to-global market and time-to-global volume; and
- actively pursue strategic acquisitions.
An important element of our business strategy has been to acquire existing
OEM manufacturing facilities, retain their business and employees, integrate the
acquired operations and introduce new customers into the acquired facilities. As
an increasing number of OEMs are divesting their manufacturing operations, we
intend to selectively pursue acquisitions of OEM divestitures and other
strategic opportunities.
In 1995, we established a significant presence in North America, Europe and
Asia by acquiring facilities from AT&T, IBM and Omnitron, a spin-off of LM
Ericsson. We also acquired two Asian contract manufacturers, Connett
Technologies and Topas Electronics. More recently, in 1998 we assumed operation
of an IBM facility in Charlotte, North Carolina. In 1999, we acquired an
existing manufacturing facility in Salt Lake City, Utah, from 3Com. The Salt
Lake City facility manufactures handheld computing devices, known as Palm
computing devices, and modems and network interface cards. In connection with
this acquisition, we entered into a two-year supply agreement with Palm, a
subsidiary of 3Com, to produce Palm computing devices and a two-year supply
agreement with 3Com to produce modems and network interface cards. Additionally
in 1999, we considerably enhanced our North American product design services
with the acquisition of two electronics design firms, Electronic System
Packaging and Ronlin Design.
Our History
We are organized as a Delaware corporation. In January 1995, investment
entities affiliated with Donaldson, Lufkin & Jenrette, Inc. acquired
substantially all of our outstanding common stock, and after this offering they
will own approximately 57.5% of our common stock. Our principal executive office
is located at 300 Baker Avenue, Suite 106, Concord, Massachusetts 01742 and our
telephone number is (978) 287-5630. We maintain a website on the Internet at
WWW.MSL.COM. Information contained on our website is not incorporated by
reference into this prospectus, and you should not consider that information as
part of this prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................ 11,000,000 shares
Common stock outstanding after
this offering........................... 30,947,770 shares
Use of proceeds........................... We plan to use the net proceeds from this offering
to retire all of our outstanding senior preferred
stock and to repay a portion of our indebtedness.
See "Use of Proceeds."
New York Stock Exchange symbol............ MSV
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of April 2, 2000, the
last day of our first fiscal quarter. It excludes:
- 2,521,703 shares of common stock reserved for issuance upon the exercise
of outstanding options granted under our stock option plans, of which
889,929 were exercisable at a weighted average exercise price equal to
$12.12 per share;
- 2,264,207 additional shares of common stock available for future grants
under our stock option plans; and
- 1,288,550 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price equal to $4.72 per share.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the consolidated financial data for our
business. You should read this information together with our "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
First Fiscal
Year Ended December 31, Quarter(a)
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
(Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales...................... $183,164 $474,288 $562,666 $837,993 $920,722 $206,964 $332,820
Gross profit................... 16,499 38,133 35,879 45,259 55,233 11,085 16,315
Operating income (loss)........ 5,210 3,880 (4,252) 8,695 16,411 3,157 (6,387)
Income (loss) applicable to
common stock before
extraordinary loss........... 1,217 (9,726) (17,278) (4,039) 1,201 103 (12,954)
Income (loss) per share
applicable to common stock
before extraordinary loss:
Basic...................... $ 0.19 $ (0.74) $ (1.07) $ (0.21) $ 0.06 $ 0.01 $ (0.66)
Diluted.................... $ 0.19 $ (0.74) $ (1.07) $ (0.21) $ 0.06 $ 0.01 $ (0.66)
Weighted average number of
shares outstanding:
Basic...................... 6,430 13,159 16,172 18,746 19,384 19,053 19,673
Diluted.................... 6,430 13,159 16,172 18,746 19,608 19,208 19,673
</TABLE>
<TABLE>
<CAPTION>
April 2, 2000
-------------------------
Actual As Adjusted(b)
(In thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................... $ 11,736 $ 11,736
Working capital............................................. 102,944 103,444
Total assets................................................ 451,236 449,696
Current portion of long-term debt and capital lease
obligations............................................... 7,500 7,000
Long-term debt and capital lease obligations................ 142,215 17,115
Senior preferred stock...................................... 39,595 --
Total stockholders' equity.................................. 39,197 202,852
</TABLE>
- --------------------------
(a) The financial data for the first fiscal quarter of 1999 and 2000 is as of
and for the three-month periods ended April 4, 1999 and April 2, 2000,
respectively.
(b) As adjusted gives effect to this offering, assuming net proceeds of $182.6
million. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS. ANY OF THESE RISKS COULD
HAVE A MATERIAL AND NEGATIVE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE
TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
Because a significant portion of our sales currently comes from a small number
of customers, any decrease in sales from these customers could harm our
operating results.
We depend on a small number of customers for a large portion of our
business, and changes in our customers' orders have, in the past, had a
significant impact on our operating results. If a major customer significantly
reduces the amount of business it does with us, there would be an adverse impact
on our operating results. The following table sets forth the percentages of our
total net sales to customers who accounted for 10% or more of our total net
sales and the percentage of our total net sales to our ten largest customers in
each period presented:
<TABLE>
<CAPTION>
Year Ended
December 31, Three Months Ended
------------------------------ ------------------
1997 1998 1999 April 2, 2000
<S> <C> <C> <C> <C>
International Business Machines
Corporation..................... 51% 51% 49% 25%
Iomega Corporation................ 19% 20% 14% 6%
Palm, Inc......................... --% --% 3% 29%
Ten largest customers as a
group........................... 81% 89% 88% 90%
</TABLE>
Based on our recent acquisition of inventory, manufacturing assets and other
intangibles from 3Com and the related supply agreements, we anticipate that 3Com
and its subsidiary, Palm, will each become a major customer in the year ending
December 31, 2000.
We expect to continue to depend on sales to our major customers. Since it is
not always possible to replace lost business on a timely basis, it is likely
that our operating results would be adversely affected if one or more of our
major customers were to cancel, delay or reduce a large amount of business with
us in the future. In addition, we generate significant accounts receivable in
connection with providing services to our major customers. If one or more of our
customers were to become insolvent or otherwise be unable to pay for our
services, our operating results and financial condition could be adversely
affected.
We intend to pursue strategic acquisitions of manufacturing facilities and
businesses, and the failure to successfully integrate acquired facilities and
businesses may adversely affect our financial performance.
Successfully completing future acquisitions is an important part of our
overall business strategy. However, any future acquisitions we make could result
in:
6
<PAGE>
- difficulty in integrating our operations, technologies, systems, products
and services with those of the acquired facility;
- difficulty in operating in foreign countries, in the case of acquisitions
that we make outside the U.S., and over significant geographical
distances;
- diversion of our capital and our management's attention away from other
business issues;
- an increase in our expenses and our working capital requirements;
- potential loss of key employees and customers of facilities or businesses
we acquire; and
- financial risks, such as:
-- potential liabilities of the facilities and businesses we acquire;
-- our need to incur additional indebtedness; and
-- dilution if we issue additional equity securities.
We may not successfully integrate any operations, technologies, systems,
products or services that we may acquire in the future, and we cannot assure you
that any of our recent or future acquisitions will be successful. If any of our
recent or future acquisitions are not successful, it is likely that our
financial performance will be adversely affected.
Our growth may be limited and our competitive position may be harmed if we are
unable to identify, finance and close future acquisitions.
We expect to actively pursue strategic acquisitions as part of our overall
business strategy. Competition for acquiring attractive facilities and
businesses in our industry is substantial. In executing this part of our
business strategy, we may experience difficulty in identifying suitable
acquisition candidates or in completing selected transactions. In addition, our
existing bank credit facility limits our ability to acquire the assets or
businesses of other companies. If we are able to identify acquisition
candidates, such acquisitions may be financed with substantial debt or with
potentially dilutive issuances of equity securities. Our ability to successfully
complete acquisitions in the future will depend upon several factors, including
the continued availability of financing. We cannot assure you that financing for
acquisitions will be available on terms acceptable to us, if at all.
The incurrence of indebtedness in connection with the consummation of future
acquisitions could harm our operating results and financial condition.
Our acquisition strategy could require us to incur substantial amounts of
indebtedness. As of April 2, 2000, our total debt was $149.7 million and our
interest expense for the quarter then ended was $3.5 million. After a portion of
the proceeds from this offering is used to repay existing indebtedness, we will
still owe approximately $24.1 million in principal amount of indebtedness. Our
future level of indebtedness could have consequences for our business,
including:
- vulnerability to the effects of poor economic and industry conditions
affecting our business;
7
<PAGE>
- dedication of a substantial portion of our cash flow from operations to
repayment of debt, limiting the availability of cash for working capital,
capital expenditures or acquisitions which may be attractive to us;
- reduced flexibility in planning for, or reacting to, changes in our
business and industry; and
- failure to comply with the financial covenants under our credit agreements
relating to interest coverage, leverage, consolidated EBITDA and net worth
resulting in an event of default, which if not cured or waived, could
cause substantially all of our indebtedness to become immediately due and
payable.
We have financial instruments that are subject to interest rate risk,
principally debt obligations under our bank credit facility. An increase in the
base rates upon which our interest rates are determined could have an adverse
effect on our operating results and financial condition.
Contemporaneously with this offering, we intend to refinance our existing
indebtedness under our bank credit facility with a new bank credit facility. We
anticipate that the new bank credit facility will impose operating and financial
restrictions on us substantially similar to those contained in our existing bank
credit facility, including a limitation on our ability to pay cash dividends on
our common stock. See "Description of Indebtedness."
Competition from existing or new companies in the electronics manufacturing
services industry could cause us to experience downward pressure on prices,
fewer customer orders, reduced margins, the inability to take advantage of new
business opportunities and the loss of market share.
We operate in a highly competitive industry. We compete against many
domestic and foreign companies, some of which have substantially greater
manufacturing, financial, research and development and marketing resources than
we do. Some of our competitors have broader geographic breadth and range of
services than we do. In addition, some of our competitors may have more
developed relationships with our existing customers than we do. We also face
competition from the manufacturing operations of our current and potential
customers, who continually evaluate the benefits of internal manufacturing
versus outsourcing. As more OEMs dispose of their manufacturing assets and
increase the outsourcing of their products, we will face increasing competitive
pressures to grow our business in order to maintain our competitive position.
We depend on our suppliers, some of which are the sole source for our
components, and our production would be substantially curtailed if these
suppliers are not able to meet our demands and alternative sources are not
available.
We order raw materials and components to complete our customers' orders, and
some of these raw materials and components are ordered from sole-source
suppliers. Although we work with our customers and suppliers to minimize the
impact of shortages in raw materials and components, we sometimes experience
short-term adverse effects due to price fluctuations and delayed shipments. In
the past, there have been industry-wide shortages of electronic components,
particularly memory and logic devices. If a significant shortage of raw
materials or components were to occur, we may have to delay shipments, and our
operating results would be adversely affected. In some cases,
8
<PAGE>
supply shortages of particular components will substantially curtail production
of products using these components. While most of our significant customer
contracts permit quarterly or other periodic reviews of pricing based on
decreases and increases in the prices of raw materials and components, we are
not always able to pass on price increases to our customers. Accordingly, some
raw material and component price increases could adversely affect our operating
results. We also depend on a small number of suppliers for many of the other raw
materials and components that we use in our business. If we were unable to
continue to purchase these raw materials and components from our suppliers, our
operating results would be adversely affected. Because many of our costs are
fixed, our margins depend on our volume of output at our facilities and a
reduction in volume will adversely affect our margins.
Long-term contracts are not typical in our industry, and reductions,
cancellations or delays in customer orders would adversely affect our operating
results.
As is typical in the electronics manufacturing services industry, we do not
usually obtain long-term purchase orders or commitments from our customers.
Instead, we work closely with our customers to develop non-binding forecasts of
the future volume of orders. Customers may cancel their orders, change
production quantities from forecasted volumes or delay production for a number
of reasons beyond our control. Significant or numerous cancellations, reductions
or delays in orders by our customers would reduce our net sales. In addition,
because many of our costs are fixed, a reduction in net sales could have an
adverse effect on our operating results. From time to time we make capital
investments in anticipation of future business opportunities. There can be no
assurance that we will receive the anticipated business. If we are unable to
obtain the anticipated business, our operating results and financial condition
may be harmed.
Uncertainties and adverse trends affecting the electronics industry or any of
our major customers may adversely affect our operating results.
Our business depends on the electronics industry, which is subject to rapid
technological change, short product life-cycles and pricing and margin pressure.
In addition, the electronics industry has historically been cyclical and subject
to significant downturns characterized by diminished product demand, rapid
declines in average selling prices and production over-capacity. When these
factors adversely affect our customers, we may suffer similar effects. Our
customers' markets are also subject to economic cycles and are likely to
experience recessionary periods in the future. The economic conditions affecting
the electronics industry, in general, or any of our major customers, in
particular, may adversely affect our operating results.
Because we have significant operations overseas, our operating results could be
harmed by economic, political, regulatory and other factors existing in foreign
countries in which we operate.
We have substantial international manufacturing operations in Europe and
Asia. Our international operations are subject to inherent risks, which may
adversely affect us, including:
- political and economic instability in countries where we have
manufacturing facilities, particularly in Asia where we conduct a
significant portion of our business;
9
<PAGE>
- fluctuations in the value of currencies, particularly in Spain where our
functional currency is the Spanish peseta;
- high levels of inflation, historically the case in a number of countries
in Asia where we do business;
- changes in labor conditions and difficulties in staffing and managing our
foreign operations;
- greater difficulty in collecting our accounts receivable and longer
payment cycles;
- burdens and costs of our compliance with a variety of foreign laws;
- increases in the duties and taxes we pay;
- imposition of restrictions on currency conversion or the transfer of
funds; and
- expropriation of private enterprises.
Our quarterly operating results are subject to fluctuations and seasonality, and
if we fail to meet the expectations of securities analysts or investors, our
share price may decrease significantly.
Our annual and quarterly results may vary significantly depending on various
factors, many of which are beyond our control and may not meet the expectations
of securities analysts or investors. If this occurs, the price of our stock
would likely decline. These factors include:
- variations in the timing and volume of customer orders relative to our
manufacturing capacity;
- introduction and market acceptance of our customers' new products;
- changes in demand for our customers' existing products;
- the timing of our expenditures in anticipation of future orders;
- effectiveness in managing our manufacturing processes;
- changes in competitive and economic conditions generally or in our
customers' markets;
- the timing of, and the price we pay for, acquisitions and related
integration costs;
- changes in the cost or availability of components or skilled labor; and
- foreign currency exposure.
As is the case with many technology companies, we typically ship a
significant portion of our products in the last few weeks of a quarter. Also,
one of our significant end-markets is the consumer electronics market. This
market exhibits particular strength towards the end of the year in connection
with the holiday season. As a result, we have experienced relative strength in
net sales in our fourth quarter.
10
<PAGE>
Loss of any of our key personnel could hurt our business because of their
experience in the electronics manufacturing services industry and their
technological expertise.
We operate in the highly competitive electronics manufacturing services
industry and depend on the services of our key senior executives and other
technological experts because of their experience in the electronics
manufacturing services industry and their technical expertise. The loss of the
services of one or several of our key employees or an inability to attract,
train and retain qualified and skilled employees, specifically engineering and
sales personnel, could result in the loss of customers or otherwise inhibit our
ability to operate and grow our business successfully. In addition, our ability
to successfully integrate acquired facilities or businesses depends, in part, on
our ability to retain and motivate key management and employees hired by us in
connection with the acquisition.
Our business and financial condition may be harmed if we are unable to
successfully defend or settle a current lawsuit arising out of a proposed
acquisition that was not consummated.
We are currently involved in litigation instituted by Lockheed Martin
Corporation regarding a proposed acquisition of one of its subsidiaries.
Lockheed's complaint alleges, among other things, that we breached an
August 10, 1997 agreement to acquire the Lockheed subsidiary and that we also
breached an implied obligation of good faith and fair dealing in exercising our
contractual right to terminate the agreement. The complaint alleges that the
purchase price for the acquisition, inclusive of real estate, was $140 million,
subject to purchase price adjustments, and subsequent to the alleged breach,
Lockheed sold its subsidiary, exclusive of real estate, for $70 million. We
contend that a material adverse change in the business of Lockheed's subsidiary
allowed us to terminate the agreement. We intend to vigorously defend our
position. There can be no assurances, however, that we will prevail in this
litigation. On April 21, 2000, we reached an understanding with Lockheed on the
terms of a settlement, subject to this understanding being reduced to a written
settlement agreement. There can be no assurances, however, that we will reach a
definitive settlement agreement with Lockheed. We believe that the outcome from
the litigation, if determined adversely to us, would harm our business,
financial condition or results of operations.
If we are unable to maintain our technological expertise in design and
manufacturing processes we will not be able to successfully compete.
We believe that our future success will depend upon our ability to develop
and provide design and manufacturing services that meet the changing needs of
our customers. This requires that we successfully anticipate and respond to
technological changes in design and manufacturing processes in a cost-effective
and timely manner. As a result, we continually evaluate the advantages and
feasibility of new product design and manufacturing processes. We cannot,
however, assure you that our process development efforts will be successful.
Our controlling stockholders and some of our directors may have interests that
differ from yours.
Donaldson, Lufkin & Jenrette, Inc. and its affiliates control us and have
significant control over our business, policies and affairs, including the power
to appoint new management, prevent or cause a change of control and approve any
action requiring the approval of the holders of our
11
<PAGE>
common stock, including adopting some amendments to our certificate of
incorporation and approving mergers or sales of all or substantially all of our
assets. Affiliates of Donaldson, Lufkin & Jenrette, Inc. have the right to elect
a majority of our directors. The interests of these stockholders and directors
may differ from your interests or the interests of other stockholders. See
"Relationships and Transactions with Related Parties" for more information
concerning affiliates of Donaldson, Lufkin & Jenrette, Inc.
Provisions in our charter documents and Delaware law may delay, deter or prevent
someone from acquiring us, which could decrease the value of your shares.
Provisions in our charter and bylaws may have the effect of delaying,
deterring or preventing a change of control or changes in our management that
you might consider favorable unless approved by our stockholders and directors
affiliated with Donaldson, Lufkin & Jenrette, Inc. Those provisions serve to
limit the circumstances in which a premium may be paid for our common stock in
proposed transactions or where a proxy contest for control of our board may be
initiated. If a change of control or change in management is delayed, deterred
or prevented, the market price of our common stock could suffer.
We are subject to a variety of environmental laws that expose us to potential
financial liability.
Our operations are regulated under a number of federal, state and foreign
environmental and safety laws and regulations that govern, among other things,
the discharge of hazardous materials into the air and water as well as the
handling, storage and disposal of these materials. These laws and regulations
include the Clean Air Act, the Clean Water Act, the Resource, Conservation and
Recovery Act, and the Comprehensive Environmental Response, Compensation and
Liability Act, as well as analogous state and foreign laws. Compliance with
these environmental laws is a major consideration for us because we use
hazardous materials in our manufacturing process. In addition, because we are a
generator of hazardous wastes, we, along with any other person who arranges for
the disposal of our wastes, may be subject to financial exposure for costs
associated with an investigation and any remediation of sites at which we have
arranged for the disposal of hazardous wastes if these sites become
contaminated, even if we fully comply with applicable environmental laws. In the
event of a violation of environmental laws, we could be held liable for damages
and for the costs of remedial actions and could also be subject to revocation of
our effluent discharge permits. Any revocation could require us to cease or
limit production at one or more of our facilities, thereby negatively impacting
our revenues and potentially causing our common stock price to decline.
Environmental laws could also become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with any
violation, which also could negatively impact our operating results.
RISKS RELATED TO THIS OFFERING
Our common stock has no prior public market, and we cannot assure you that our
stock price will not decline.
Prior to this offering, there has been no public market for our common
stock. We cannot assure you that an active trading market for our common stock
will develop or be sustained after this offering. The initial public offering
price for our common stock will be determined by
12
<PAGE>
negotiations between the underwriters and us. We cannot assure you that the
initial public offering price will correspond to the price at which our common
stock will trade in the public market subsequent to this offering or that the
price of our common stock available in the public market will reflect our actual
financial performance. The stock markets in general, and the stock prices of our
competitors in particular, have recently experienced extreme volatility that has
often been unrelated to their operating performance. These broad market
fluctuations may adversely affect the trading price of our common stock.
Sales of our common stock by existing investors may begin shortly after
completion of this offering, which could cause our stock price to decline.
Sales of a substantial number of shares of our common stock in the public
market following this offering, or the perception that these sales could occur,
could cause the market price of our common stock to decline. The shares of our
common stock outstanding prior to this offering will be eligible for sale in the
public market at various times in the future. We, all of our officers, directors
and stockholders owning most of our shares have generally agreed not to sell any
shares of our common stock for a period of 180 days after the date of this
prospectus without the prior written consent of the underwriters. Upon
expiration of the lock-up period described above, approximately 1,009,793
additional shares will be eligible for sale in the public market without
restriction and 18,579,104 shares held by some of our affiliates will become
eligible for sale, subject to the restrictions under Rule 144. In addition, some
of our existing stockholders have the right to require us to register their
shares.
The initial public offering price is significantly higher than the book value of
our common stock, and you will experience immediate and substantial dilution in
the value of your investment.
The initial public offering price per share will significantly exceed our
net tangible book value per share. Accordingly, investors purchasing shares in
this offering will suffer immediate and substantial dilution of $12.63 per
share. See "Dilution."
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. Some of the
forward-looking statements can be identified by the use of forward-looking words
such as "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "estimates" or "anticipates" or the
negative of those words or other comparable terminology. Forward-looking
statements involve risks and uncertainties. A number of important factors could
cause actual results to differ materially from those in the forward-looking
statements. These factors include systems failures, technological changes,
volatility of securities markets, government regulations and economic conditions
and competition in the areas in which we conduct our operations. For a
discussion of factors that could cause actual results to differ, please see the
discussion under "Risk Factors" contained in this prospectus. The
forward-looking statements made in this prospectus relate only to events as of
the date on which the statements are made.
13
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately
$182.6 million from the sale of our common stock, offered at an assumed initial
public offering price per share of $18.00, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by us. We
will not receive any proceeds from the sale of our common stock by the selling
stockholders pursuant to any exercise of the underwriters' over-allotment
option.
We intend to use approximately $57.0 million of the net proceeds of this
offering to retire all of our outstanding senior preferred stock. The preferred
stock was issued in November 1999 to DLJ Investment Funding II, Inc., DLJ
Investment Partners II, L.P., DLJ ESC II L.P. and DLJ Investment Partners, L.P.
in connection with our acquisition from 3Com of selected inventory, fixed assets
and intangible assets in Salt Lake City, Utah. Holders of our senior preferred
stock are entitled to a quarterly cash dividend at the rate of 14% per annum
through November 26, 2000 and thereafter at a rate of 15% per annum, payable in
cash at the mandatorily redeemable date or in additional shares of senior
preferred stock. In connection with the anticipated retirement of our
outstanding senior preferred stock, our net income available to common
stockholders for the purposes of determining earnings per share will be reduced
by approximately $17.4 million in the second fiscal quarter of the year ending
December 31, 2000.
We intend to use approximately $125.6 million of the net proceeds of this
offering to discharge a portion of our indebtedness under our bank credit
facility. We expect to repay approximately $74.3 million under our term loan
facilities and approximately $51.3 million under our revolving credit facility.
Our term loan facilities have a final maturity of July 31, 2004. Our revolving
credit facility has a final maturity of July 31, 2002. As of April 2, 2000, the
interest rate for our term loan facilities was 9.94% and for our revolving
credit facility was between 9.13% and 11.00%. Following this offering and the
application of the net proceeds, we will have approximately $12.8 million
outstanding under our bank credit facility. In connection with the anticipated
repayment of our indebtedness under our bank credit facility, we will record an
extraordinary non-cash charge of $1.5 million associated with the write-off of
deferred financing costs.
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our common
stock, and we do not anticipate paying any cash dividends for at least the next
five years. We currently intend to retain any future earnings to finance
operations and expansion and to reduce indebtedness. In addition, our existing
bank credit facility limits, and we expect that our new bank credit facility
will limit, our ability to pay cash dividends on our common stock. Payment of
future cash dividends, if any, will be at the discretion of our board of
directors, after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs, plans for
expansion and restrictions imposed by lenders, if any.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of April 2, 2000. Our
capitalization is presented:
- on an actual basis; and
- as adjusted to reflect the application of the estimated net proceeds from
this offering to retire all of our outstanding senior preferred stock and
to repay a portion of our outstanding indebtedness,
assuming an initial public offering price of $18.00 per share.
<TABLE>
<CAPTION>
April 2, 2000
-------------------------------------
Actual As Adjusted
(In thousands, except per share data)
<S> <C> <C>
Cash and cash equivalents............................. $ 11,736 $ 11,736
======== ========
Long-term debt and capital lease obligations:
Revolving facility.................................. $ 64,100 $ 12,750
Term loans.......................................... 74,250 --
Other long-term debt and capital lease obligations
including current portion......................... 11,365 11,365
-------- --------
Total long-term debt and capital lease
obligations..................................... 149,715 24,115
Senior redeemable preferred stock due 2006, $.001 par
value, redemption value $25.00 per share; 2,000
shares authorized (actual and as adjusted); 2,000
shares issued and outstanding (actual); no shares
issued and outstanding (as adjusted)................ 39,595 --
Stockholders' equity:
Preferred stock, $.001 par value, 3,000 shares
authorized (actual and as adjusted); no shares
issued and outstanding (actual and as adjusted)... -- --
Common stock, $.001 par value, 150,000 shares
authorized (actual and as adjusted); 19,948 shares
issued and outstanding (actual); 30,948 shares
issued and outstanding (as adjusted).............. 20 31
Additional paid-in capital.......................... 92,042 257,226
Accumulated deficit................................. (41,184) (42,724)
Accumulated other comprehensive loss................ (11,681) (11,681)
-------- --------
Total stockholders' equity........................ 39,197 202,852
-------- --------
Total capitalization.................................. $228,507 $226,967
======== ========
</TABLE>
15
<PAGE>
DILUTION
The net tangible book value of our common stock as of April 2, 2000 was
approximately $2.5 million, or approximately $0.12 per share. Net tangible book
value per share represents the amount of our stockholders' equity, less goodwill
and other intangible assets, divided by the total number of shares of our common
stock outstanding.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of our common stock in this offering and the
net tangible book value per share of our common stock immediately after the
completion of this offering.
Following:
- our sale of 11,000,000 shares of common stock in this offering at an
assumed initial public offering price of $18.00 per share, and after
deducting:
- the estimated underwriting discounts and commissions; and
- the estimated offering expenses; and
- the application of the estimated net proceeds from this offering,
our net tangible book value as of April 2, 2000 would have been approximately
$166.1 million or approximately $5.37 per share. This represents an immediate
increase in net tangible book value of approximately $5.25 per share to the
existing stockholders and an immediate dilution in net tangible book value of
approximately $12.63 per share to purchasers of our common stock in this
offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $18.00
Net tangible book value per share as of
April 2, 2000........................................ $0.12
Increase per share attributable to new investors....... 5.25
-----
Net tangible book value per share after this offering.... 5.37
------
Dilution per share to new investors...................... $12.63
======
</TABLE>
The following table illustrates as of April 2, 2000, the difference between
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price paid by existing stockholders and by the new
investors purchasing shares of our common stock in this offering, before
deduction of estimated underwriting discounts and commissions and offering
expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ----------------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing
stockholders....... 19,947,770 64% $ 82,938,398 30% $ 4.16
New stockholders..... 11,000,000 36 198,000,000 70 18.00
---------- --- ------------ --- ------
Total.............. 30,947,770 100% $280,938,398 100%
========== === ============ ===
</TABLE>
The foregoing table assumes no exercise of any stock options and warrants
outstanding as of April 2, 2000. As of April 2, 2000, there were options and
warrants outstanding to purchase a total of 3,810,253 shares of our common
stock, 3,364,028 of which have exercise prices ranging from $4.00 to $12.28 per
share and 446,225 of which have an exercise price equal to $20.00 per share. If
all of the options and warrants with exercise prices ranging from $4.00 to
$12.28 per share are exercised, you will experience further dilution in the
amount of approximately $0.09 per share.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the dates
and periods indicated has been derived from our audited consolidated financial
statements and our unaudited interim consolidated financial statements. In the
opinion of management, the unaudited interim consolidated financial statements
include all adjustments necessary for a fair presentation of our financial
position and results of operations. The selected consolidated financial data and
notes should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated financial
statements and notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1995 1996 1997
(In thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales........................... $ 183,164 $ 474,288 $ 562,666
Cost of goods sold.................. 166,665 436,155 526,787
--------- --------- ---------
Gross profit........................ 16,499 38,133 35,879
Selling, general and
administrative.................... 11,289 31,718 28,037
Restructuring and other asset
writedowns........................ -- 2,535 12,094
Non cash stock based compensation... -- -- --
Litigation settlement............... -- -- --
--------- --------- ---------
Operating income (loss)............. 5,210 3,880 (4,252)
Interest expense, net............... (1,476) (5,702) (7,723)
Minority interest................... 416 -- --
Foreign exchange gain (loss)........ 931 (1,760) (931)
--------- --------- ---------
Income (loss) before provision for
income taxes and extraordinary
loss.............................. 5,081 (3,582) (12,906)
Provision for income taxes.......... 3,864 6,144 4,372
--------- --------- ---------
Income (loss) before extraordinary
loss.............................. 1,217 (9,726) (17,278)
Extraordinary loss.................. -- -- --
--------- --------- ---------
Net income (loss)................... $ 1,217 $ (9,726) $ (17,278)
========= ========= =========
Net income (loss) applicable to
common stock...................... $ 1,217 $ (9,726) $ (17,278)
========= ========= =========
Basic income (loss) per share:
Income (loss) before
extraordinary loss............ $ 0.19 $ (0.74) $ (1.07)
Extraordinary loss.............. $ -- $ -- $ --
Net income (loss)............... $ 0.19 $ (0.74) $ (1.07)
Weighted average shares
outstanding................... 6,430 13,159 16,172
Diluted income (loss) per share:
Income (loss) before
extraordinary loss............ $ 0.19 $ (0.74) $ (1.07)
Extraordinary loss.............. $ -- $ -- $ --
Net income (loss)............... $ 0.19 $ (0.74) $ (1.07)
Weighted average shares
outstanding................... 6,430 13,159 16,172
Other Financial Data:
Adjusted EBITDA(b).................. $ 4,224 $ 10,934 $ 16,218
Depreciation........................ 1,117 4,693 7,575
Amortization of goodwill and other
intangibles....................... (2,103) (174) 801
Capital expenditures................ 10,510 11,534 25,780
Net cash provided by (used in)
operating activities.............. (1,060) 484 (17,396)
Net cash used in investing
activities........................ (70,754) (11,534) (25,978)
Net cash provided by (used in)
financing activities.............. 79,116 6,647 50,220
<CAPTION>
Year Ended December 31, First Fiscal Quarter(a)
--------------------------- ---------------------------
1998 1999 1999 2000
(Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales........................... $ 837,993 $ 920,722 $ 206,964 $ 332,820
Cost of goods sold.................. 792,734 865,489 195,879 316,505
--------- --------- --------- ---------
Gross profit........................ 45,259 55,233 11,085 16,315
Selling, general and
administrative.................... 29,494 37,580 7,918 12,715
Restructuring and other asset
writedowns........................ 6,729 780 -- --
Non cash stock based compensation... 341 462 10 3,987
Litigation settlement............... -- -- -- 6,000
--------- --------- --------- ---------
Operating income (loss)............. 8,695 16,411 3,157 (6,387)
Interest expense, net............... (10,161) (8,081) (1,702) (3,476)
Minority interest................... -- -- -- --
Foreign exchange gain (loss)........ 721 (2,510) (1,160) (673)
--------- --------- --------- ---------
Income (loss) before provision for
income taxes and extraordinary
loss.............................. (745) 5,820 295 (10,536)
Provision for income taxes.......... 3,294 3,810 192 287
--------- --------- --------- ---------
Income (loss) before extraordinary
loss.............................. (4,039) 2,010 103 (10,823)
Extraordinary loss.................. (2,202) -- -- --
--------- --------- --------- ---------
Net income (loss)................... $ (6,241) $ 2,010 $ 103 $ (10,823)
========= ========= ========= =========
Net income (loss) applicable to
common stock...................... $ (6,241) $ 1,201 $ 103 $ (12,954)
========= ========= ========= =========
Basic income (loss) per share:
Income (loss) before
extraordinary loss............ $ (0.21) $ 0.06 $ 0.01 $ (0.66)
Extraordinary loss.............. $ (0.12) $ -- $ -- $ --
Net income (loss)............... $ (0.33) $ 0.06 $ 0.01 $ (0.66)
Weighted average shares
outstanding................... 18,746 19,608 19,053 19,673
Diluted income (loss) per share:
Income (loss) before
extraordinary loss............ $ (0.21) $ 0.06 $ 0.01 $ (0.66)
Extraordinary loss.............. $ (0.12) $ -- $ -- $ --
Net income (loss)............... $ (0.33) $ 0.06 $ 0.01 $ (0.66)
Weighted average shares
outstanding................... 18,746 19,584 19,208 19,673
Other Financial Data:
Adjusted EBITDA(b).................. $ 26,698 $ 32,086 $ 6,088 $ 9,684
Depreciation........................ 10,686 11,686 2,825 4,395
Amortization of goodwill and other
intangibles....................... 247 2,747 96 1,689
Capital expenditures................ 2,774 39,094 2,178 6,222
Net cash provided by (used in)
operating activities.............. 41,071 (25,121) (8,781) (20,714)
Net cash used in investing
activities........................ (4,483) (81,775) (4,440) (8,806)
Net cash provided by (used in)
financing activities.............. (23,506) 109,229 13,862 17,569
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........... $ 8,292 $ 3,647 $ 9,513 $ 23,969 $ 24,182
Working capital..................... 64,603 47,857 43,009 54,340 98,273
Total assets........................ 158,857 191,577 266,929 277,608 411,783
Current portion of long-term debt
and capital lease obligations..... 4,061 8,378 33,800 4,939 5,414
Long-term debt and capital lease
obligations....................... 32,396 39,015 47,138 57,188 121,929
Preferred stock..................... 500 500 -- -- 39,204
Total stockholders' equity.......... 50,728 39,332 42,097 39,174 48,621
<CAPTION>
First Fiscal Quarter(a)
---------------------------
1999 2000
(Unaudited)
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........... $ 23,113 $ 11,736
Working capital..................... 66,501 102,944
Total assets........................ 268,624 451,236
Current portion of long-term debt
and capital lease obligations..... 3,266 7,500
Long-term debt and capital lease
obligations....................... 71,583 142,215
Preferred stock..................... -- 39,595
Total stockholders' equity.......... 37,349 39,197
</TABLE>
- ------------------------------
(a) The financial data for the first fiscal quarter of 1999 and 2000 is as of
and for the three-month periods ended April 4, 1999 and April 2, 2000,
respectively.
(b) Adjusted EBITDA is defined as earnings before net interest expense, income
taxes, depreciation and amortization, restructuring and other asset
write-downs and other non-recurring items as well as non-operating expenses
including foreign exchange gain (loss). Adjusted EBITDA is presented because
we believe it is a meaningful indicator of our operating performance.
Adjusted EBITDA is not intended to represent cash flows for the period, nor
is it presented as an alternative to operating income or as an indicator of
operating performance. It should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with GAAP in
the United States and is not indicative of operating income or cash flow
from operations as determined under GAAP. Our method of computation may or
may not be comparable to other similarly titled measures of other companies.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS AND INVOLVES NUMEROUS RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT
LIMITED TO, THOSE DESCRIBED IN THE "RISK FACTORS" SECTION OF THIS PROSPECTUS.
OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY
FORWARD-LOOKING STATEMENTS.
Overview
We are a leading global provider of advanced electronics manufacturing
services. We provide these services to OEMs primarily in the voice and data
communications, computer and related peripherals, medical equipment and
industrial and consumer electronics industries. Our headquarters are in Concord,
Massachusetts, and we have manufacturing operations in the United States, Spain,
Ireland, Singapore and Malaysia. We operate each of our manufacturing facilities
through direct or indirect wholly-owned subsidiaries of Manufacturers' Services
Limited, a Delaware corporation. We have a corporate organization that was
established to accomplish company-wide objectives and provide functional support
for our manufacturing sites and design centers located throughout the world. The
functional support provided includes marketing, customer support, information
technology, product development and quality assurance, materials and supplier
management and finance and administration. Our corporate operations do not
generate any sales and the expense levels have grown commensurate with the
growth in customer operations and the associated demand for such functional
support. Fluctuation in our corporate expenses are discussed more fully in the
period-to-period comparisons below. Since our founding in 1994, we have
experienced substantial growth driven primarily by recent acquisitions of
existing OEM manufacturing facilities and by the increasing number of OEMs who
are outsourcing their manufacturing requirements. We intend to continue to
actively pursue strategic acquisitions and to benefit from this increasing trend
by OEMs to outsource over the next several years.
We derive most of our net sales under purchase orders from our customers. We
recognize sales, net of product return and warranty costs, typically at the time
of product shipment or as services are rendered. Our cost of goods sold includes
the cost of electronic components and materials, labor costs and manufacturing
overhead. The procurement of raw materials and components requires us to commit
significant working capital to our operations and to manage the purchasing,
receiving, inspection and stocking of these items.
Our operating results are affected by the level of capacity utilization in
our manufacturing facilities, indirect labor costs and selling, general and
administrative expenses. Gross margins and operating income generally improve
during periods of high-volume and high-capacity utilization in our manufacturing
facilities and decline during periods of low-volume and low-capacity
utilization.
Our business strategy includes the continued expansion of our global
manufacturing network. Currently, approximately 78% of our net sales worldwide
are denominated in US dollars, while our labor and utility costs in facilities
outside of the United States are denominated in local currencies. Foreign
currency gains/losses are the result of transacting business in a currency that
is different from the functional currency of our operating entity and the
movements in those currencies between
19
<PAGE>
the time a transaction is recorded for financial reporting purposes and the time
payment is made or received. We currently use forward foreign exchange contracts
on a limited basis, to hedge our foreign currency risk but not for trading
purposes. We expect to continue to utilize forward foreign exchange contracts
only to the extent that they hedge specific underlying transactions that create
foreign currency exchange rate risk for us. Any increase or decrease in our use
of derivative financial instruments will likely be as a result of these
contracts.
Recent Acquisitions
A significant portion of our growth has come from recent acquisitions, which
have strengthened existing customer relationships, added new customers and
increased our range of service offerings.
In November 1999, we acquired from 3Com selected inventory, fixed assets and
other intangibles located in Salt Lake City, Utah, for $80.8 million. The
acquisition was financed with the proceeds from the issuance of $50.0 million of
senior preferred stock and warrants and borrowings under our bank credit
facility. In connection with this acquisition, we entered into a two-year supply
agreement with Palm to produce Palm computing devices and a two-year supply
agreement with 3Com to produce modems and network interface cards. We also
retained the facility employees.
In the first half of 1999, we acquired two electronics design firms,
Electronic System Packaging and Ronlin Design, for an aggregate purchase price
of approximately $4.4 million.
In the first half of 1998, we acquired selected inventory and fixed assets
of IBM located in Charlotte, North Carolina, for $30.1 million in cash. The
acquisition of these assets was financed with borrowings under our bank credit
facility. In connection with this acquisition, we also entered into a three-year
supply agreement to provide systems assembly and integration, testing and order
fulfillment services for several divisions of IBM and retained the facility
employees.
Restructuring and Other Asset Writedowns
Generally, we enter into business acquisitions or asset acquisitions and
related supply agreements with the intention of improving the existing
manufacturing operations, reducing costs and improving operating margins. To
accomplish this, we typically assess the manufacturing processes and employee
base and restructure the operations.
During the fourth quarter of 1999, we approved a restructuring plan designed
to improve our manufacturing operations at our Charlotte facility. It is
comprised of $0.8 million of severance costs related to a reduction of 33
manufacturing and managerial employees. As of the fiscal quarter ended April 2,
2000, we have paid out $0.6 million in severance payments. We expect the
restructuring plan to be substantially completed by the end of our next fiscal
quarter, and the expected savings from the implementation of this plan are
estimated to be $1.2 million annually. These expense savings will be realized in
the year ending December 31, 2000 and will be reflected in cost of goods sold in
our reported results of operations.
In the fourth quarter of 1998, we approved a plan to restructure various
operations in the United States, Spain and Asia. The total restructuring charge
for this plan was $6.7 million, comprised of the write-off of capitalized
assets, lease termination costs and severance costs related
20
<PAGE>
to a reduction of 72 manufacturing and managerial employees. As of December 31,
1999, this plan was substantially completed, and in 1999 we realized
substantially all of the $3.4 million in savings contemplated as a result of
implementing this plan. These savings are reflected in cost of goods sold in our
reported results of operations.
In the fourth quarter of 1997, we approved a plan to restructure various
operations in the United States and Spain. Under this restructuring plan, we
closed a facility located in Fremont, California, during the first quarter of
1998. During the year ended December 31, 1997, the Fremont facility generated
net sales of $19.0 million and a net operating loss of $5.4 million, excluding
the restructuring charge. Restructuring costs totaling $7.2 million were
recorded for the closing of this facility. These costs consisted of the
write-off of capitalized assets, lease termination costs and severance costs
related to a reduction of 103 manufacturing and managerial employees. This
restructuring plan also included charges of $4.9 million consisting of the
severance costs related to a reduction of 40 manufacturing and managerial
employees located at our Valencia facility. This restructuring plan was
substantially completed by December 31, 1998. We are currently realizing
substantially all of the $7.3 million in savings contemplated by this plan.
These savings are reflected in cost of goods sold in our reported results of
operations.
We recorded no restructuring charges during the fiscal quarter ended
April 2, 2000. The major components of our restructuring plans recorded in prior
years were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Employee severance........................... $ 5,387 $3,673 $780
Asset writedowns............................. 4,932 1,135 --
Lease terminations........................... 1,000 1,921 --
Other........................................ 775 -- --
------- ------ ----
$12,094 $6,729 $780
======= ====== ====
</TABLE>
Asset writedowns relate to the closing of facilities and the losses
resulting from equipment dispositions. Other charges include miscellaneous costs
and other commitments. Some severance charges are being paid over periods
greater than one year.
21
<PAGE>
The following table details the activity in our restructuring reserve:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1998 1999 Total
(In thousands)
<S> <C> <C> <C> <C>
Restructuring provision................ $12,094 $ -- $ -- $12,094
Cash payments.......................... -- -- -- --
Asset writedowns....................... 4,932 -- -- 4,932
------- ------ ---- -------
Balance at December 31, 1997........... 7,162 -- -- 7,162
Restructuring provision................ -- 6,729 -- 6,729
Cash payments.......................... 6,958 1,127 -- 8,085
Asset writedowns....................... -- 1,135 -- 1,135
------- ------ ---- -------
Balance at December 31, 1998........... 204 4,467 -- 4,671
Restructuring provision................ -- -- 780 780
Cash payments.......................... 204 3,819 266 4,289
Asset writedowns....................... -- 494 -- 494
------- ------ ---- -------
Balance at December 31, 1999........... -- 154 514 668
Cash payments.......................... -- 94 275 369
Asset writedowns....................... -- -- -- --
------- ------ ---- -------
Balance at April 2, 2000............... $ -- $ 60 $239 $ 299
======= ====== ==== =======
</TABLE>
The restructuring reserve of $0.3 million at April 2, 2000 consists of
liabilities for severance payments and will be utilized by the end of our next
fiscal quarter.
Results of Operations
The following table sets forth specified operating data and percentages of
net sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $562,666 100.0% $837,993 100.0% $920,722 100.0%
Cost of goods sold.............. 526,787 93.6 792,734 94.6 865,489 94.0
-------- ----- -------- ----- -------- -----
Gross profit.................... 35,879 6.4 45,259 5.4 55,233 6.0
Selling, general and
administrative................ 28,037 5.0 29,494 3.6 37,580 4.1
Restructuring and other asset
writedowns.................... 12,094 2.1 6,729 0.8 780 0.1
Non cash stock based
compensation.................. -- -- 341 -- 462 --
Litigation settlement........... -- -- -- -- -- --
-------- ----- -------- ----- -------- -----
Operating income (loss)......... (4,252) (0.8) 8,695 1.0 16,411 1.8
Interest expense, net........... (7,723) (1.4) (10,161) (1.2) (8,081) (0.9)
Foreign exchange gain (loss).... (931) (0.2) 721 0.1 (2,510) (0.3)
-------- ----- -------- ----- -------- -----
Income (loss) before provision
for income taxes and
extraordinary loss............ (12,906) (2.3) (745) (0.1) 5,820 0.6
Provision for income taxes...... 4,372 0.8 3,294 0.4 3,810 0.4
-------- ----- -------- ----- -------- -----
Income (loss) before
extraordinary loss............ (17,278) (3.1) (4,039) (0.5) 2,010 0.2
Extraordinary loss.............. -- -- (2,202) (0.3) -- --
-------- ----- -------- ----- -------- -----
Net income (loss)............... $(17,278) (3.1)% $ (6,241) (0.7)% $ 2,010 0.2%
======== ===== ======== ===== ======== =====
<CAPTION>
First Fiscal Quarter(a)
------------------------------------------
1999 2000
(In thousands)
<S> <C> <C> <C> <C>
Net sales....................... 206,964 100.0% 332,820 100.0%
Cost of goods sold.............. 195,879 94.6 316,505 95.1
-------- ----- -------- -----
Gross profit.................... 11,085 5.4 16,315 4.9
Selling, general and
administrative................ 7,918 3.8 12,715 3.8
Restructuring and other asset
writedowns.................... -- -- -- --
Non cash stock based
compensation.................. 10 -- 3,987 1.2
Litigation settlement........... -- -- 6,000 1.8
-------- ----- -------- -----
Operating income (loss)......... 3,157 1.5 (6,387) (1.9)
Interest expense, net........... (1,702) (0.8) (3,476) (1.0)
Foreign exchange gain (loss).... (1,160) (0.6) (673) (0.2)
-------- ----- -------- -----
Income (loss) before provision
for income taxes and
extraordinary loss............ 295 0.1 (10,536) (3.2)
Provision for income taxes...... 192 0.1 287 0.1
-------- ----- -------- -----
Income (loss) before
extraordinary loss............ 103 -- (10,823) (3.3)
Extraordinary loss.............. -- -- -- --
-------- ----- -------- -----
Net income (loss)............... $ 103 -- $(10,823) (3.3)%
======== ===== ======== =====
</TABLE>
- ------------------------------
(a) The financial data for the first fiscal quarter of 1999 and 2000 is as of
and for the three-month periods ended April 4, 1999 and April 2, 2000,
respectively.
22
<PAGE>
Fiscal Quarter Ended April 2, 2000 Compared to Fiscal Quarter Ended April 4,
1999
NET SALES
Net sales for the quarter ended April 2, 2000 increased $125.8 million, or
60.8%, to $332.8 million from $207.0 million for the quarter ended April 4,
1999. This increase in net sales was the result of a $129.2 million increase
attributable to the acquisition of our Salt Lake City facility and a
$36.4 million increase resulting from increases in volume from three customers.
These increases were partially offset by volume reductions in two customers'
programs of $43.9 million, resulting from competitive pressures in those
customers' industries.
GROSS PROFIT
Gross profit decreased to 4.9% of net sales for the quarter ended April 2,
2000 from 5.4% of net sales for the quarter ended April 4, 1999. This decrease
resulted from start-up operating costs at our Salt Lake City facility (0.7% of
net sales) and a price reduction on one customer's program (0.4% of net sales).
These decreases were partially offset by the positive effect of having a mix of
customer programs for the quarter ended April 2, 2000 with gross margins that
were higher than the mix of customer programs for the quarter ended April 4,
1999 (0.7% of net sales).
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense for the quarter ended April 2,
2000 increased to $12.7 million, or 3.8% of net sales, from $7.9 million, or
3.8% of net sales, for the quarter ended April 4, 1999. This increase related to
the increase in amortization of intangibles arising from the asset acquisition
of our Salt Lake City facility ($1.5 million), expenses related to human
resources, accounting and information systems necessary to support our Salt Lake
City facility ($1.5 million) and staffing increases at all of our sites to
support growth in customer programs ($1.7 million).
NON-CASH STOCK BASED COMPENSATION
During the quarter ended April 2, 2000, we recorded an expense of
$4.0 million related to stock and option grants made to our senior managers and
other key employees.
LITIGATION SETTLEMENT
In April 2000, we reached an understanding to settle a claim for damages
arising from a potential acquisition that was not consummated. As a result, we
recorded a $6.0 million charge in the fiscal quarter ended April 2, 2000.
FOREIGN EXCHANGE GAINS/LOSSES
Foreign exchange losses for the quarter ended April 2, 2000 were
$0.7 million compared with foreign exchange losses of $1.2 million for the
quarter ended April 4, 1999. Approximately $0.5 million and $1.2 million of our
foreign exchange loss for the quarters ended April 2, 2000 and April 4, 1999,
respectively, is unrealized and relates to the strengthening of the US dollar in
relation to the Spanish peseta in connection with a US dollar denominated loan
for our Valencia facility.
23
<PAGE>
NET INTEREST
Net interest expense increased to $3.5 million for the quarter ended
April 2, 2000 from $1.7 million for the quarter ended April 4, 1999, reflecting
higher average borrowings and the impact of increasing interest rates.
PROVISION FOR INCOME TAXES
Provision for income taxes was $0.3 million for the quarter ended April 2,
2000 and $0.2 million for the quarter ended April 4, 1999. Our tax provisions in
both quarters resulted from the mix of profits and losses experienced by us
across the jurisdictions within which we operate. Losses in the United States
and Ireland provided us with no income tax benefit while profits in Spain and
Asia required us to record tax provisions.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
NET SALES
Net sales for the year ended December 31, 1999 increased $82.7 million, or
9.9%, to $920.7 million from $838.0 million for the year ended December 31,
1998. This increase in net sales was the result of a $138.1 million increase
attributable to operating our Charlotte facility for the full year in 1999, as
compared to seven months in 1998, and the acquisition of our Salt Lake City
facility in November 1999. In addition, $81.3 million of this increase was
attributable to growth from three existing customers. These increases were
partially offset by $90.0 million resulting from the cancellation of a
customer's manufacturing program caused by the sale of the business by that
customer to a third party and $39.5 million resulting from a reduction in unit
volumes of a different customer due to competitive pressures in that customer's
industry.
GROSS PROFIT
Gross profit increased to 6.0% of net sales for the year ended December 31,
1999 from 5.4% of net sales for the year ended December 31, 1998. A portion of
this increase (0.1% of net sales) resulted from having a mix of customer
programs in 1999 in which the gross margins were higher than the mix of customer
programs in 1998. A portion of the increase (0.2% of net sales) was due to the
improvement in the utilization of our manufacturing capacity. In addition, the
operations of our Fremont facility in 1998, prior to its closing, negatively
impacted margins in that year (0.3% of net sales).
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense for the year ended December 31,
1999 increased to $37.6 million, or 4.1% of net sales, from $29.5 million, or
3.6% of net sales, for the year ended December 31, 1998. This increase was
comprised of expenses of $2.4 million related to the impact of operating our
Charlotte facility for a full year, $1.3 million related to the modification of
an equipment leasing arrangement, $1.6 million related to the expansion of our
information systems to support our additional facilities and $1.1 million
related to our acquisition of two electronics design firms and our Salt Lake
City facility. This increase was partially offset by the reduction of expenses
totaling $0.7 million resulting from the closing of our Fremont facility in
1998.
24
<PAGE>
FOREIGN EXCHANGE GAINS/LOSSES
Foreign exchange loss for the year ended December 31, 1999 was $2.5 million
compared with a foreign exchange gain of $0.7 million for the year ended
December 31, 1998. Most of our foreign exchange loss in 1999 is unrealized and
relates to the strengthening of the US dollar in relation to the Spanish peseta
in connection with a US dollar denominated loan for our Valencia facility.
INTEREST EXPENSE
Net interest expense decreased to $8.1 million for the year ended
December 31, 1999 from $10.2 million for the year ended December 31, 1998,
reflecting lower average borrowings during 1999, partially offset by the impact
of increasing interest rates.
PROVISION FOR INCOME TAXES
Provision for income taxes increased to $3.8 million for the year ended
December 31, 1999 compared with $3.3 million for the year ended December 31,
1998. Our tax provision in both years resulted from the mix of profits and
losses we experienced across the jurisdictions within which we operate. Losses
in the United States and Ireland provided us with no income tax benefit while
profits in Spain and Singapore required us to record tax provisions.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
NET SALES
Net sales for the year ended December 31, 1998 increased $275.3 million, or
48.9%, to $838.0 million from $562.7 million for the year ended December 31,
1997. This increase in net sales was the net result of a $175.3 million increase
attributable to our acquisition of the Charlotte facility in June 1998 and an
increase of $135.2 million attributable to growth from five existing customers.
These increases were partially offset by volume reduction in one customer's
program totaling $42.0 million resulting from competitive pressures in this
customer's industry.
GROSS PROFIT
Gross profit decreased to 5.4% of net sales for the year ended December 31,
1998 from 6.4% of net sales for the year ended December 31, 1997. This decrease
resulted from a price reduction on a customer program (1.3% of net sales) and
the negative effect of having a mix of customer programs in 1998 in which the
gross margins were lower than the mix of customer programs in 1997 (1.4% of net
sales). These decreases were partially offset by a price increase on a customer
program (0.8% of net sales) and by increased capacity utilization due to higher
production volumes at several of our manufacturing facilities (0.9% of net
sales).
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense for the year ended December 31,
1998 increased to $29.5 million, or 3.6% of net sales, from $28.0 million, or
5.0% of net sales, for the year ended December 31, 1997. This increase was
comprised of additional spending on our information systems, our logistics
business and our Charlotte facility. The information systems increases ($0.6
million) were attributable to additional personnel and capital investments that
were necessary to support the addition of the Charlotte facility and growth in
other customer programs. The logistics
25
<PAGE>
expenses ($0.8 million) were related to sales, management and administrative
expenses necessary to support the startup and growth of our logistics business.
The increases in Charlotte ($0.4 million) were related to the establishment of
accounting and human resources support for the facility which was acquired in
June 1998.
FOREIGN EXCHANGE GAINS/LOSSES
Foreign exchange gain for the year ended December 31, 1998 was $0.7 million
compared with a foreign exchange loss of $0.9 million for the year ended
December 31, 1997. Our foreign exchange loss in 1998 and gain in 1997 resulted
from various transactions in all of our foreign operating entities and reflects
the general fluctuation in the value of the US dollar in relation to other
currencies.
INTEREST EXPENSE
Net interest expense increased to $10.2 million for the year ended
December 31, 1998 from $7.7 million for the year ended December 31, 1997. This
increase was due to increased borrowings to support working capital requirements
resulting from business expansion during 1998.
PROVISION FOR INCOME TAXES
Provision for income taxes decreased to $3.3 million for the year ended
December 31, 1998 compared with $4.4 million for the year ended December 31,
1997. Our tax provision in both years resulted from the mix of profits and
losses experienced by us across the jurisdictions within which we operate.
Losses in the United States and Ireland provided us with no income tax benefit
while profits in Spain and Asia required us to record tax provisions.
26
<PAGE>
Quarterly Results of Operations
The following table sets forth our unaudited financial information for the
past eight quarterly periods. The information presented has been derived from
our unaudited consolidated financial statements that, in our opinion, reflect
all normal, recurring adjustments necessary for a fair presentation. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------
July 4, Oct. 3, Dec. 31, April 4, July 4, Oct. 4, Dec. 31, April 2,
1998 1998 1998 1999 1999 1999 1999 2000
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales........................ $177,659 $226,603 $244,239 $206,964 $221,043 $221,068 $271,647 $332,820
Cost of goods sold............... 166,898 215,039 231,997 195,879 207,487 206,408 255,715 316,505
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit..................... 10,761 11,564 12,242 11,085 13,556 14,660 15,932 16,315
Selling, general and
administrative................. 7,282 7,548 7,780 7,918 10,243 9,629 9,790 12,715
Restructuring and other asset
writedowns..................... -- -- 6,729 -- -- -- 780 --
Non cash stock based
compensation................... 341 -- -- 10 10 10 432 3,987
Litigation settlement............ -- -- -- -- -- -- -- 6,000
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss).......... 3,138 4,016 (2,267) 3,157 3,303 5,021 4,930 (6,387)
Interest expense, net............ 2,740 2,991 1,598 1,702 1,773 1,900 2,706 3,476
Foreign exchange gain (loss)..... 439 1,979 (1,543) (1,160) (1,215) 858 (993) (673)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before provision
for income taxes and
extraordinary loss............. 837 3,004 (5,408) 295 315 3,979 1,231 (10,536)
Provision for income taxes....... 868 1,746 (740) 192 205 2,613 800 287
Income (loss) before
extraordinary loss............. (31) 1,258 (4,668) 103 110 1,366 431 (10,823)
Extraordinary loss............... -- 2,202 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)................ $ (31) $ (944) $ (4,668) $ 103 $ 110 $ 1,366 $ 431 $(10,823)
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) applicable to
common stock................... $ (31) $ (944) $ (4,668) $ 103 $ 110 $ 1,366 $ (378) $(12,954)
======== ======== ======== ======== ======== ======== ======== ========
Basic income (loss) per share:
Income (loss) before
extraordinary loss........... $ -- $ 0.07 $ (0.25) $ 0.01 $ 0.01 $ 0.07 $ (0.02) $ (0.66)
Extraordinary loss............. $ -- $ (0.12) $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss).............. $ -- $ (0.05) $ (0.25) $ 0.01 $ 0.01 $ 0.07 $ (0.02) $ (0.66)
Weighted average shares
outstanding.................. 18,700 18,804 18,849 19,053 19,453 19,518 19,546 19,673
Diluted income (loss) per share:
Income (loss) before
extraordinary loss........... $ -- $ 0.07 $ (0.25) $ 0.01 $ 0.01 $ 0.07 $ (0.02) $ (0.66)
Extraordinary loss............. $ -- $ (0.12) $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss).............. $ -- $ (0.05) $ (0.25) $ 0.01 $ 0.01 $ 0.07 $ (0.02) $ (0.66)
Weighted average shares
outstanding.................. 18,700 18,966 18,849 19,208 19,576 19,636 19,546 19,673
Other Financial Data:
Adjusted EBITDA(a)............... 5,639 6,295 8,441 6,088 6,414 8,464 11,120 9,684
</TABLE>
- ------------------------------
(a) Adjusted EBITDA is defined as earnings before net interest expense, income
taxes, depreciation and amortization, restructuring and other asset
write-downs and other non-recurring items as well as non-operating expenses
including foreign exchange gain (loss). Adjusted EBITDA is presented because
we believe it is a meaningful indicator of our operating performance.
Adjusted EBITDA is not intended to represent cash flows for the period, nor
is it presented as an alternative to operating income or as an indicator of
operating performance. It should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with GAAP in
the United States and is not indicative of operating income or cash flow
from operations as determined under GAAP. Our method of computation may or
may not be comparable to other similarly titled measures of other companies.
27
<PAGE>
The following table sets forth our financial information stated as a
percentage of net sales for the past eight quarterly periods:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------
July 4, Oct. 3, Dec. 31, April 4, July 4, Oct. 3, Dec. 31, April 2,
1998 1998 1998 1999 1999 1999 1999 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........... 93.9 94.9 95.0 94.6 93.9 93.4 94.1 95.1
----- ----- ----- ----- ----- ----- ----- -----
Gross profit................. 6.1 5.1 5.0 5.4 6.1 6.6 5.9 4.9
Selling, general and
administrative............. 4.1 3.3 3.2 3.8 4.6 4.4 3.6 3.8
Restructuring and other asset
writedowns................. -- -- 2.8 -- -- -- 0.3 --
Non cash stock based
compensation............... 0.2 -- -- -- -- -- 0.2 1.2
Litigation settlement........ -- -- -- -- -- -- -- 1.8
----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss)...... 1.8 1.8 (0.9) 1.5 1.5 2.3 1.8 (1.9)
Interest expense, net........ 1.5 1.3 0.7 0.8 0.8 0.9 1.0 1.0
Foreign exchange gain
(loss)..................... 0.2 0.9 (0.6) (0.6) (0.5) 0.4 (0.4) (0.2)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
provision for income taxes
and extraordinary loss..... 0.5 1.3 (2.2) 0.1 0.1 1.8 0.5 (3.2)
Provision for income taxes... 0.5 0.8 (0.3) 0.1 0.1 1.2 0.3 0.1
Income (loss) before
extraordinary loss......... -- 0.6 (1.9) -- -- 0.6 0.2 (3.3)
Extraordinary loss........... -- 1.0 -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)............ --% (0.4)% (1.9)% --% --% 0.6% 0.2% (3.3)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Liquidity and Capital Resources
Net cash used in operating activities of $20.7 million for the quarter ended
April 2, 2000 resulted from an increase in operating assets and liabilities of
$21.6 million, net loss of $10.8 million, depreciation and amortization of
$6.1 million and other non-cash items aggregating $5.6 million. Other non-cash
items include amortization of capitalized finance fees of $0.3 million, foreign
exchange gain of $0.6 million, non-cash charges for equity awards of
$3.8 million and other non-cash charges for settlement of litigation by a
shareholder of $1.0 million. Net cash used by operating activities of
$8.8 million for the quarter ended April 4, 1999 resulted from an increase in
operating assets and liabilities of $13.2 million, net income of $0.1 million,
depreciation and amortization of $2.9 million and other non-cash items
aggregating $1.4 million. Other non-cash items include amortization of
capitalized finance fees of $0.2 million and foreign exchange loss of
$1.2 million. The increase in depreciation and amortization for the quarter
ended April 2, 2000 compared to the quarter ended April 4, 1999 reflects our
acquisition of the Salt Lake City facility in November 1999 and the
implementation of a new enterprise resource planning system in Charlotte during
1999 subsequent to the quarter ended April 4, 1999.
Net cash used in investing activities for the quarter ended April 2, 2000
was $8.8 million, consisting of $6.2 million of capital expenditures and
$2.6 million of internal use software. Capital
28
<PAGE>
expenditures consisted of production equipment purchased for our Valencia and
Salt Lake City manufacturing sites and computer hardware and software in Salt
Lake City. Net cash used in investing activities for the quarter ended April 4,
1999 was $4.4 million, consisting of $2.2 million of capital expenditures and
$2.2 million of internal-use software. Capital expenditures consisted of
production equipment for our Arden Hills, Charlotte and Asia manufacturing sites
and computer hardware and software.
Net cash provided by financing activities for the quarter ended April 2,
2000 was $17.6 million, consisting of net borrowings of $19.4 million under our
bank credit facility and $1.8 million of dividends paid on our senior preferred
stock. Net cash provided by financing activities for the quarter ended April 4,
1999 was $13.9 million, consisting of net borrowings of $12.8 million under our
bank credit facility and net proceeds of $1.1 million from the issuance of
common stock under shareholder plans for three of our founders.
Net cash used in operating activities of $25.1 million for the year ended
December 31, 1999 resulted from an increase in operating assets and liabilities
of $47.6 million, net income of $2.0 million, depreciation and amortization of
$14.4 million and other non-cash items aggregating $6.1 million. Other non-cash
items include amortization of capitalized finance fees of $0.8 million, foreign
exchange loss of $2.2 million, write-downs and loss on disposal of fixed assets
of $1.9 million and non-cash charges for share issuances of $0.5 million. Cash
provided by operating activities of $41.1 million for the year ended
December 31, 1998 resulted from a decrease in operating assets and liabilities
of $29.7 million, net loss of $6.2 million, depreciation and amortization of
$10.9 million and other non-cash items aggregating $6.7 million. The increase in
depreciation and amortization in 1999 compared to 1998 reflects increased
capital expenditures in 1999 attributable to the implementation of a new
enterprise resource planning system in our Charlotte facility and the addition
of manufacturing assets in several facilities to support additional production
volume. Increased depreciation and amortization also resulted from our
acquisition of the Salt Lake City facility in November 1999. Cash used by
operating activities of $17.4 million for the year ended December 31, 1997
resulted from an increase in operating assets and liabilities of $17.4 million,
net loss of $17.3 million, depreciation and amortization of $8.4 million and
other non-cash items aggregating $8.9 million.
Net cash used in investing activities for the year ended December 31, 1999
was $81.8 million consisting primarily of capital expenditures of $45.1 million
and acquisitions of intangible assets of $35.3 million in connection with our
Salt Lake City facility. Net cash used in investing activities for the year
ended December 31, 1998 was $4.5 million, which consisted of $2.5 million of
internal use software and $2.0 million of production equipment and computer
hardware. Approximately half of the $2.0 million was related to our Charlotte
acquisition. Net cash used in investing activities for the year ended
December 31, 1997 was $26.0 million and consisted of production equipment and
computer hardware purchased for our manufacturing sites in Athlone, Valencia,
Fremont and Asia. We expect capital expenditures in 2000, excluding the effects
of any acquisitions, to be approximately $28.0 million, primarily for the
purchase of additional manufacturing assets.
Net cash provided by financing activities for the year ended December 31,
1999 was $109.2 million, principally consisting of net borrowings of
$64.6 million under our bank credit facility and net proceeds of $49.1 million
from the issuance of senior preferred stock and warrants
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in connection with our acquisition of the Salt Lake City facility. Net cash used
in financing activities for the year ended December 31, 1998 was $23.5 million,
principally consisting of net repayments under our bank credit facility. Net
cash provided by financing activities for the year ended December 31, 1997 was
$50.2 million, principally consisting of net borrowings of $25.9 million under
our bank credit facility and proceeds of $25.4 million from the issuance of our
common stock.
At April 2, 2000, we had $74.3 million outstanding under our term loan
facilities and $64.1 million outstanding under our revolving credit facility
with $10.9 million available for additional borrowings. Borrowings under our
existing bank credit facility are limited by a borrowing base calculation based
on defined levels of accounts receivable and inventory. At April 2, 2000, the
total borrowing base was $187.2 million.
The interest rate on our revolving credit facility is, at our option,
either:
- 2.00% per annum plus the base rate, which is the higher of:
-- the rate as publicly announced from time to time by Bank of America
as its "reference rate", or
-- the federal funds effective rate plus 0.50% per annum; or
- the reserve-adjusted London interbank offered rate, or Adjusted LIBOR,
plus 3.00% per annum.
The applicable margins for our bank credit facility will be subject to
adjustment, +/-0.25%, based on the ratio of our consolidated total debt to
consolidated EBITDA (as defined in our bank credit facility). The interest rate
on our term loan facility is, at our option, either:
- the base rate plus 2.75% per annum; or
- the sum of Adjusted LIBOR plus 3.75% per annum.
Based upon discussions with our principal lender under our bank credit
facility, we expect to refinance our existing indebtedness under our bank credit
facility upon consummation of this offering. We expect that the new bank credit
facility will provide for borrowings of up to $175.0 million and have a final
maturity in 2004. We anticipate that the new bank credit facility will be
secured by substantially all of our assets and will generally contain less
restrictive covenants, more favorable pricing terms and a lower interest rate
than our existing bank credit facility. To date, no definitive agreement has
been executed, and no assurance can be given that the new bank credit facility
will be executed on these terms or entered into at all.
On April 2, 2000, we had 2,000,000 shares of senior preferred stock
outstanding. The senior preferred stock was issued, along with warrants to
purchase 1,160,542 shares of our common stock at an exercise price of $4.80 per
share, in connection with the acquisition of our Salt Lake City facility. The
senior preferred stock and warrants were recorded at their estimated fair values
of $38.4 million and $10.7 million, respectively. This preferred stock has a
dividend rate of 14% per annum, payable quarterly in cash, through November 26,
2000 and thereafter, a rate of 15% per annum, payable in cash at the mandatorily
redeemable date or in additional shares of senior preferred stock. In the event
that we fail to redeem the senior preferred stock by November 26,
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2006, the dividend rate will increase by 0.5% per quarter, up to a maximum
dividend rate of 25% per annum. So long as any shares of senior preferred stock
are outstanding, we are subject to restrictions on the payment of dividends on
our common stock and any other preferred stock in addition to restrictions on
the redemption or purchase of our common stock. Until November 26, 2000, we may,
at our option, redeem all of the senior preferred stock at 114% of its
liquidation value, or $57.0 million. Thereafter, we may redeem the shares at
115% of its liquidation value. All redemptions of senior preferred stock shall
include accrued and unpaid dividends payable thereon. We intend to retire all of
the outstanding shares of senior preferred stock with the proceeds from this
offering. See "Use of Proceeds." Warrants to purchase 222,730 shares of our
common stock are immediately exercisable while warrants to purchase 937,812
shares of our common stock are held in escrow and will be released and become
exercisable if the senior preferred stock remains outstanding on the first
anniversary date of its issuance.
We believe the proceeds of this offering, together with our current level of
working capital, cash generated from operations, leasing capabilities and
amounts available under our existing revolving credit facility will be adequate
to meet our anticipated future operating expenses, capital expenditures and debt
obligations for the next twelve months. Our liquidity needs beyond the next
twelve months will not be materially different from current needs except for the
financing requirements of future acquisitions.
Following the consummation of this offering and the application of the net
proceeds as described in this prospectus, we will have $62.2 million available
under our bank credit facility to make future acquisitions and for general
corporate purposes. We currently have no agreements or understandings about any
specific acquisition. However, we intend to continue our acquisition strategy
which could result in significant future acquisitions. If available resources
are not sufficient to finance these acquisitions, we would be required to seek
additional equity or debt financing. There can be no assurance that funds from
these sources, if required, will be available on terms suitable to us, if at
all.
Quantitative and Qualitative Disclosure Relating to Market Risks
INTEREST RATE RISK
Our exposure to interest rate risk arises from variable rate debt
arrangements entered into for other than trading purposes. The interest rate
risk on our fixed-rate debt is not material as the amounts outstanding under
these arrangements are not significant.
The cost of borrowings under our term loan facility is the applicable spread
plus the underlying cost of funds option (either the base rate or Adjusted
LIBOR). The applicable spread on the base rate loans is 2.75%, and the spread on
the Adjusted LIBOR loans is 3.75%. The cost of borrowing under our revolving
credit facility is the applicable spread plus the underlying cost of funds
option (either the base rate or Adjusted LIBOR). The applicable spread on the
base rate loans varies between 1.75% and 2.25% based on our consolidated
leverage ratio. The applicable spread on the Adjusted LIBOR loans varies between
2.75% and 3.25% based on our consolidated leverage ratio.
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The following table summarizes our market risks associated with our variable
rate debt in place at April 2, 2000 based on current maturities and interest
rates:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
(Dollars in thousands)
2000 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C>
Term loans balance....... $73,688 $72,938 $72,188 $71,438 --
Effective interest
rate................... 9.938% 9.938% 9.938% 9.938% 9.938%
Principal payments....... $ 688 $ 750 $ 750 $ 750 $71,438
Interest expense......... $ 7,372 $ 7,297 $ 7,223 $ 7,149 $ 4,170
Revolving facility
balance................ $64,100 $64,100 -- -- --
Available credit......... $75,000 $75,000 -- -- --
Effective interest
rate................... 10.259% 10.259% 10.259% -- --
Fee on unused portion.... 0.47% 0.47% 0.47% -- --
Interest expense......... $ 6,877 $ 6,877 $ 4,012 -- --
</TABLE>
The carrying cost of the above credit facility approximates fair value due
to the variable nature of the interest rates.
FOREIGN CURRENCY EXCHANGE RATE RISK
We also have exposure to various foreign currency exchange-rate fluctuations
for cash flow received from our foreign subsidiaries. This risk is mitigated
because the functional currency of our subsidiaries in Ireland, Singapore and
Malaysia is the US dollar and most financial transactions are conducted with the
US dollar. The foreign currency exchange-rate risk for our subsidiary in Spain
is mitigated because substantially all of its financial transactions are
conducted in the Spanish peseta. Our exposure to foreign currency exchange-rate
fluctuations is related to an intercompany loan receivable from the corporate
entity, long-term debt and specific trade receivables and payables, all at our
subsidiary in Spain, which are denominated in US dollars. Our foreign currency
exchange-rate exposure on the intercompany loan receivable and the trade
receivables and payables is mitigated by the use of foreign exchange contracts
which are effective as a hedge against these specific transactions. As of
April 2, 2000, we had the following foreign exchange forward contracts
outstanding:
<TABLE>
<CAPTION>
Notional Amount Fair Value
--------------- -----------
(In thousands)
<S> <C> <C>
Foreign exchange sell contracts:
US Dollars..................................... $ 9,000 $ (351)
Foreign exchange buy contracts:
US Dollars..................................... $ 17,700 $ 714
</TABLE>
As the functional currency of our Spanish operations is the Spanish peseta
and the terms of the lending arrangement require settlement in US dollars, we
are exposed to risks of loss due to fluctuations in the foreign currency
exchange rate between the Spanish peseta and US dollar.
At April 2, 2000, the U.S. denominated debt recorded at our subsidiary in
Spain was $15.0 million. During the first fiscal quarter of 2000, we recorded an
unrealized loss of approximately $0.5 million related to this debt due to the
weakening of the Spanish peseta against the US dollar from 166 pesetas to $1.00
at December 31, 1999 to 174 pesetas to $1.00 at April 2,
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2000. A hypothetical 10% fluctuation in the foreign currency exchange rate
between the Spanish peseta and the US dollar would result in a change in
unrealized gain (loss) of $1.5 million.
Year 2000
We have actively addressed potential Year 2000 issues. These issues could
have arisen at any point in our purchasing, supply, manufacturing and financial
information systems. Although incomplete or untimely resolution of the Year 2000
issue by us, our key suppliers, clients and other parties could have had a
material adverse effect on our business, results of operations, financial
condition and cash flow, the results to date indicate that Year 2000 issues have
had no material adverse impact.
While we are conducting business as usual, we will continue to watch for
Year 2000 related events that could impact our business, results of operations,
financial condition and cash flow. We believe that our experience in handling
business disruptions resulting from non-Year 2000 events should significantly
reduce any adverse effects of any potential Year 2000 disruptions.
Through April 2, 2000, we have spent approximately $0.1 million in
connection with Year 2000 issues. We do not anticipate any further material
expenditures.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Financial Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and hedging, requiring recognition of all derivatives as either
assets or liabilities in the statement of financial position measured at fair
value, as well as identifying the conditions for which a derivative may be
specifically designed as a hedge. SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of Effective Date of SFAS
No. 133," deferred the effective date of SFAS No. 133 to fiscal years beginning
after June 15, 2000, which is fiscal year 2001 for us. We are continuing to
evaluate the effects on our financial condition, results of operations and cash
flows of adopting SFAS No. 133.
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BUSINESS
Overview
We are a leading global provider of advanced electronics manufacturing
services. We provide these services to original equipment manufacturers, or
OEMs, primarily in the voice and data communications, computer and related
peripherals, medical equipment and industrial and consumer electronics
industries. We provide OEMs with a comprehensive range of services, including:
- product design and new product introduction services;
- materials procurement and management;
- assembly and manufacturing;
- testing services;
- order fulfillment and distribution; and
- after-market support.
We have established a network of manufacturing facilities in the world's
major electronics markets--North America, Europe and Asia--to serve the
increasing outsourcing needs of both multinational and regional OEMs. We have
strategically located our manufacturing facilities near our customers and their
end-markets, which benefits our customers by reducing the time required to get
their products to market and by increasing their flexibility to respond to
changing market conditions.
We manufacture a variety of products for our customers. For example, we
manufacture palm-sized computers for one of our customers. In conjunction with
this customer, we work with many global suppliers to procure the materials and
components required for these products. Components and materials are inventoried
for a short period of time before being taken from our inventory and organized
for production. The first step of the production process is printed circuit
board assembly, a capital intensive manufacturing process in which hundreds of
discrete electronic components, including integrated circuits, capacitors and
resistors, are attached to a printed circuit board. The resulting printed
circuit board assembly generally contains all of the electronic functionality of
the completed product. The finished printed circuit board assembly then
undergoes a multi-step test process that identifies manufacturing and
component-related defects. Once the assembly is proven to be fully functional,
it and other mechanical components, including a plastic enclosure, liquid
crystal display and power source, are assembled into the completed product. The
completed product is then tested again before being packed into the retail
packaging and shipped directly to our customer's distribution channels.
Industry Background
Historically, OEMs have been fully integrated, performing the product
design, new product introduction, assembly and manufacturing, testing, order
fulfillment and distribution and after-market support functions for their
products. In recent years, we believe that OEMs throughout the world have
increasingly accepted and relied upon the outsourcing of these functions to
electronics manufacturing services companies. By focusing on these functions, we
believe that electronics
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manufacturing services companies can provide OEMs with cost savings, superior
technological know-how and access to more advanced manufacturing processes. This
enables OEMs to concentrate on their core competencies, such as product
development, marketing and sales. As a result of this outsourcing strategy, OEMs
have begun to divest a significant portion of their manufacturing facilities and
newer OEMs are choosing to outsource rather than build an internal manufacturing
infrastructure. Today, we believe that the electronics manufacturing services
industry is comprised of companies that provide a broad range of services,
including product design, manufacturing, order fulfillment and after-market
support services for OEMs in the electronics industry.
The electronics manufacturing services industry has experienced significant
growth over the past several years. Technology Forecasters projects that
electronics manufacturing services industry revenues will grow annually at 20%
from 1998 through 2003, reaching $149 billion by 2003. Technology Forecasters
also projects that the twelve electronics manufacturing services providers with
annual revenues of greater than $500 million will have a growth rate of 30% over
the 1998 to 2003 period. In addition, they estimate that electronics
manufacturing services industry revenues accounted for 9.5% of the cost of goods
sold in the electronics industry in 1998 and estimate this percentage will
increase to 17.1% by 2003.
We believe that the growth in the electronics manufacturing services
industry is being fueled primarily by the growth in the number of OEMs that have
chosen an outsourcing strategy and secondarily by the growth of the overall
electronics industry. We also believe that OEMs will increasingly adopt an
outsourcing strategy due to rapidly changing product technologies, shorter
product life-cycles and the increasing capability of electronics manufacturing
services companies to manufacture more complex products. We expect this trend
will favor larger electronics manufacturing services providers that have clear
advantages of scale, geographic diversity and technology and will contribute to
a period of further consolidation in the electronics manufacturing services
industry. Technology Forecasters estimates that the twelve largest electronics
contract manufacturers, which includes us, accounted for approximately 40% of
industry revenue generated by the approximately 3,130 electronics contract
manufacturers operating in 1998. We believe that the factors driving OEMs to
favor an outsourcing strategy include:
ACCELERATED TIME-TO-GLOBAL MARKET. Due to intense competitive pressures in
the electronics industry, OEMs are facing increasingly shorter product
life-cycles and therefore have a growing need to reduce the time required to
bring new products to market. OEMs can significantly improve product development
cycles and shorten time-to-global market by utilizing the expertise and
manufacturing infrastructure of electronics manufacturing services companies,
including capabilities relating to design and quick-turn prototype development.
ACCELERATED TIME-TO-GLOBAL VOLUME. OEMs are increasingly requiring
electronics manufacturing services companies to have global capabilities as they
seek to expand sales and simultaneously introduce new products in major global
markets. Once products have been developed, OEMs need to quickly reach
commercial volume production and distribute their products worldwide in order to
achieve the greatest impact in a competitive market. In addition, electronics
manufacturing services companies with global capabilities are able to offer
their customers a variety of manufacturing locations to better address OEMs'
objectives, including compliance with local
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content regulations and the elimination of expensive freight costs, tariffs and
time-consuming customs clearances.
REDUCED CAPITAL INVESTMENT AND SHIFT OF FIXED COSTS TO VARIABLE COSTS. As
electronics products have become more technologically advanced, the
manufacturing process is requiring greater levels of investment in capital
equipment. Outsourcing to electronics manufacturing services companies allows
OEMs to lower their investment in inventory and manufacturing assets and shift
more of their fixed costs to variable costs, thereby increasing their return on
assets. As a result, OEMs can react more quickly to changing market conditions
and allocate capital to other core activities such as sales and marketing and
research and development.
REDUCED TOTAL PRODUCTION COST. OEMs need to continually reduce costs to
remain competitive. Electronics manufacturing services providers are able to
manufacture products at a reduced total cost to OEMs because of higher
utilization of manufacturing capacity, access to leading-edge procurement and
inventory management capabilities, proficiency in purchasing materials and
components and a continual focus on improving the entire supply chain from
product design to after-market support.
ACCESS TO LEADING TECHNOLOGIES. OEMs are continually seeking access to
engineering expertise and manufacturing technologies necessary to build their
increasingly complex products. OEMs are motivated to work with electronics
manufacturing services companies to gain access to their expertise in product
design, assembly, manufacturing and testing technologies, as well as their
expertise in materials procurement and management and after-market support. In
addition, electronics manufacturing services companies provide OEMs with access
to advanced information systems, enabling OEMs to better monitor and control the
global production and distribution of their products.
Our Business Strategy
Our objective is to be the premier provider of value-added electronics
design, manufacturing and related services to leading OEMs in rapidly growing
industries. Our strategy to achieve this objective includes the following key
elements:
ESTABLISH AND MAINTAIN LONG-TERM RELATIONSHIPS WITH LEADING OEMS IN RAPIDLY
GROWING INDUSTRIES. We seek to establish and maintain relationships with
leading OEMs beginning with early involvement in their product development and
new product introduction cycles and thereafter provide integrated design,
manufacturing, order-fulfillment and after-market support services. We target
leading OEMs in rapidly growing industries such as the voice and data
communications equipment, computer and related peripherals, medical equipment
and industrial and consumer electronics industries and seek to maintain a
balance of customers among these industries. We also serve emerging companies in
these industries in order to establish an early outsourcing relationship that
will provide us with attractive growth opportunities as the products of these
emerging companies gain market acceptance. We closely integrate our information
systems with those of our customers, and we are increasingly using the Internet
and other information technologies to share information with our customers on a
timely basis. We also believe that a critical factor in maintaining and growing
successful outsourcing relationships is superior customer service.
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Consistent with this strategy, we track customer satisfaction on a continuing
basis and compensate our key employees, in significant part, based upon meeting
specified goals tied to customer service.
EXPAND OUR GLOBAL PRESENCE. We intend to expand our manufacturing presence
in the world's major electronics markets in order to serve the increasing
outsourcing needs of both multinational and regional OEMs. We currently maintain
manufacturing facilities in the United States, Spain, Ireland, Singapore and
Malaysia, which are in close proximity to the world's major electronics markets.
This strategically positioned network of product design and manufacturing
facilities reduces the time and cost required to bring our customers' products
to market and allows for the simultaneous introduction of our customers'
products in major global markets. To effectively serve the requirements of
current and potential customers, we believe we need to operate in low-cost
locations and have facilities capable of manufacturing products with varying
levels of technical complexity in low, moderate and high volumes. We intend to
seek and evaluate strategic opportunities to continue to expand our geographic
presence and the scope of our manufacturing capabilities, particularly near our
customers and their end-markets.
EXPAND OUR INTEGRATED DESIGN, MANUFACTURING AND RELATED SERVICES. We intend
to continue to expand our service offerings to meet the evolving needs of our
customers and to more effectively control and manage the supply chain. OEMs are
increasingly requiring a wider range of advanced services from electronics
manufacturing services companies. We offer our customers a comprehensive range
of services, including product design and new product introduction services,
materials procurement and management, assembly and manufacturing, testing
services, order fulfillment and distribution and after-market support services.
We have increased our service offerings and expanded our product design
capabilities through recent acquisitions of two electronics design firms,
Electronic System Packaging and Ronlin Design. We believe that our ability to
support customers in these areas provides us insight into our customers' future
manufacturing requirements, which is critical to further penetrating the
electronics manufacturing services market and attracting new customers. We also
assumed the operation of an IBM facility in Charlotte, North Carolina, which
expands our systems assembly and order fulfillment capabilities, and acquired a
facility in Salt Lake City, Utah, from 3Com, which increases our North American
high-volume, low-cost production and radio frequency engineering capabilities.
CONTINUALLY REDUCE OUR CUSTOMERS' OVERALL PRODUCT COSTS. We continually
seek to reduce our customers' overall product costs. We describe our
comprehensive approach to product cost reduction as "Total Cost of Ownership."
Our Total Cost of Ownership solution is based on the principal that the total
cost of a product is the sum of all economic costs related to designing,
producing and delivering final products to customers on a long-term basis. We
believe we are able to reduce our customers' overall product costs through our
integrated product design and manufacturing expertise and strength in global
procurement and supply chain management. Our product design capabilities enable
us to work closely with our customers and develop manufacturing strategies to
more efficiently procure materials and manufacture their products. We believe
the scale of our global materials purchases and our expertise in procurement and
supplier management enhances our ability to obtain advantageous materials
pricing. Our focus on the management of the global supply chain reduces costs by
optimizing the use of materials and components throughout the entire product
life-cycle from design and manufacturing to distribution and after-market
support. In addition, we
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continually review our operating performance and implement specific cost
reduction and process improvement initiatives, the savings from which further
reduce our customers' overall product costs. By providing our customers with
Total Cost of Ownership solutions, we believe we enhance our customers'
competitiveness in the marketplace.
REDUCE OUR CUSTOMERS' TIME-TO-GLOBAL MARKET AND TIME-TO-GLOBAL VOLUME. We
seek to reduce our customers' time-to-global market and time-to-global volume
production for their new products through our product design and new product
introduction services and our global manufacturing capabilities. We work closely
with our customers in the early stages of their product development efforts to
reduce product costs and improve the manufacturability and testability of their
products. Our information systems and materials management processes enable us
to rapidly ramp-up operations to meet our customers' needs, quickly respond to
changes in product demand and effectively distribute products directly to our
customers' end-users. By offering our customers a comprehensive range of
services in a variety of manufacturing locations, we are better able to assist
them in rapidly introducing new products into global markets.
ACTIVELY PURSUE STRATEGIC ACQUISITIONS. We intend to continue to pursue the
acquisition of selected OEM assets and electronics manufacturing services and
related companies that offer us relationships with key customers, strong and
experienced management teams, strategic capabilities and locations and expanded
service offerings. Many OEMs are divesting their internal manufacturing
operations to electronics manufacturing services companies. By purchasing
facilities from OEMs, we are able to quickly develop customer relationships and
obtain established manufacturing capacity. Additionally, a number of smaller
electronics manufacturing services companies are seeking to strengthen their
competitive position by becoming part of a larger, global electronics
manufacturing services provider. We believe that we are favorably positioned to
benefit from these trends. Furthermore, we believe we have developed and
successfully deployed a comprehensive post-acquisition integration strategy
which includes, among other things, establishing a common corporate culture,
providing a recognizable corporate appearance and consistent functionality to
our customers, implementing a common information technology platform and sharing
best practices among our operations. We have successfully completed nine
acquisitions since 1995. While we are currently in discussions with several
potential acquisition candidates, we do not have any agreement or understanding
with respect to any acquisition candidate.
Recent Acquisitions
In November 1999, we acquired from 3Com selected inventory, fixed assets and
other intangibles located in Salt Lake City, Utah, for $80.8 million. The
acquisition was financed with the proceeds from the issuance of $50.0 million of
senior preferred stock and related warrants and borrowings under our bank credit
facility. In connection with this acquisition, we entered into a two-year supply
agreement with Palm to produce Palm computing devices and a two-year supply
agreement with 3Com to produce modems and network interface cards. We also
retained the facility employees. We expect our acquisition of the Salt Lake City
facility will provide us with many benefits, including:
- strong relationships with two leading OEMs in rapidly growing industries;
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- a more diversified customer base, reducing our reliance on other major
customers;
- an expanded geographic presence into the western United States;
- a broadened range of service offerings through the addition of a
high-volume, low-cost manufacturing facility;
- access to advanced engineering capabilities, especially additional radio
frequency engineering capabilities; and
- expansion of our manufacturing capacity.
In the first half of 1999, we acquired two electronics design firms,
Electronic System Packaging and Ronlin Design, for an aggregate purchase price
of approximately $4.4 million. Electronic System Packaging and Ronlin Design
significantly enhance our product design services in North America. These
acquisitions allow us to establish relationships with OEMs in a broad range of
industries through involvement in earlier stages of their product development
cycles. We believe our enhanced offering of electronics design services will
strengthen existing customer relationships and help us win new business.
In the first half of 1998, we acquired selected inventory and fixed assets
of IBM located in Charlotte, North Carolina, for $30.1 million in cash. The
acquisition of these assets was financed with borrowings under our bank credit
facility. In connection with this acquisition, we also entered into a three-year
supply agreement to provide systems assembly and integration, testing and order
fulfillment services for several divisions of IBM and retained the facility
employees. The acquisition of these assets and the related supply agreement have
provided us with several benefits, including:
- a stronger relationship with a premier customer having a leadership
position in a growing market segment (retail point-of-sale systems);
- an enhanced range of service offerings including additional capabilities
in complex systems assembly, integration and testing services;
- a strengthening of our ability to provide order fulfillment services and
distribution of products to our customers' end-users on a global basis;
and
- an expanded geographic presence into the southeastern United States.
Our Services
We offer a comprehensive range of integrated services, providing our
customers with a total solution to take their products from initial design
through high volume production, test, distribution and after-market support.
While we currently derive substantially all of our net sales from printed
circuit board assembly, testing services, assembly of systems of electronics
products, which include multiple components and final products, and the
fulfillment and distribution of completed products, we believe that OEMs are
increasingly demanding an integrated outsourcing solution from electronics
manufacturing services companies. Some of the services that we offer OEMs
include:
PRODUCT DESIGN AND NEW PRODUCT INTRODUCTION SERVICES. We offer a wide range
of engineering, design, prototype, test development and related services that
shorten the time it takes
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our customers to introduce their products into the market and optimize their
products' design for commercial manufacturing. To support and manage new product
introductions, we provide design for manufacturability, design for testability
and design for procurement services. The purpose of design for manufacturability
is to achieve defect-free and cost-effective product designs, reduce product
development cycles, create high initial production yields and establish superior
product quality. Design for testability focuses on achieving the highest level
of fault detection and isolation before products are shipped. Design for
procurement identifies areas in which the overall cost of our customers'
products can be reduced through a decrease in material costs and effective
inventory management. In addition, unlike many of our customers, we have the
infrastructure necessary to produce the low volumes associated with prototype
manufacturing, thereby enabling our customers to avoid substantial investment in
specialized manufacturing equipment.
MATERIALS PROCUREMENT AND MANAGEMENT. Materials procurement and management
involves planning, purchasing and expediting the delivery of materials and
components used in the manufacturing process. We are becoming increasingly
involved in selecting and qualifying suppliers to meet our customers' needs. Our
global information system for materials management optimization enables us to
achieve competitive component pricing and greater sourcing flexibility. We
employ various inventory management techniques, such as just-in-time and
line-side stocking, in order to allow product shipments to be closely
coordinated with our customers' requirements. Just-in-time is an
inventory-control method of ordering materials only on an as-needed basis.
Line-side stocking is another inventory-control method which locates components
within our manufacturing facilities but the components are owned by the supplier
or customer until they are used in the manufacturing process. Both just-in-time
and line-side stocking eliminate much of the expense and managerial oversight of
maintaining inventory. We are also developing e-commerce solutions that will
further increase supply chain efficiency, resulting in lower costs and increased
responsiveness to our customers.
ASSEMBLY AND MANUFACTURING. Our assembly and manufacturing operations
include printed circuit board assembly, which are components of electronics
products, assembly of subsystems of electronics products, which include multiple
components, and the final assembly and integration of complete products that
incorporate printed circuit board assemblies, complex electromechanical
subassemblies, enclosures, power supplies and other components. As OEMs seek to
provide greater functionality in smaller products, they increasingly require
more sophisticated manufacturing technologies and processes. Our investment in
advanced manufacturing equipment and technology and our experience and expertise
in miniaturization, packaging and interconnect technologies enable our customers
to have access to a wide variety of advanced manufacturing solutions without
having to make substantial capital investments. We also have extensive
experience building a wide range of final products and believe we are well
positioned to take advantage of the anticipated acceleration in outsourcing of
final product assembly and integration. We have industry leading capabilities in
assembling smaller consumer electronics products and build millions of these
devices annually. We also have extensive experience assembling and integrating
larger, more complex systems. In addition, our build-to-order capabilities
complement our expertise in final product assembly by allowing us to postpone
the final configuration of our customers' products until actual end-user
specifications are received, thus reducing inventory levels for us and our
customers.
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TESTING SERVICES. We provide our customers with a comprehensive range of
testing services. We work with our customers to develop product-specific test
strategies, and in some cases we design and build specific test platforms for
our customers' products.
ORDER FULFILLMENT AND DISTRIBUTION. We offer a range of services related to
the configuration and shipment of our customers' products. We perform final
product packaging and distribution services for completed products, as well as
direct order fulfillment. We increasingly deliver final products directly into
our customers' distribution channels and to our customers' end-users. We believe
that these services complement our comprehensive manufacturing solution,
enabling our customers to be more responsive to changing market demands and to
get their products to market more quickly.
AFTER-MARKET SUPPORT. We provide a wide range of after-market support
services, including repair, refurbishment, remanufacturing, exchange, system
upgrades and spare part manufacturing. These services are supported by specific
information systems and testing technologies and can be tailored to meet the
specific requirements of each customer.
Customers
Our customers include leading OEMs primarily in the voice and data
communications equipment, computer and related peripherals, medical equipment
and industrial and consumer electronics industries. Within these industries, our
strategy is to establish long-term relationships with OEMs that seek to
outsource significant production volumes. During the fiscal quarter ended
April 2, 2000, sales to IBM and Palm represented 25% and 29%, respectively, of
our total net sales and net sales to our ten largest customers accounted for 90%
of our total net sales. In 1999, sales to IBM and Iomega represented 49% and
14%, respectively, of our total net sales and net sales to our ten largest
customers accounted for 88% of our total net sales. In 1998, net sales to IBM
and Iomega represented 51% and 20%, respectively, of our total net sales and net
sales to our ten largest customers accounted for 89% of our total net sales. As
a result of our acquisition of 3Com's Salt Lake City facility, we expect that
3Com and its subsidiary, Palm, will each become a top five customer in 2000,
significantly reducing the percentage of our total net sales represented by IBM
and Iomega.
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The following table lists alphabetically some of our significant customers
and the products for which we provide manufacturing services:
<TABLE>
<CAPTION>
Customer End Products
- -------- ------------
<S> <C>
3Com Corporation......................... Modems, network interface cards
ADC Telecommunications, Inc. ............ Broadband access and transmission
products
Hewlett-Packard Company.................. Printers
International Business Machines
Corporation............................ Point-of-sale systems, industrial PCs
Iomega Corporation....................... Storage devices
NEC Gunma Ltd. .......................... Storage devices
Palm, Inc. .............................. Palm III, Palm V and Palm VII devices
Philips NV............................... PBX equipment and high-end ISDN phone
terminals
Rockwell International Corporation....... Industrial motion controls
</TABLE>
We customarily enter into supply arrangements in connection with our
acquisition of facilities from OEMs. These arrangements generally govern the
conduct of business between us and our new customers, including the manufacture
of products that were previously produced at that facility by the OEM. In some
instances these arrangements contain revenue, product volume or capacity
commitments and are generally for terms of one to three years.
Sales and Marketing
We are able to service all of the world's major electronics markets through
a direct sales force located in selected North American, European and Asian
cities. Our sales people have knowledge of local markets, which we believe is
critical to identifying new customers and developing new business opportunities.
Our direct sales force is complemented by several independent firms who serve as
our representatives in areas where we believe the most significant opportunities
exist, such as Silicon Valley, and in areas where we have no direct salespeople.
We intend to continue to expand our direct sales organization in response to
increased customer opportunities.
We seek to develop close, long-term relationships with our customers by
working with them throughout the entire product life-cycle, from product design
to after-market support. Electronics manufacturing services companies generally
face a long sales cycle and must perform satisfactorily on a trial basis prior
to obtaining significant orders from a potential customer. Therefore, we work
closely with our customers during the initial product design and development
stage. We support our existing customer relationships with cross-functional
customer focus teams that are led by dedicated program managers. Each team is
responsible for focusing on new programs, products and/or part numbers and
developing an in-depth understanding of our customers' requirements and
outsourcing needs. Customer focus teams for major global accounts are
complemented by seasoned account managers who coordinate a broad range of
services provided from multiple sites around the world.
We believe we differentiate ourselves from most of our competitors through
an active, focused marketing effort, designed to increase our brand awareness
and the likelihood of winning new business. We communicate important news about
our company to existing and potential customers through various news media,
including national and local business publications and industry trade
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journals. Our technical personnel and functional managers often take industry
leadership roles by publishing technical papers, speaking on industry panels and
maintaining active roles in industry and technical associations. For example,
one of our technical professionals recently presented a paper discussing the use
of process metrics to predict quality performance at an industry conference. In
addition, we have established ongoing relationships with key industry analysts
and trade journalists, and we periodically host seminars on topics of interest
to potential customers in our manufacturing facilities. This past year we hosted
a seminar at our Athlone facility which focused on strategies for more efficient
new product introductions. We also maintain a website enabling potential
customers to learn more about us.
Customer Satisfaction Approach
High customer satisfaction is critical for success in the electronics
manufacturing services industry, and we believe that we differentiate ourselves
from our competitors by adopting policies and procedures and making investments
that will result in consistently high levels of customer satisfaction.
Customer satisfaction starts with a service attitude that we constantly
reinforce and reward. We have developed management reports which, we believe,
summarize several key measurements of customer satisfaction, including, for
example percentage of on-time deliveries and the quality of our manufacturing
processes. Our senior managers receive these reports on a weekly basis, enabling
them to monitor our performance on a timely basis so that we can take specific
corrective actions, if necessary. Each customer has a dedicated program manager
who manages the day-to-day relationship with the customer. A significant portion
of a program manager's compensation is tied to improving customer satisfaction
scores, as measured by an independent consulting firm that conducts semi-annual
customer satisfaction surveys. These surveys also are reviewed at the highest
executive levels to ensure customer satisfaction issues are appropriately
addressed.
We have implemented processes, information systems and other tools that
enable our employees to provide high levels of customer service. One example is
our continuous process improvement program, in which we rigorously evaluate
operational processes relative to industry best practices and develop action
plans to improve our performance. This program ensures that best practices are
standardized across our global operations, leading to continuous improvement. In
addition, we will continue to invest in information systems that improve
customer satisfaction. We recently implemented a suite of software tools to help
us better control the quality of our manufacturing processes and provide timely
information to our customers. Our investments increasingly include e-business
solutions that reduce transaction costs and facilitate a more efficient flow of
information between us and our suppliers and customers.
Supply Chain Management
Supply chain management is critical for competing in the electronics
manufacturing services industry, as OEMs are increasingly outsourcing their
entire product supply chain to electronics manufacturing services companies.
Supply chain management involves the coordination of components and products
throughout the design, manufacturing and distribution functions, ensuring that
the correct component or product is delivered to its appropriate destination at
the proper time
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and at the lowest overall cost. Through the use of our highly trained
professionals and our significant investment in information systems, our supply
chain management expertise reduces our customers' total costs and increases our
flexibility to respond to changing customer demands.
We have strong relationships with a broad range of suppliers. We believe our
product design capabilities and scale of procurement enhance our ability to
obtain advantageous pricing on, and secure supply sources of, selected materials
and components. We believe we can reduce our customers' total costs by working
closely with them in their product development stages. For example, we help our
customers select components while a product is being designed to ensure
advantageous sourcing and pricing from preferred suppliers. We also utilize a
rigorous process for evaluating supplier performance based on our Total Cost of
Ownership solution. This approach realizes lower total costs for our customers
by focusing on improving our suppliers' quality, delivery, flexibility and
service.
Asset management is a critical element of efficient supply chain management.
We use inventory management techniques which closely integrate our manufacturing
processes with our customers' actual orders. As a result, we minimize our
inventory risk by ordering components and products only to the extent necessary.
One inventory management technique we utilize is demand-pull manufacturing,
which initiates production of our customers' products based upon their actual
inventory usage. Demand-pull manufacturing is complemented by our direct order
fulfillment process, whereby we ship products directly from our facilities to
our customers' distribution channel and end users. Direct order fulfillment
results in lower inventory levels for both ourselves and our customers and
permits faster delivery times for our customers' products.
We utilize information systems to improve the efficiency and flexibility of
the supply chain. Our enterprise resource planning system provides comprehensive
and timely information required for managing the logistical complexities in our
business. We also are implementing a component database and global information
system to optimize our materials management, allowing us to consolidate data on
historical purchases and perform worldwide searches for component inventory and
competitive pricing. We will continue to implement e-commerce solutions that
link us to our customers and suppliers, providing them with timely information
on specific orders, product demand, inventory and component lead times in order
to facilitate planning and increase the efficiency of the entire supply chain.
Information Systems
Information systems are a critical element for achieving our strategic
business objectives. We believe that our investment in information systems will
deliver competitive advantages for our customers by improving supply chain
management and increasing product quality and operational flexibility. We have
implemented a common technological infrastructure that allows our customers and
suppliers to communicate and transact with us globally in an easy and consistent
manner. We believe this increases the efficiency of the supply chain.
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Our information systems strategy consists of selecting leading software
applications and establishing strong relationships with our software suppliers.
Our enterprise resource planning system manages the entire order cycle from
receiving customer orders and planning production schedules to billing customers
and tracking their payments. Having a standard enterprise resource planning
platform allows us to quickly respond to fluctuations in our customers' orders
in different parts of the world and also facilitates simultaneous product
introduction in multiple regions.
Our standard suite of engineering applications focuses on reducing our
customers' new product introduction set-up time and controlling our
manufacturing processes. These engineering applications allow us to collect
customer design data in any format and automatically convert this information
into commands that run our production lines. These tools also monitor our
manufacturing operations and alert our technicians and operators to process
deviations. Early error detection minimizes rework and reduces repair and
customer returns.
Our global information system for material management optimization is based
on two integrated applications. Our strategic sourcing application consolidates
purchasing history from suppliers and future demand from our manufacturing
sites. This allows us to realize significant materials cost savings by
concentrating our purchases with a smaller number of preferred suppliers. The
component supplier application provides standardized component information that
is integrated with an industry database that enables our customers' designers to
select components from our preferred suppliers. This optimizes the selection of
components used in our customers' products and provides them with advantages in
pricing and sourcing of components.
Our information solutions portfolio increasingly includes a broad range of
e-business tools. Both customers and suppliers can communicate with us via a
comprehensive suite of electronic data interchange applications. In addition,
customers can obtain order status and product quality information, 24 hours a
day, through our secure web-based applications. We plan to make significant
further investments in e-business tools that will leverage the speed and
technology of the Internet to facilitate the flow of information and increase
the total efficiency of the supply chain.
Competition
The electronics manufacturing services industry is highly competitive. We
believe that the principal competitive factors in our industry are:
- service offerings;
- technological capabilities;
- geographic location and coverage;
- pricing;
- product quality;
- reliability in meeting product delivery schedules; and
- flexibility and timeliness in responding to design and schedule changes.
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We compete against numerous domestic and foreign electronics manufacturing
services providers, including:
<TABLE>
<S> <C>
Benchmark Electronics, Inc. Plexus Corporation
Celestica Inc. Sanmina Corporation
Flextronics International Ltd. SCI Systems, Inc.
Jabil Circuit, Inc. Solectron Corporation
Venture Manufacturing (Singapore)
NatSteel Electronics Limited Limited
</TABLE>
We believe that large publicly-traded OEMs prefer to enter into outsourcing
relationships with other public electronics manufacturing services companies
that present them with the opportunity to build a long-term relationship because
of their greater access to capital and resulting financial stability. Many of
our competitors are substantially larger and have greater financial, operating,
manufacturing and marketing resources than we do. Some of our competitors have
broader geographic breadth and range of services than we do. In addition, some
of our competitors may have more developed relationships with our existing
customers than we do. We also face competition from the manufacturing operations
of our current and potential customers, who continually evaluate the relative
benefits of internal manufacturing compared to outsourcing. As more OEMs dispose
of their manufacturing assets and increase their use of outsourcing, we face
increasing competitive pressures to grow our business in order to maintain our
competitive position.
International Operations
A key element in our business strategy is to expand our global presence in
order to provide product design, manufacturing and after-market support services
in locations that meet our customers' regional requirements. Consistent with
this strategy, we have established international manufacturing facilities in
Spain, Ireland, Singapore and Malaysia. We will continue to seek strategic
opportunities to acquire additional facilities throughout the world, especially
in low-cost regions, either through OEM divestitures or acquisitions of regional
electronics manufacturing services companies and other related companies.
Our facilities in Europe serve European customers as well as customers in
North America and Asia that have significant sales in Europe. Our Athlone
facility, acquired by us in 1995, is a former LM Ericsson site that provides
medium to high-volume, capital intensive manufacturing and related support
services. Our Valencia facility, acquired from IBM in 1995, offers a
comprehensive range of integrated services including design, low, medium and
high-volume production and highly complex assembly and manufacturing,
configuration-to-order and global order fulfillment. In addition, our Valencia
facility has a significant product repair capability. Both our Athlone and
Valencia facilities have strong technical capabilities, including radio
frequency engineering and test capabilities.
Our facilities in Asia, located in Johor Bahru, Malaysia, and in Singapore,
enable us to provide cost competitive manufacturing for global customers and a
range of regional manufacturing and support services. Both sites formerly
operated as independent contract manufacturers and were acquired by us in 1995.
The Singapore site was acquired from Connett Technologies and the Malaysian site
from Topas Electronics. Many OEMs recognize Southeast Asia as a competitive
region that offers both low-cost manufacturing and strong technical skills. Our
sites in Southeast
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Asia specialize in high-volume assembly and manufacturing, and we have a proven
ability to provide globally competitive pricing for these types of requirements.
Our Singapore site is increasingly offering a wider range of lower to
medium-volume and more complex assembly and manufacturing services and provides
engineering and business support for the Malaysian site. These sites have grown
rapidly since we acquired them and have undergone several major expansions to
support increased customer demand. In addition to our manufacturing sites, we
have an international procurement office in Singapore and a customer support
office in Tokyo to meet the specific needs of our Japanese customers.
We intend to further expand our international capabilities in product
design, new product introduction services, assembly and manufacturing and
after-market support services. We currently expect to establish operations in
Mexico, China and Central or Eastern Europe during the next several years. We
also intend to expand into other locations in Europe and Asia in order to
establish or enhance relationships with key customers, provide services to
important regional markets, expand our range of service offerings and improve
our ability to reduce our customers' time-to-global market and time-to-global
volume. See Note 16, "Business Segment Information," in our consolidated
financial statements for information relating to our international operations.
Research and Development
We engage in ongoing research and development activities to meet our
customers' increasingly sophisticated needs and maintain our leading-edge
capabilities. Changes in our customers' products drive our research and
development efforts. As our customers' products are both decreasing in size and
increasing in functionality, we must continually develop advanced technologies
such as chip scale packaging, flip-chip, ball grid array, micro-ball grid array
and ultra-fine pitch surface mount technology and the equipment to support them.
The evolution and extension of these technologies has placed additional demands
on process materials and chemistry, substrates for interconnecting devices and
the manufacturing environment.
We work with our customers, our suppliers and universities located near our
manufacturing facilities to develop and qualify advanced process capabilities
concurrent with, or prior to, our customers' needs. We are a member of an
industry consortium consisting of OEMs, equipment suppliers and other
electronics manufacturing services companies. This consortium supports process
development and provides access to manufacturing equipment, laboratory and
research and development personnel that complement our internal development
work. The development and refinement of new manufacturing processes are
performed primarily at our advanced engineering facility in Arden Hills,
Minnesota. At Arden Hills and our other facilities, new processes and equipment
are qualified through a rigorous process to ensure production readiness.
In addition to our process development focus for printed circuit board
assembly and testing technologies, we have an ISO 9001 certified center for
research and development in Valencia, Spain, which globally supports specific
customer requirements. In Valencia, we have over 30 engineers who use
state-of-the-art tools that can interface with customer design teams during the
product design and development phase. We also work with selected universities
and design firms to complement our services and provide a vehicle to continually
upgrade our skills in this dynamic industry environment. As a result of these
relationships, we have built strong design capabilities that can support
customers with wireless technology requirements.
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For the three months ended ended April 2, 2000 and the years ended
December 31, 1997, 1998 and 1999, we spent $0.5 million, $1.6 million,
$2.5 million and $3.2 million, respectively, on research and development
activities.
Governmental Regulation
Our operations are subject to a variety of federal, state and local
regulatory requirements relating to environmental compliance and site cleanups,
waste management and health and safety matters. In particular, we are subject to
regulations promulgated by:
- the Occupational Safety and Health Administration, pertaining to health
and safety in the workplace;
- the Environmental Protection Agency, pertaining to the use, storage,
discharge and disposal of hazardous chemicals used in the manufacturing
processes; and
- corresponding state agencies.
To date the costs of compliance and workplace and environmental remediation
have not been material to us. Nevertheless, additional or modified requirements
may be imposed in the future. If such additional or modified requirements are
imposed on us, or if conditions requiring remediation are found to exist, we may
be required to incur substantial additional expenditures.
Legal Proceedings
In October 1998, Lockheed Martin Corporation commenced an action in the
Circuit Court for Montgomery County, Maryland, entitled LOCKHEED MARTIN
CORPORATION V. DLJ MERCHANT BANKING II, INC., DLJ MERCHANT BANKING PARTNERS, DLJ
MERCHANT BANKING, INC., DLJ MERCHANT BANKING PARTNERS, L.P., DLJ MERCHANT
BANKING PARTNERS II, L.P. AND MANUFACTURERS' SERVICES LIMITED, Case No. 193819.
The complaint alleges, among other things, that we breached an August 10, 1997
agreement to acquire a Lockheed subsidiary, Lockheed Martin Commercial
Electronics Company, and that we also breached an implied obligation of good
faith and fair dealing in exercising our contractual right to terminate the
agreement. The complaint alleges that the purchase price for the acquisition,
inclusive of real estate, was $140 million, subject to purchase price
adjustments, and, subsequent to the alleged breach, Lockheed sold Lockheed
Martin Commercial Electronics Company, exclusive of real estate, for $70
million. Proceedings and discovery to date have largely involved preliminary
matters relating to jurisdiction and venue. There has been no discovery to date
on issues relating to the merits of the complaint. We contend that a material
adverse change in Lockheed Martin Commercial Electronics Company business
allowed us to terminate the agreement. On April 21, 2000 we reached an
understanding with Lockheed on the terms of a settlement, subject to this
understanding being reduced to a written settlement agreement. The settlement
agreement, to be executed on or about May 1, 2000, is expected to contain
reciprocal releases and covenants not to sue and will require that we pay
Lockheed $1 million in cash on May 1, 2000. In addition, pursuant to the terms
of the settlement agreement, we will execute two promissory notes on May 1, 2000
that are fully assignable. One note will have a principal amount of $2 million,
will not bear interest and will be due and payable on August 1, 2000. The second
note will have a principal amount of $2 million and will be due and payable on
August 1, 2001. This note will bear interest from May 1, 2000 at a market rate
to be agreed upon which will permit the note to be sold at full face value on
August 1, 2000. If this note is prepaid in full on or before August 1, 2000, no
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interest will be payable to Lockheed. In addition, the settlement agreement will
require that Donaldson, Lufkin & Jenrette Securities Corporation will provide
Lockheed and its affiliates with investment banking and financial consulting
services at a discount, with the maximum amount of the discount being
$1 million.
On July 22, 1999, we received written notice from legal counsel for the
Lemelson Medical, Education & Research Foundation, Limited Partnership alleging
that we are infringing specified patents held by the Lemelson Foundation
Partnership and offering to license such patents to us. Based on our
understanding of the terms that the Lemelson Foundation Partnership has made
available to current licensees, we believe that we can obtain a license from
them under the same or similar terms which would not have an adverse effect on
our financial condition. We estimate the cost to acquire the rights to use this
technology to be approximately $0.8 million.
We are party to other lawsuits in the ordinary course of business. We do not
believe that these other proceedings individually or in the aggregate will have
a material adverse effect on our financial position, results of operations and
cash flows.
Employees
As of April 2, 2000, we had approximately 3,305 full-time employees,
including 2,328 in production and quality, 326 in engineering, research and
development, 330 in procurement and materials management, 64 in information
systems, 52 in program management, 16 in sales and marketing and 189 in
executive and administrative functions. Given the variability in our business
and the quick response time required by our customers, it is critical that we be
able to quickly ramp-up and ramp-down our production to maximize efficiency.
Therefore, we use skilled temporary labor as required.
None of our employees are represented by a labor union or covered by a
collective bargaining agreement other than non-management employees in Spain and
Ireland. We consider our employee relations to be good, and we have not
experienced any significant problems with non-management employees in Spain and
Ireland.
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Facilities
Our principal executive offices are located in Concord, Massachusetts. We
also have product design and manufacturing facilities in the United States,
Spain, Ireland, Singapore and Malaysia. Information about these facilities is
set forth below:
<TABLE>
<CAPTION>
Approximate
Location Principal Function Square Feet Leased/Owned
- -------- -------------------- ----------- ---------------
<S> <C> <C> <C>
Concord, Massachusetts............. Headquarters 16,765 Leased
Arden Hills, Minnesota............. Manufacturing 154,000 Leased
Charlotte, North Carolina.......... Manufacturing 273,500 Leased
Newark, California................. Administrative 2,760 Leased
Salt Lake City, Utah............... Manufacturing 150,000 Owned
Westford, Massachusetts............ Design 6,000 Leased
Athlone, Ireland................... Manufacturing 55,000 Leased
Valencia, Spain.................... Manufacturing/Design 518,000 Leased/Owned(a)
Johor Bahru, Malaysia.............. Manufacturing 46,000 Leased
Singapore.......................... Manufacturing 52,225 Leased
</TABLE>
- --------------------------
(a) We own approximately 418,000 square feet of manufacturing and logistics
space and lease approximately 100,000 square feet of warehouse space.
In addition, we lease office space in Tokyo, Japan, to provide customer
support and administrative services. Leases for our facilities expire between
April 2001 and April 2017. We currently expect to be able to extend the terms of
expiring leases or to find suitable replacement facilities on reasonable terms.
We believe that our facilities are well-maintained and suitable for their
respective operations. We anticipate that as our business grows we will need to
obtain additional facilities through acquisitions, leases or new construction.
We may encounter unforseen difficulties, costs or delays in expanding our
facilities.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information with respect to our directors and
executive officers:
<TABLE>
<CAPTION>
Name Age Office
- ---- -------- ----------------------------------------------
<S> <C> <C>
Kevin C. Melia................. 52 Chairman, Chief Executive Officer and Director
Robert E. Donahue.............. 51 President, Chief Financial Officer and
Director
Rodolfo Archbold............... 46 Executive Vice President and Chief Technology
Officer
James N. Poor.................. 56 Executive Vice President, Human Resources
Thompson Dean.................. 42 Director
Karl Wyss...................... 60 Director
John F. Fort, III.............. 58 Director
William J. Weyand.............. 55 Director
</TABLE>
We anticipate that one additional director who is not affiliated with us or
our principal shareholders, will be elected to our board of directors following
completion of this offering.
Kevin C. Melia, a founder of MSL, has been a director and our Chairman and
Chief Executive Officer since December 1994. From December 1994 to
February 1999, he also served as President. Prior to joining us, Mr. Melia was
acting President of Sun Microsystems Computer Corporation from 1992 to 1994.
Mr. Melia also served as Chief Financial Officer of Sun Microsystems Computer
Corporation from 1991 to 1994. Mr. Melia currently serves as a director of Iona
Technologies Plc and Horizon Technologies.
Robert E. Donahue has served as our President since February 1999 and as
Chief Financial Officer and a director since April 2000. Mr. Donahue joined us
in August 1997 as Chief Financial Officer and served in that capacity until his
promotion to President. Prior to joining us, Mr. Donahue served as Chief
Financial Officer of Stratus Computer, Inc. from 1990 to August 1997. Along with
his responsibilities as Chief Financial Officer, Mr. Donahue also served as
Chief Executive Officer of S2, a subsidiary of Stratus Computer, Inc., from
December 1995 to August 1997.
Rodolfo Archbold has served as our Executive Vice President and Chief
Technology Officer since July 1997. Prior to assuming his current position,
Mr. Archbold served as our Vice President of Technology from October 1995 to
July 1997. Before joining us, Mr. Archbold served as Group Manager,
Manufacturing for Digital Equipment Corporation from February 1992 to
September 1995.
James N. Poor has served as our Executive Vice President, Human Resources
since March 1998. Prior to that he was the Director of Human Resources,
Worldwide Sales and Manufacturing for Stratus Computer, Inc. beginning in 1985.
Thompson Dean has been a director since January 1995. Mr. Dean has been a
Managing Director of DLJ Merchant Banking, Inc. since 1991. He currently serves
as Chairman of the Board of Von Hoffmann Press, Inc., Arcade Holding Corp. and
DeCrane Aircraft Holdings, Inc. and as a director of Formica Corp., Insilco
Holding Co., Phase Metrics, Inc., Mueller Holdings (N.A.), Inc., Amatek Ltd. and
Charles River Laboratories, Inc.
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Karl Wyss has been a director since September 1997. Mr. Wyss has been a
Managing Director of DLJ Merchant Banking, Inc. since 1993. Mr. Wyss is a
director of Brand Scaffold Services, Inc., CommVault Systems, Inc., Localiza
Rent A Car S.A., Mallory S.A. and Von Hoffmann Press, Inc.
John F. Fort, III has been a director since November 1998. Mr. Fort retired
from his position as the Chairman of the Board of Tyco International Ltd. in
January 1993. He is currently a consultant to and a director of Tyco
International Ltd., Roper Industries, Thermadyne Holdings and Dover Corporation.
William J. Weyand has been a director since April 2000. Mr. Weyand has
served as President and Chief Executive Officer of Structural Dynamics Research
Corporation since June 1997 and was appointed Chairman of the Board in February
1998, in addition to his previous responsibilities. Prior to joining Structural
Dynamics Research Corporation, Mr. Weyand served as Executive Vice President of
Measurex Corporation. Mr. Weyand currently serves as a director of the
University of Maine and has served on the boards of Western Michigan University
and the Georgia Tech Institute of Paper Science Technology. He is also a past
Chairman of the Paper Industry Management Association.
Each director is elected and serves until his successor is duly elected and
qualified or until the earlier of his death, disability, retirement, resignation
or removal. All members of the board of directors set forth herein were elected
pursuant to a stockholders agreement that was entered into in connection with an
investment in us by entities affiliated with Donaldson, Lufkin & Jenrette, Inc.
in January 1995, and later amended in connection with our sale of senior
preferred stock to similarly affiliated entities in November 1999. See
"Relationships and Transactions with Related Parties--Stockholders Agreement."
There are no family relationships between any of our directors or executive
officers. Our executive officers are elected by, and serve at the discretion of,
our board of directors.
The number of directors is fixed at seven, and we currently have six
directors serving. Prior to the completion of this offering, our board will be
divided into three classes, as nearly equal in number as possible, with each
director serving a three-year term and one class being elected at each annual
meeting of our stockholders. Our board of directors will consist of Class I
directors, whose term of office will continue until the 2000 annual meeting of
our stockholders, Class II directors, whose term of office will continue until
the 2001 annual meeting of our stockholders, and Class III directors, whose term
of office will continue until the 2002 annual meeting of our stockholders. At
each annual meeting of our stockholders, successors to the class of directors
whose term expires at such meeting will be elected to serve for three-year terms
or until their respective successors are elected and qualified.
Director Compensation
Our directors, other than Messrs. Fort and Weyand, are not paid fees for
serving on our board. Directors are reimbursed for their out-of-pocket expenses
incurred in connection with their attendance at our board meetings.
Messrs. Fort and Weyand each receive $5,000 for every board meeting they attend.
In December 1998, we granted Mr. Fort options to purchase 12,500 shares of our
common stock at an exercise price of $4.80 per share. These options vest over
three years and will become fully vested upon a change of control of MSL.
Following this offering, directors who
52
<PAGE>
are not our employees or who are not otherwise affiliated with us or our
principal stockholders will receive compensation that is commensurate with
arrangements offered to directors of companies that are similar to us.
Compensation arrangements for independent directors established by our board
could be in the form of cash payments and/or option grants.
Committees of the Board of Directors
Our board of directors has an audit committee and a compensation committee
and may also establish other committees to assist in the discharge of its
responsibilities.
The audit committee makes recommendations to our board of directors
regarding the independent auditor to be nominated for election by the
stockholders and reviews the independence of such auditor, approves the scope of
the annual audit activities of the independent auditor, approves the audit fee
payable to the independent auditor and reviews such audit results with the
independent auditor. The audit committee is currently comprised of Mr. Fort. We
anticipate that, following this offering, our audit committee will be comprised
of three directors who are not otherwise affiliated with us or any of our
principal stockholders. PricewaterhouseCoopers LLP presently serves as our
independent auditor.
The duties of the compensation committee are to provide a general review of
our compensation and benefit plans to ensure that they meet corporate
objectives. In addition, the compensation committee reviews the chief executive
officer's recommendations on the compensation of all of our officers as well as
adoption of and changes to our major compensation policies and practices, and
reports its recommendations to our board of directors for approval and
authorization. The compensation committee also administers our stock plans. The
compensation committee is currently comprised of Messrs. Dean, Melia and Wyss
and, following this offering, is expected to be comprised solely of three or
more non-employee directors (as defined in Rule 16b-3 under the Securities
Exchange Act of 1934).
Compensation of Executive Officers
The following table sets forth information concerning the compensation for
the year ended December 31, 1999 for our Chief Executive Officer and our four
other most highly compensated executive officers at the end of our last fiscal
year. For ease of reference, we collectively refer to these executive officers
throughout this section as our "named executive officers."
53
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation ------------
-------------------------------------- Securities
Name and Principal Position Other Annual Underlying All Other
- --------------------------- Salary Bonus Compensation (1) Options (#) Compensation (2)
<S> <C> <C> <C> <C> <C>
Kevin C. Melia, Chairman and
Chief Executive Officer... $350,000 $302,944 $1,920 -- $ 9,929
Robert E. Donahue, President
and Chief Financial
Officer................... 272,116 171,241 1,920 112,500 13,427
Rodolfo Archbold, Executive
Vice President and Chief
Technology Officer........ 169,327 83,801 1,908 6,250 4,107
Dale R. Johnson, former
Executive Vice President,
General Counsel and
Secretary(3).............. 190,000 127,512 1,108 6,250 8,830
James N. Poor, Executive
Vice
President, Human
Resources................. 138,077 68,504 864 10,000 2,138
</TABLE>
- --------------------------
(1) Represents amount of matching contribution by us under our 401(k) plan.
(2) Represents insurance premiums that we paid for term life insurance and
long-term disability policies on behalf of the named executive officer.
(3) Mr. Johnson resigned from MSL in April 2000.
54
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information regarding stock options granted
by us to our named executive officers during our last fiscal year. Stock options
are generally granted at 100% of the fair market value of our common stock as
determined by our board of directors on the date of grant. In reaching the
determination of fair market value at the time of each grant, our board of
directors considers a range of factors, including our current financial
position, recent revenues, results of operations and cash flows, assessment of
our competitive position in our markets and prospects for the future, the status
of our manufacturing capabilities and marketing efforts, current valuations for
comparable companies and the illiquidity of any investment in our common stock.
Option Grants in Fiscal 1999
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------
Percent of Potential Realizable
Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation for
Underlying Employees Exercise Option Term (1)
Name Options in Fiscal Price Per Expiration -----------------------
- ---- Granted (#) 1999 Share Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Kevin C. Melia.................. -- -- -- -- -- --
Robert E. Donahue............... 112,500 17.8% $4.80 2/1/2009 $339,603 $860,621
Rodolfo Archbold................ 1,250 0.2 4.80 1/1/2009 3,773 9,562
5,000 0.8 4.80 8/1/2009 15,093 38,250
Dale R. Johnson(2).............. 6,250 1.0 4.80 1/1/2009 18,867 47,812
James N. Poor................... 5,000 0.8 4.80 1/1/2009 15,093 38,250
5,000 0.8 4.80 10/1/2009 15,093 38,250
</TABLE>
- ------------------------
(1) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10% compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise price,
but do not include deductions for taxes or other expenses associated with
the exercise. Actual gains, if any, on stock option exercises will depend on
the future performance of our common stock, the optionholder's continued
employment through the option period and the date on which the options are
exercised.
(2) Mr. Johnson resigned from MSL in April 2000. All unvested options were
forfeited upon his resignation.
55
<PAGE>
Option Exercises During Fiscal Year 1999 and Fiscal Year-End Option Values
The following table sets forth information for the named executive officers
concerning stock option exercises during the year ended December 31, 1999 and
options outstanding at the end of our last fiscal year.
Aggregated Option Exercises in Fiscal 1999
and Fiscal Year-End Options Values
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired On Value Underlying Unexercised In-The-Money Options
Exercise Realized (1) Options At Fiscal Year-End At Fiscal Year-End
Name ----------- ------------ --------------------------- ---------------------------
- ---- Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Kevin C. Melia........... 213,709 $357,967 337,416 156,250 $465,057 $1,293,750
Robert E. Donahue........ 26,852 20,000 69,792 153,357 542,042 1,187,108
Rodolfo Archbold......... -- -- 24,981 13,769 57,466 109,344
Dale R. Johnson(2)....... -- -- 30,094 9,906 174,031 77,649
James N. Poor............ -- -- 6,531 19,719 53,451 155,899
</TABLE>
- ------------------------
(1) Value is based on the difference between the option exercise price and the
fair market value at the date of exercise.
(2) Mr. Johnson resigned from MSL in April 2000. All unvested options were
forfeited upon his resignation.
Employment Agreements
On January 20, 1995, we entered into an employment agreement with Kevin C.
Melia for an initial term of three years, after which the term was and will
continue to be automatically extended until terminated by either party upon
three months' prior written notice. The agreement provides that Mr. Melia will
serve as our Chief Executive Officer and will also serve on our board of
directors as Chairman. Under the agreement, we will pay Mr. Melia a base salary
of up to $350,000 plus annual bonuses based upon financial performance. The
agreement specifies that if we terminate Mr. Melia for cause (as defined
therein), all of Mr. Melia's options will terminate and we will have the right
to purchase all of Mr. Melia's shares of our common stock at the lesser of fair
market value or the initial cost of those shares. If we terminate Mr. Melia
without cause or if Mr. Melia terminates the agreement for good reason
(including if Mr. Melia terminates the agreement due to a change in control of
MSL), Mr. Melia will receive the sum of one year's base salary calculated at the
level of his base salary at the time of termination and an amount equal to his
previous year's bonus. In addition, Mr. Melia would be entitled to sell his
shares of our common stock to us at fair market value. If Mr. Melia terminates
the agreement for any other reason (other than death or disability), we will
have the right to purchase his shares of our common stock at fair market value.
The agreement also provides that during any period that Mr. Melia is
entitled to receive any severance payments, he will not enter into competitive
endeavors and will not undertake any commercial activity that is contrary to our
best interest or that of our affiliates, including accepting employment or
acquiring an interest in any entity (other than up to 2% of any publicly traded
56
<PAGE>
company) that derives more than 10% of its profits, revenues or earnings from
electronic contract manufacturing. In addition, the agreement requires
Mr. Melia to refrain from soliciting or hiring our employees for two years
following his termination.
We have also entered into employment letter agreements with Robert E.
Donahue, Rodolfo Archbold, Dale R. Johnson and James N. Poor. These agreements
provide that in addition to their base salaries and initial option grants, these
individuals will receive annual bonuses based on their personal performance and
our financial performance. These individuals' employment is on an at-will basis.
However, each of Mr. Donahue's and Mr. Poor's employment letter agreements, and
Mr. Johnson's severance letter, provide that if he is terminated for any reason
other than cause, death or disability, as defined therein, he will receive the
sum of one year's base salary, calculated at the level of his base salary at the
time of termination, and an amount equal to his previous year's bonus, provided
that the total amount payable shall not exceed two times his base salary for the
year of termination. In connection with their employment letter agreements,
Messrs. Donahue, Johnson and Poor also signed agreements which prohibit them
from competing with us or soliciting employees to compete with us for one year
following their termination.
2000 Cash Incentive Compensation Plan
We have established a Cash Incentive Compensation Plan for 2000 for
executives and key employees. Cash bonuses are paid under the plan based on the
achievement of corporate and site profitability objectives as well as personal
performance goals set at the beginning of the year. The target range of bonus is
between 5% and 100% of base compensation and payout is on a sliding scale based
on the level of achievement. Designated senior executives may achieve bonus
payments greater than their target if they exceed the specified profitability
and performance objectives.
Stock Plans
SECOND AMENDED AND RESTATED NON-QUALIFIED STOCK OPTION PLAN
Our board of directors adopted a non-qualified stock option plan on
December 5, 1996, which was amended and restated on February 26, 1998 and again
on January 1, 1999. The stock option plan authorizes the granting of stock
options to our current and future employees, directors, consultants and
contractors and those of our subsidiaries. Under the stock option plan, our
board is authorized to sell or otherwise issue up to an aggregate of 3,000,000
shares of common stock, in quantity, price and terms subject to the conditions
established by our board. These shares include shares of common stock with
respect to which options may be granted, subject to adjustment upon the
occurrence of specified events to prevent any dilution or expansion of the
rights of participants that might otherwise result from the occurrence of such
events.
As of April 2, 2000, options to purchase an aggregate of 2,521,703 shares of
common stock, portions of which are still subject to vesting, with exercise
prices ranging from $4.00 to $20.00 per share, were outstanding. Such options
will vest and become exercisable in accordance with their terms. In the event
that an employee is terminated without cause, unvested time vesting options
granted prior to January 1, 1997, will continue to vest and remain exercisable
for six months following the vesting of such options, and all other unvested
options will terminate immediately. In the case of options granted on or after
January 1, 1997, all unvested options will terminate
57
<PAGE>
immediately. Vested but unexercised options will terminate immediately if the
optionee is terminated for cause or, after six months, if the optionee is
terminated without cause. All of the options granted have an exercise price
equal to the fair market value of our common stock on the date of grant as
determined by our board of directors.
2000 EQUITY INCENTIVE PLAN
The 2000 Equity Incentive Plan, or the 2000 Plan, was adopted by our board
of directors and approved by our stockholders in connection with the completion
of this offering. As of April 2, 2000, options to purchase 723,400 shares have
been awarded under the 2000 Plan. Following the effectiveness of the 2000 Plan,
no grants have been or will be made under our non-qualified stock option plan.
The 2000 Plan provides for the grant of incentive stock options to our
employees (including officers and employee directors) and for the grant of
nonstatutory stock options to our employees, directors and consultants. The
number of shares to be reserved for issuance under the 2000 Plan includes: (1)
2,668,750 shares of common stock, (2) any shares returned to the 2000 Plan as a
result of termination of options and (3) annual increases to be added on the
date of each annual meeting of our stockholders, commencing with the 2000 annual
meeting, equal to 1.0% of the outstanding shares of our common stock on that
date or such lesser amount as may be determined by our board of directors. Our
board of directors, or a committee appointed by our board of directors,
administers our 2000 Plan and has the power to determine the terms of each
option granted, including the exercise price of the option, the time at which
each option will vest, the number of shares subject to each option, the
exercisability thereof and the form of consideration payable upon such exercise.
In addition, our board of directors has the authority to amend, suspend or
terminate the 2000 Plan, provided that no such action may affect any share of
common stock previously issued and sold or any option previously granted under
the 2000 Plan.
Options granted under the 2000 Plan are generally not transferable by the
optionee, and each option is exercisable during the lifetime of the optionee.
Options granted under the 2000 Plan must generally be exercised within 3 months
after the end of an optionee's status as our employee, director or consultant,
or within 12 months after that optionee's death, but in no event later than the
expiration of the option term.
The exercise price of all incentive stock options granted under the 2000
Plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options granted under
the 2000 Plan is determined by the administrator, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code,
the exercise price must be at least equal to the fair market value of our common
stock on the date of grant. With respect to any participant who owns stock
representing more than 10% of the total combined voting power of all classes of
our outstanding capital stock, the exercise price of any incentive stock option
grant must be at least equal to 110% of the fair market value on the grant date,
and the term of such incentive stock option must not exceed five years. The term
of all other incentive stock options granted under the 2000 Plan may not exceed
ten years.
58
<PAGE>
The 2000 Plan provides that in the event we merge with or into another
corporation or sell substantially all of our assets, each option shall be
assumed, or an equivalent option substituted for, by the successor corporation.
If the outstanding options are not assumed, or substituted for, by the successor
corporation, all outstanding options shall vest and become exercisable
immediately prior to such a transaction. All of these options will terminate
upon the consummation of a merger or sale of assets.
2000 EMPLOYEE STOCK PURCHASE PLAN
The 2000 Employee Stock Purchase Plan, or the stock purchase plan, is
expected to be adopted by our board of directors and approved by our
stockholders prior to the completion of this offering. The stock purchase plan
will be established to give eligible employees the opportunity to use voluntary,
systematic payroll deductions, up to 10% of each eligible employee's cash
compensation, to purchase shares of our common stock at a discounted price. We
believe that ownership of stock by our employees will foster greater employee
interest in our success, growth and development.
Subject to restrictions, each of our employees is eligible to participate in
the stock purchase plan if he or she has been employed by us for more than six
months and is employed for more than 20 hours per week. Our board of directors,
in its sole discretion, may waive any or all of the six-month waiting period. An
employee who owns or is deemed to own shares of stock representing 5% or more of
the combined voting power or value of all classes of our stock will not be
eligible to participate in the stock purchase plan. We have reserved 750,000
shares of common stock for issuance in connection with the stock purchase plan.
Elections to participate will be made on a semi-annual basis. Each participating
employee contributes to the stock purchase plan by choosing a payroll deduction
in any specified amount up to a maximum of 10% of his or her cash compensation.
Participating employees may increase or decrease the amount of their payroll
deduction, including a change to a zero deduction, semi-annually, beginning
July 1, 2000. Elected contributions will be credited to participants' accounts
semi-annually, beginning December 31, 2000. Every year, each eligible employee
will be permitted to purchase shares of our common stock with a maximum fair
market value of $25,000.
Set forth below is a summary of how the stock purchase plan will operate:
- Each participating employee's contributions will be used to purchase
shares for the employee's share account after the last day of each
semi-annual period and such participating employee will receive a
certificate evidencing such shares.
- The cost per share is 85% of the lower of the closing price of our common
stock on the New York Stock Exchange on the first or the last day of the
semi-annual period.
- The number of shares purchased on each employee's behalf and deposited in
his/her share account is based on the amount accumulated in that
participant's cash account and the purchase price for shares with respect
to any semi-annual period.
- Shares purchased under the stock purchase plan carry full rights to
receive dividends declared from time to time.
59
<PAGE>
- Share distributions and share splits will be credited to the participating
employee's share account as of the record date and effective date,
respectively.
Subject to applicable federal securities and tax laws, our board of
directors has the right to amend, suspend or terminate the stock purchase plan.
Amendments to the stock purchase plan will not affect a participating employee's
right to the benefit of contributions made prior to the date of any such
amendment. In the event our stock purchase plan is terminated, our board of
directors may immediately cancel the stock purchase plan and distribute all
amounts held in each participating employee's account or continue the stock
purchase plan until the end of the current semi-annual period or such earlier
date as our board of directors may specify.
Compensation Committee Interlocks and Insider Participation
The compensation committee is currently comprised of Messrs. Dean, Melia and
Wyss. Messrs. Dean and Wyss are each Managing Directors of DLJ Merchant
Banking, Inc. Mr. Melia is our Chairman of the Board and Chief Executive
Officer. Compensation for Mr. Melia for the year ended December 31, 1999 was
established pursuant to the terms of his employment agreement with us.
RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES
Stockholders Agreement
The stockholders agreement dated January 20, 1995, as amended, by and among
DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V., DLJ
Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., DLJ ESC II L.P.,
DLJ First ESC, L.P., DLJ Investment Partners II, L.P., DLJ Investment Funding
II, Inc. and DLJ Investment Partners, L.P. (collectively, the "DLJ Entities"),
specified trusts, Kevin C. Melia, Robert J. Graham, Julie Kent, some of our
other stockholders and MSL, restricts transfers of our common stock by non-DLJ
Entities. Under the stockholders agreement, DLJ Merchant Banking Partners, L.P.
has the right to appoint a majority of the members of our board of directors
and, while shares of our senior preferred stock are held by any of the DLJ
Entities, DLJ Investment Partners, II, L.P. has the right to elect one member of
our board of directors. Under the terms of the stockholders agreement, we have
agreed to use our best efforts to retire the outstanding senior preferred stock
with the proceeds of this offering. The stockholders agreement requires the
non-DLJ Entities to sell their shares of our common stock, in some
circumstances, should the DLJ Entities choose to sell 100% of their shares. In
addition, subject to limitations, the stockholders agreement provides all
stockholders with demand and piggyback registration rights and contains
indemnification provisions relating to registration statements.
Under the stockholders agreement, the DLJ Entities, Kevin C. Melia and
Robert J. Graham have the exclusive right to invest additional equity in us at a
price per share equal to $4.00, should we require such investment in order to
acquire additional contract manufacturing facilities. We expect to amend the
stockholders agreement prior to this offering to remove this provision from the
agreement. Further, under the stockholders agreement, we were required to pay
Donaldson, Lufkin & Jenrette Securities Corporation an annual management fee
equal to $200,000 plus expenses. As of January 20, 2000, we were no longer
obligated to pay this fee or related expenses.
60
<PAGE>
Interests of Donaldson, Lufkin & Jenrette, Inc. and its Affiliates
The DLJ Entities, Donaldson, Lufkin & Jenrette Securities Corporation and
DLJ Capital Funding, Inc. are affiliates of Donaldson, Lufkin & Jenrette, Inc.
In addition, Thompson Dean and Karl Wyss are Managing Directors of DLJ Merchant
Banking, Inc. Both of these individuals are members of our board of directors.
DLJ Capital Funding, Inc. acted as syndication agent and lender under our bank
credit facility, for which it will receive its pro rata share of any repayment
of amounts outstanding under our bank credit facility from the proceeds of this
offering. In addition, Donaldson, Lufkin & Jenrette Securities Corporation acted
as arranger under our bank credit facility, for which it received customary fees
and expenses and is acting as lead underwriter in this offering. Following this
offering, the DLJ Entities will own approximately 57.5% of our outstanding
common stock. However, a provision in our charter documents provides that some
of these entities may not vote approximately 26% of the shares held by the DLJ
Entities until they and we comply with the applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. Since 1995, Donaldson,
Lufkin & Jenrette, Inc. and its affiliates have received fees in the aggregate
amount of approximately $7.8 million under the stockholders agreement and our
bank credit facility.
Additionally, affiliates of Donaldson, Lufkin & Jenrette, Inc. currently
hold approximately 75% of our outstanding senior preferred stock that we issued
in connection with the acquisition of selected inventory, manufacturing assets
and other intangibles in Salt Lake City, Utah, from 3Com. The senior preferred
stock was issued in November 1999 for cash consideration of $50.0 million.
Approximately $57.0 million of the proceeds from this offering will be used to
retire all of the outstanding senior preferred stock.
Indemnification Agreements
In connection with this offering, we expect to enter into agreements to
provide indemnification for our directors and executive officers in addition to
the indemnification provided for in our Restated Certificate of Incorporation
and By-laws.
Transactions with Executive Officers
In January 2000, our board of directors approved the grant of 200,000 shares
of our common stock to Mr. Melia.
Issuance of Warrants
In connection with the issuance of our senior preferred stock, we issued
warrants to purchase 1,160,542 shares of our common stock to the DLJ Entities
purchasing our senior preferred stock, of which 222,730 were immediately
exercisable and 937,812 were placed into escrow. These warrants have an exercise
price of $4.80 per share and expire on November 26, 2006. On January 28, 2000,
the DLJ Entities sold 500,000 shares of our senior preferred stock and warrants
to purchase 290,136 shares of common stock, of which 55,683 were immediately
exercisable and 234,453 are held in escrow, to Magnetite Asset Investors L.L.C.
If shares of our senior preferred stock are still outstanding as of
November 26, 2000, the warrants that are in escrow will be released to the
holders of our senior preferred stock. Otherwise, the warrants will be returned
to us and canceled.
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<PAGE>
The warrants permit cashless exercise and contain anti-dilution protection in
the case of a stock split, combination, reclassification or other changes to, or
sales or issuances of, our common stock, including future issuances of options,
warrants or convertible securities.
On August 31, 1995, we issued warrants to purchase an aggregate of 128,008
shares of our common stock, with an exercise price equal to $4.00 per share, to
Bank of America National Trust and Savings Association in connection with the
execution of our prior credit agreement. These warrants do not expire. The
warrants permit cashless exercise if a public market exists for our common stock
and contain various anti-dilution protections. In addition, the shares obtained
upon exercise of these warrants contain piggy-back registration rights and the
right to participate in certain transfers as if the holder were a party to our
stockholders agreement.
62
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of April 2, 2000 and as adjusted to reflect the
sale of the shares offered by us in this offering for:
- each person who is known by us to own beneficially more than 5% of our
outstanding shares of common stock;
- each director and named executive officer; and
- all directors and executive officers as a group.
As of April 2, 2000, there were 19,947,770 shares of our common stock
outstanding prior to giving effect to the shares to be sold in this offering.
The number of shares to be sold by each of the selling stockholders is stated on
the assumption that the underwriters exercise their over-allotment option in
full. Unless otherwise indicated below, each entity or person listed below
maintains a mailing address of c/o Manufacturers' Services Limited, 300 Baker
Avenue, Suite 106, Concord, Massachusetts 01742.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock issuable pursuant to
options or warrants, to the extent those options or warrants are currently
exercisable or convertible within 60 days of April 2, 2000, are treated as
outstanding for purposes of computing the percentage of the person holding those
securities but are not treated as outstanding for purposes of computing the
percentage of any other person. Unless otherwise noted, to our knowledge, each
person or group identified possesses sole voting and investment power with
respect to the shares, subject to applicable community property laws. Beneficial
ownership percentage is based on 19,947,770 shares of our common stock
outstanding as of April 2, 2000 and 30,947,770 shares of our common stock
outstanding after completion of this offering after giving effect to the
issuance of 11,000,000 shares of our common stock in this offering.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to the Owned After the
Offering Offering
----------------------------------------------------- ---------------------
Name of Beneficial Owner Number Percent Number Percent
<S> <C> <C> <C> <C>
Principal and Selling Stockholders:
The DLJ Entities(1).......................... 17,875,382 88.9% 17,875,382 57.5%
Magnetite Asset Investors L.L.C.(2).......... 55,683 * 55,683 *
Directors and Executive Officers:
Kevin C. Melia(3)............................ 1,075,168 5.3 1,075,168 3.4
Robert E. Donahue(4)......................... 148,731 * 148,731 *
Rodolfo Archbold(5).......................... 30,137 * 30,137 *
Dale R. Johnson(6)........................... 32,438 * 32,438 *
James N. Poor(7)............................. 13,875 * 13,875 *
Thompson Dean(8)............................. 17,875,382 88.9 17,875,382 57.5
Karl Wyss(8)................................. 17,875,382 88.9 17,875,382 57.5
John F. Fort, III(9)......................... 4,167 * 4,167 *
William Weyand............................... -- * -- *
All directors and executive officers
as a group (9 persons)(10).................. 19,179,898 93.4 19,179,898 60.8
</TABLE>
- --------------------------
* Indicates beneficial ownership of less than 1% of our issued and outstanding
common stock.
63
<PAGE>
(1) Includes 8,332,876, 3,341,993, 3,733,365, 216,459, 2,073,224 and 10,417
shares of our common stock held by DLJ Merchant Banking Partners, L.P., DLJ
Merchant Banking Funding, Inc., DLJ International Partners, C.V., DLJ
Offshore Partners, C.V., DLJ First ESC, L.P. and DLJ ESC II, L.P.,
respectively, and warrants to purchase 94,929, 42,184, 15,584 and 14,351
shares of our common stock held by DLJ Investment Partners II, L.P., DLJ
Investment Partners, L.P., DLJ Investment Funding II, Inc. and DLJ ESC II,
L.P., respectively. The table does not include 852,415, 378,788, 145,266 and
123,531 shares of our senior preferred stock held by such persons on
April 2, 2000, respectively, which will be retired using the proceeds of
this offering. See "Use of Proceeds." Pursuant to the terms of our restated
certificate of incorporation, DLJ Merchant Banking Partners, L.P., DLJ
Merchant Banking Funding, Inc. and DLJ International Partners, C.V. may not
vote 2,450,846, 973,215 and 1,098,049 shares of our common stock,
respectively, owned by such persons until they and we comply with the
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976. The address of each such person is c/o Donaldson Lufkin &
Jenrette, Inc., 277 Park Avenue, New York, New York 10172.
(2) The shares of common stock included in the table represent shares that can
be acquired upon the exercise of outstanding warrants. The table does not
include 500,000 shares of our senior preferred stock, which will be retired
using the proceeds of this offering. See "Use of Proceeds."
(3) The shares of common stock included in the table include 281,250 shares that
can be acquired upon the exercise of outstanding options.
(4) The shares of common stock included in the table include 71,879 shares that
can be acquired upon the exercise of outstanding options.
(5) The shares of common stock included in the table include 25,450 shares that
can be acquired upon the exercise of outstanding options.
(6) Mr. Johnson resigned from MSL in April 2000. The shares of common stock
included in the table include 31,188 shares that can be acquired upon the
exercise of outstanding options.
(7) The shares of common stock included in the table include 9,187 shares that
can be acquired upon the exercise of outstanding options.
(8) Messrs. Dean and Wyss are each Managing Directors of DLJ Merchant
Banking, Inc., the general partner of DLJ Merchant Banking Partners, L.P.
and may be considered to have beneficial ownership of the DLJ Entities'
interests in us. Each such person disclaims beneficial ownership of any
shares in which he does not have a pecuniary interest. The address of each
such person is c/o DLJ Merchant Banking, Inc., 277 Park Avenue, New York,
New York 10172.
(9) The shares of common stock included in the table represent shares that can
be acquired upon the exercise of outstanding options.
(10) Excluding the shares owned by the DLJ Entities attributed to Messrs. Dean
and Wyss, our directors and executive officers as a group are deemed to own
1,304,516 shares of our common stock following this offering, assuming no
exercise of the underwriters' over-allotment option, representing
approximately 4.2% of our outstanding common stock.
Selling Stockholders
Pursuant to the underwriting agreement, the underwriters have been granted
an option to purchase up to an aggregate of 1,650,000 shares of our common stock
from the selling stockholders for the purpose of covering over-allotments, if
any. The selling stockholders, DLJ Merchant Banking Partners, L.P., DLJ Merchant
Banking Funding, Inc., DLJ International Partners, C.V., DLJ Offshore Partners,
C.V., DLJ First ESC, L.P. and DLJ ESC II, L.P., have granted an over-allotment
option to the underwriters with respect to 776,428, 311,394, 347,862, 20,169,
193,176 and 971 shares of our common stock, respectively, and will own
7,556,448, 3,030,598, 3,385,503, 196,290, 1,880,048 and 9,447 shares of our
common stock, respectively, if the over-allotment option is exercised in full.
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DESCRIPTION OF INDEBTEDNESS
Bank Credit Facility
On August 21, 1998, we entered into a bank credit facility, which agreement
was amended on February 26, 1999 and further amended on November 23, 1999 (the
"bank credit facility") with a syndicate of financial institutions led by
Donaldson, Lufkin & Jenrette Securities Corporation, as arranger and syndication
agent, and Bank of America, N.A. as administrative and collateral agent. Our
bank credit facility provides for both a term loan facility and a revolving
credit facility. Our term loan facility is for a total of $50.0 million and has
a final maturity on July 31, 2004. On February 10, 2000, we amended our bank
credit facility to provide for an additional $25.0 million term loan facility
with a final maturity on July 31, 2004 and having the same terms as our
$50.0 million term loan facility. At April 2, 2000, we had $74.3 million
outstanding under our term loan facilities. Our revolving credit facility is for
a total of $75.0 million and has a termination date of July 31, 2002. At
April 2, 2000, we had $64.1 million outstanding under our revolving credit
facility.
The interest rate on our revolving credit facility is, at our option,
either:
- 2.00% per annum plus the base rate, which is the higher of:
-- the rate as publicly announced from time to time by Bank of America as
its "reference rate", or
-- the Federal Funds Effective Rate plus 0.50% per annum; or
- the reserve-adjusted London Interbank Offered Rate (Adjusted LIBOR) plus
3.00% per annum.
The applicable margins for our bank credit facility will be subject to
adjustment, +/-0.25%, based on the ratio of our consolidated total debt to
consolidated EBITDA (as defined in our bank credit facility). At April 2, 2000,
the interest rate on our revolving loans was between 9.13% and 11.00%. The
interest rate on our term loan facility is, at our option, either:
- the base rate plus 2.75% per annum; or
- the sum of Adjusted LIBOR plus 3.75% per annum.
At April 2, 2000, the interest rate on our term loan facilities was 9.94%.
We are able to repay and reborrow on our revolving credit facility.
Availability under our revolving credit facility is subject to a commitment fee
which equals 0.50% per annum, subject to reduction to 0.45% per annum based upon
our ratio of consolidated total debt to consolidated EBITDA, of the unused
portion of our bank credit facility on the date of determination. Such fee is
payable quarterly in arrears until termination of our revolving credit facility.
We pay a letter of credit fee for the pro rata account of each lender in an
amount equal to the dollar equivalent of the daily amount available to be drawn
under letters of credit, if any are outstanding, at a per annum rate equal to
3.00%, +/- 0.25%, depending on the ratio of consolidated total debt to
consolidated EBITDA. In addition, we pay a fronting fee equal to 0.25% of the
daily amount available to be drawn down under any letters of credit.
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The term loans under our bank credit facility are subject to quarterly
amortization payments over the life of our bank credit facility. In addition, if
we fail to comply with leverage covenants under our bank credit facility, we
would have to make partial repayments of our term loans and/or permanent
reduction in our revolving credit facility commitment, subject to exceptions,
with a portion of the:
- net proceeds from a sale of assets;
- net proceeds from an issuance of debt;
- net proceeds from an issuance of equity securities; and
- excess cash flow.
Once the term loans have been repaid under our bank credit facility, the term
loans will not be permitted to be reborrowed. Issuance of new equity securities
may require, depending upon the ratio of consolidated total debt to consolidated
EBITDA, a prepayment of our outstanding debt obligations up to an amount equal
to 50% of the proceeds of the new equity security offering.
We and all of our present and future direct and indirect U.S. subsidiaries
unconditionally guarantee payment under our bank credit facility. These
guarantees are secured by a pledge of and a perfected security interest in all
of the assets of such entities, including 100% of the stock of our subsidiaries.
In addition, all of our foreign subsidiaries have guaranteed payment of the
obligations of MSL Overseas Finance B.V. under our bank credit facility.
Our bank credit facility contains customary covenants and restrictions on
our ability and the ability of our subsidiaries to engage in some activities,
including, but not limited to:
- issuing new indebtedness;
- creating liens;
- incurring capital expenditures;
- making investments;
- declaring dividends, repurchasing or redeeming capital stock and prepaying
subordinated debt;
- entering into any merger, consolidation, acquisition, sale of assets or
lease; and
- entering into hedging transactions.
Our bank credit facility permits us to pay cash dividends of up to $7.0 million
on or prior to December 1, 2000 on our senior preferred stock.
Our bank credit facility also requires us and our subsidiaries to observe
customary financial covenants, including, but not limited to:
- a minimum interest coverage ratio,
- a maximum leverage ratio;
- a minimum consolidated EBITDA ratio;
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- a minimum consolidated net worth ratio;
- maximum capital expenditures; and
- maximum other indebtedness.
The availability of our revolving credit facility is further restricted based
upon a monthly "borrowing base" which is calculated by reference to eligible
receivables and inventory. Eligible receivables are generally limited to those
not in dispute and less than 90 days old. Our inventory is restricted to a
limited percentage of the total borrowing base.
Our bank credit facility contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults on other indebtedness, events of bankruptcy and insolvency, ERISA
defaults, judgment defaults, failure of any guaranty or security agreement
supporting our bank credit facility to be in full force and effect and change in
our control.
New Bank Credit Facility
Based upon discussions with our principal lender under our existing bank
credit facility, we expect to refinance our existing indebtedness under our
existing bank credit facility upon consummation of this offering. We expect that
the new bank credit facility will provide for borrowings of up to $175.0 million
and have a final maturity in 2004. We anticipate that the new bank credit
facility will be secured by substantially all of our assets and will generally
contain less restrictive covenants, more favorable pricing terms and a lower
interest rate than our existing bank credit facility. To date, no definitive
agreement has been executed, and no assurance can be given that the new bank
credit facility will be executed on these terms or entered into at all.
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DESCRIPTION OF CAPITAL STOCK
General Matters
Upon completion of this offering, the total amount of our authorized capital
stock will consist of 150,000,000 shares of common stock, 2,000,000 shares of
senior preferred stock due 2006 and 3,000,000 shares of one or more additional
series of preferred stock. As of April 2, 2000, we had outstanding 19,947,770
shares of common stock and 2,000,000 shares of senior preferred stock.
After giving effect to this offering, we will have 30,947,770 shares of
common stock and no other shares of any series of preferred stock outstanding.
As of April 2, 2000, we had 97 stockholders of record with respect to our common
stock and outstanding options to purchase 2,521,703 shares of our common stock,
of which 889,929 shares were exercisable. The following summarizes the material
provisions of our capital stock and is qualified in its entirety by our restated
certificate of incorporation and our amended and restated by-laws, which are
included as exhibits to the registration statement, of which this prospectus
forms a part, and by the provisions of applicable law.
Our restated certificate and by-laws will contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and which may have the effect of delaying,
deferring or preventing a future takeover or change in our control unless such
takeover or change in control is approved by our board of directors.
Common Stock
The issued and outstanding shares of common stock are, and the shares of
common stock to be issued by us in connection with the offering will be, validly
issued, fully paid and nonassessable. Subject to the prior rights of the holders
of any series of preferred stock, the holders of outstanding shares of our
common stock are entitled to receive dividends out of assets legally available
therefor at such time and in such amounts as our board of directors may from
time to time determine. See "Dividend Policy." Our shares of common stock are
not convertible and the holders thereof have no preemptive or subscription
rights to purchase any of our securities. Upon liquidation, dissolution or
winding up of MSL, the holders of our common stock are entitled to receive, pro
rata, our assets which are legally available for distribution, after payment of
all debts and other liabilities and subject to the prior rights of any holders
of any series of preferred stock then outstanding. Each outstanding share of our
common stock is entitled to one vote on all matters submitted to a vote of
stockholders. There is no cumulative voting. Except as otherwise required by law
or the restated certificate, the holders of our common stock vote together as a
single class on all matters submitted to a vote of stockholders.
We have applied to have our common stock approved for listing on the New
York Stock Exchange under the symbol "MSV."
Warrants
In connection with the issuance of our senior preferred stock, we issued
warrants to purchase 1,160,542 shares of our common stock to some of the DLJ
Entities, of which 222,730 were immediately exercisable and 937,812 were placed
into escrow. On January 28, 2000, the DLJ Entities sold 500,000 shares of our
senior preferred stock and warrants to purchase 290,136 shares
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of our common stock, of which 55,683 were immediately exercisable and 234,453
are held in escrow, to Magnetite Asset Investors L.L.C. These warrants have an
exercise price of $4.80 per share and expire on November 26, 2006. If shares of
our senior preferred stock are still outstanding as of November 26, 2000, the
warrants that are in escrow will be released to the holders of our senior
preferred stock. Otherwise, the warrants will be returned to us and canceled.
The warrants permit cashless exercise and contain anti-dilution protection in
the case of a stock split, combination, reclassification or other changes to, or
sales or issuances of, our common stock, including future issuances of options,
warrants or convertible securities.
On August 31, 1995, we issued warrants to purchase an aggregate of 128,008
shares of our common stock with an exercise price equal to $4.00 per share to
Bank of America National Trust and Savings Association in connection with the
execution of our prior credit agreement. These warrants do not expire. The
warrants permit cashless exercise if a public market exists for our common stock
and contain various anti-dilution protections. In addition, the shares obtained
upon exercise of these warrants contain piggy-back registration rights and the
right to participate in certain transfers as if the holder were a party to our
stockholders agreement.
Senior Preferred Stock Due 2006
On November 26, 1999, we issued 2,000,000 shares of senior preferred stock
due 2006 at $25.00 per share to some of the DLJ Entities. On January 28, 2000,
the DLJ Entities sold 500,000 shares of our senior preferred stock to Magnetite
Asset Investors L.L.C., at cost plus accrued and unpaid dividends. The holders
of our senior preferred stock are entitled to cumulative dividends at a rate of
14% per annum, payable quarterly in cash, through November 26, 2000 and,
thereafter, at a rate of 15% per annum, payable in cash at the mandatorily
redeemable date or in additional shares of senior preferred stock. In the event
that we fail to redeem our senior preferred stock upon a change of control of
MSL, or if we have not redeemed our senior preferred stock by November 26, 2006,
the dividend rate will increase by 0.5% per quarter, up to a maximum dividend
rate of 25% per annum.
So long as any shares of our senior preferred stock are outstanding, we
cannot pay cash dividends on our common stock, nor may we redeem, purchase or
otherwise acquire our common stock, except in connection with an employee
incentive or benefit plan. In addition, so long as any shares of our senior
preferred stock are outstanding, dividends on other shares of preferred stock
must be paid ratably in proportion to the respective amounts of dividends
accumulated and unpaid.
If we fail to satisfy our obligations under the terms of our senior
preferred stock relating to payment of dividends and redemption obligations and
for so long as this failure continues, the holders of our senior preferred stock
will have the right to elect two additional directors to our board of directors.
In connection with the sale by the DLJ Entities of 500,000 shares of our senior
preferred stock to Magnetite Asset Investors L.L.C., Magnetite was given the
right to nominate one of these additional directors.
In the event of any liquidation, dissolution or winding up of MSL, the
holders of our senior preferred stock shall be entitled to receive an amount
equal to $25.00 plus the value of all accrued and unpaid cash and in-kind
dividends. Until November 26, 2000, we may redeem all of our senior preferred
stock at 114% of its liquidation value, or $57.0 million. Thereafter, we may
redeem the
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shares at 115% of liquidation value. All redemptions of our senior preferred
stock shall include accrued and unpaid dividends payable thereon. We intend to
retire all of the outstanding shares of our senior preferred stock with the
proceeds from this offering. See "Use of Proceeds."
Other Preferred Stock
Our board of directors may, without further action by our stockholders, from
time to time, direct the issuance of shares of preferred stock in series and
may, at the time of issuance, determine the rights, preferences and limitations
of each series, including voting rights, dividend rights and redemption and
liquidation preferences. Satisfaction of any dividend preferences of outstanding
shares of preferred stock would reduce the amount of funds available for the
payment of dividends on shares of our common stock. Holders of shares of
preferred stock may be entitled to receive a preference payment in the event of
any liquidation, dissolution or winding-up of MSL before any payment is made to
the holders of shares of our common stock. In some circumstances, the issuance
of shares of preferred stock may render more difficult or tend to discourage a
merger, tender offer or proxy contest, the assumption of control by a holder of
a large block of our securities or the removal of incumbent management. Upon the
affirmative vote of a majority of the total number of directors then in office,
our board of directors, without stockholder approval, may issue shares of
preferred stock with voting and conversion rights which could adversely affect
the holders of shares of our common stock. Following this offering and the
application of the net proceeds therefrom, as described under "Use of Proceeds,"
there will be no shares of preferred stock outstanding.
We have no current intention to issue any of our unissued, authorized shares
of preferred stock. However, the issuance of any shares of preferred stock in
the future could adversely affect the rights of the holders of our common stock.
Registration Rights
Pursuant to the stockholders agreement, in the event we propose to file a
registration statement under the Securities Act with respect to an offering by
us for our own account or the account of another person, or both, some of our
stockholders, including the DLJ Entities, will be entitled to include shares
held by them in a registration, subject to the right of the managing underwriter
of the offering to exclude some or all of the shares from the registration if
and to the extent the inclusion of the shares would adversely affect the
marketing of the shares to be sold by us. The agreement also provides that,
following the closing of our initial public offering of common stock, some of
our stockholders, including the DLJ Entities, may require us to register shares
having a fair market value of at least $5.0 million, except that we are not
required to effect such registration more than:
- four times on behalf of the DLJ Merchant Banking Partners, L.P., DLJ
International Partners, C.V., DLJ Offshore Partners, C.V. or DLJ Merchant
Banking Funding, Inc.;
- three times on behalf of DLJ Investment Partners II, L.P., DLJ Investment
Funding II, Inc., DLJ ESC II L.P. or DLJ Investment Partners, L.P., and we
may be required to register shares having a fair market value of less than
$5.0 million if such amount represents all of their shares; or
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- once on behalf of the other stockholders party to the stockholders
agreement.
The agreement also provides that we will pay all expenses incurred in connection
with these registrations. We are not required, however, to effect any such
registration within six months after the effective date of a prior demand
registration. In addition, all holders of registerable securities are entitled
to request the inclusion of any shares of our common stock subject to the
stockholders agreement in any registration statement at our expense whenever we
propose to register any of our securities under the Securities Act, subject to
some conditions. In connection with all such registrations, we have agreed to
indemnify all holders of registerable securities against specified liabilities,
including liabilities under the Securities Act. In addition, Bank of America
National Trust and Savings Association is entitled to request the inclusion of
shares of our common stock issuable upon exercise of its warrant in any
registration statement on terms substantially similar to those described above.
Other Provisions of Our Restated Certificate of Incorporation and By-laws
CLASSIFIED BOARD. Our restated certificate provides for our board to be
divided into three classes, as nearly equal in number as possible, serving
staggered terms. Approximately one-third of our board will be elected each year.
Under the Delaware General Corporation Law, directors serving on a classified
board can only be removed for cause. Our restated certificate provides that an
affirmative vote of the holders of at least 75% of the shares of our capital
stock entitled to vote is required to remove a director without cause. The
provision for a classified board could prevent a party who acquires control of a
majority of our outstanding voting stock from obtaining control of the board
until our second annual stockholders meeting following the date the acquiror
obtains the controlling stock interest. The classified board provision could
have the effect of discouraging a potential acquiror from making a tender offer
or otherwise attempting to obtain control of MSL and could increase the
likelihood that incumbent directors will retain their positions.
ELIMINATION OF STOCKHOLDER ACTION THROUGH WRITTEN CONSENTS. Our by-laws
provide that stockholder action can be taken only at an annual or special
meeting of stockholders and cannot be taken by written consent in lieu of a
meeting.
ELIMINATION OF THE ABILITY TO CALL SPECIAL MEETINGS. Our restated
certificate and by-laws provide that, except as otherwise required by law,
special meetings of our stockholders can only be called pursuant to a resolution
adopted by a majority of our board of directors or by our chief executive
officer or the chairman of our board of directors. Stockholders are not
permitted to call a special meeting or to require our board to call a special
meeting.
ADVANCED NOTICE PROCEDURES FOR STOCKHOLDER PROPOSALS. Our by-laws establish
an advance notice procedure for stockholder proposals to be brought before an
annual meeting of our stockholders, including proposed nominations of persons
for election to our board. Stockholders at our annual meeting may only consider
proposals or nominations specified in the notice of meeting or brought before
the meeting by or at the direction of our board or by a stockholder who was a
stockholder of record on the record date for the meeting, who is entitled to
vote at the meeting and who has given to our secretary timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. Although our by-laws do not give our board the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business
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to be conducted at a special or annual meeting, our by-laws may have the effect
of precluding the conduct of some business at a meeting if the proper procedures
are not followed or may discourage or defer a potential acquiror from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of us.
AMENDMENTS TO THE RESTATED CERTIFICATE AND BY-LAWS. Our restated
certificate and by-laws provide that the affirmative vote of holders of at least
75% of the total votes eligible to be cast in the election of directors is
required to amend, alter, change or repeal some of their provisions. This
requirement of a super-majority vote to approve amendments to the restated
certificate and by-laws could enable a minority of our stockholders to exercise
veto power over any such amendments.
Provisions of Delaware Law Governing Business Combinations
Following the consummation of this offering, we will be subject to the
"business combination" provisions of the Delaware General Corporation Law. In
general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless:
- the transaction is approved by the board of directors prior to the date
the "interested stockholder" obtained such status;
- upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested
stockholder."
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of a corporation's voting stock or within three
years did own 15% or more of a corporation's voting stock. However, Donaldson,
Lufkin & Jenrette, Inc. and its affiliates will not be deemed to be "interested
stockholders" regardless of the percentage of our voting stock owned by them.
The statute could prohibit or delay mergers or other takeover or change in
control attempts with respect to us and, accordingly, may discourage attempts to
acquire us.
Limitations on Liability and Indemnification of Officers and Directors
Our restated certificate of incorporation limits the liability of our
directors to the fullest extent permitted by the Delaware General Corporation
Law and provides that we will indemnify them to
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the fullest extent permitted by such law. We expect to enter into
indemnification agreements with our current directors and executive officers
prior to the completion of this offering and expect to enter into a similar
agreement with any new directors or executive officers. We expect to increase
our director's and officer's liability insurance coverage prior to the
completion of this offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A.
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SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock in the public market
after this offering could adversely affect the prevailing market price of our
common stock. Furthermore, because no shares will be available for sale shortly
after this offering due to the contractual and legal restrictions on resale
described below, the sale of a substantial amount of our common stock in the
public market after these restrictions lapse could adversely affect the
prevailing market price of our common stock and our ability to raise equity
capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
30,947,770 shares of our common stock, assuming no exercise of outstanding
options. Of these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless the shares are purchased by "affiliates" as that term is defined in
Rule 144 under the Securities Act. Any shares purchased by an affiliate may not
be resold except pursuant to an effective registration statement or an
applicable exemption from registration, including an exemption under Rule 144 of
the Securities Act. The remaining shares of our common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. These restricted securities may be sold in the public
market only if they are registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act. These rules
are summarized below.
In connection with this offering, our existing officers and directors and
other persons who will own an aggregate of 18,589,729 shares of our common stock
after this offering, have agreed with the underwriters that, subject to
exceptions, they will not sell or dispose of any of their shares for 180 days
after the date of this prospectus. Donaldson, Lufkin & Jenrette Securities
Corporation may, in its sole discretion and at any time without notice, release
all or any portion of the shares subject to such restrictions. The shares of our
common stock outstanding upon closing of this offering will be available for
sale in the public market as follows:
<TABLE>
<CAPTION>
Approximate
Number of Shares Description
- ---------------- ------------------------------------------------------------
<S> <C>
11,000,000 After the date of this prospectus, freely tradeable shares
sold in this offering.
19,588,897 After December 31, 2000, these shares will be saleable under
Rule 144 (subject, in some cases, to volume limitations).
19,947,770 June 30, 2001, these shares will be saleable under Rule 144
(subject, in some cases, to volume limitations).
</TABLE>
Lock-up Agreements
We, our executive officers, directors, substantially all of our existing
stockholders and many of our optionholders who are senior officers have agreed
not to offer, sell, contract to sell or otherwise dispose of any shares of our
common stock for a period of 180 days after the date of this prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. However, this restriction does not apply to the shares of common
stock to be issued by us in connection with this offering or pursuant to
employee benefit plans existing on the date of this prospectus, sales or
dispositions to us, permitted transfers to related parties that agree to be
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bound by the foregoing restrictions or permitted sales of shares acquired in the
open market following the completion of this offering.
Rule 144
In general, under Rule 144 as currently in effect, beginning ninety (90)
days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year from the later of the date
those shares of common stock were acquired from us or from an affiliate of ours
would be entitled to sell within any three-month period, a number of shares that
does not exceed the greater of:
- one percent of the number of shares of our common stock then outstanding,
which will equal approximately 309,500 shares immediately after this
offering; or
- the average weekly trading volume of our common stock on the New York
Stock Exchange during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale of any shares of common stock.
The sales of any shares of our common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years from the later of the date
such shares of our common stock were acquired from us or from an affiliate of
ours, including the holding period of any prior owner other than an affiliate,
is entitled to sell those shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted pursuant to the lock-up agreements or
otherwise, those shares may be sold immediately upon the completion of this
offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell those shares ninety (90) days after the effective date of this
offering in reliance on Rule 144, but without compliance with some of the
restrictions, including the holding period, contained in Rule 144. No precise
prediction can be made as to the effect, if any, that market sales of shares or
the availability of shares for sale will have on the market price of our common
stock prevailing from time to time. We are unable to estimate the number of our
shares that may be sold in the public market pursuant to Rule 144 or Rule 701
because this will depend on the market price of our common stock, the personal
circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of our common stock in the public market could adversely
affect the market price of our common stock.
75
<PAGE>
Stock Plans
We intend to file a registration statement under the Securities Act covering
6,418,750 shares of common stock reserved for issuance under our non-qualified
stock option plan, 2000 Plan and stock purchase plan. This registration
statement is expected to be filed as soon as practicable after the effective
date of this offering.
As of April 2, 2000, there were options to purchase 2,521,703 shares
outstanding under our stock option plans. All of these shares will be eligible
for sale in the public market from time to time, subject to vesting provisions,
Rule 144 volume limitations applicable to our affiliates and, in the case of
some of the options, the expiration of lock-up agreements.
Registration Rights
Pursuant to the stockholders agreement, in the event we propose to file a
registration statement under the Securities Act with respect to an offering by
us for our own account or the account of another person, or both, some of our
stockholders, including the DLJ Entities, will be entitled to include shares
held by them in a registration, subject to the right of the managing underwriter
of the offering to exclude some or all of the shares from the registration if
and to the extent the inclusion of the shares would adversely affect the
marketing of the shares to be sold by us. In addition, Bank of America National
Trust and Savings Association has the right to require us to register the shares
of our common stock issuable upon exercise of its warrant on substantially
similar terms. See "Description of Capital Stock--Registration Rights."
Beginning 180 days after the date of the prospectus, the holders of an aggregate
of 17,708,334 shares of our outstanding common stock will have demand
registration rights pursuant to the stockholders agreement.
76
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
dated , 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Banc of America Securities
LLC, FleetBoston Robertson Stephens Inc., Thomas Weisel Partners LLC and
DLJDIRECT Inc., have severally agreed to purchase from us the respective number
of shares of common stock set forth opposite their names below.
<TABLE>
<CAPTION>
Underwriters Number of Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation.......................................
Banc of America Securities LLC......................
FleetBoston Robertson Stephens Inc..................
Thomas Weisel Partners LLC..........................
DLJDIRECT Inc.......................................
-------------
Total........................................... 11,000,000
=============
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of our common stock
included in this offering are subject to approval of legal matters by their
counsel and to customary conditions. The underwriters are obligated to purchase
and accept delivery of all the shares of our common stock offered in this
prospectus, other than those covered by the over-allotment option described
below, if they purchase any of the shares of our common stock.
The underwriters propose to initially offer some of the shares of our common
stock directly to the public at the initial public offering price set forth on
the cover page of this prospectus and some of the shares of our common stock to
dealers (including the underwriters) at the initial public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
those dealers may re-allow, a concession not in excess of $ per share on
sales to other dealers. After the initial public offering of our shares to the
public, the representatives of the underwriters may change the public offering
price and such concessions at any time without notice. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-managing
underwriter in 165 filed public offerings of equity securities, of which 112
have been completed, and has acted as a syndicate member in an additional 91
public offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
pursuant to the underwriting agreement entered into in connection with this
offering.
DLJDIRECT Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in this offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJDIRECT for sale to its
brokerage account holders. An electronic prospectus is available on the Internet
site
77
<PAGE>
maintained by DLJDIRECT Inc. Other than the prospectus in electronic format, the
information on the Internet site relating to our offering is not a part of this
prospectus, has not been approved or endorsed by us or any underwriter and
should not be relied on by prospective purchasers.
The following table shows the underwriting discount we will pay to the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of our common stock.
<TABLE>
<CAPTION>
Fees Paid by Fees Paid by
Manufacturers' the Selling
Services Limited Stockholders
------------------- ------------
No Full Full
Exercise Exercise Exercise
<S> <C> <C> <C>
Per share.............................. $ $ $
Total.................................. $ $ $
</TABLE>
The selling stockholders have granted to the underwriters an option,
exercisable for 30 days after the date of the underwriting agreement, to
purchase up to 1,650,000 additional shares of our common stock at the initial
public offering price less the underwriting fees. The underwriters may exercise
their option solely to cover over-allotments, if any, made in connection with
this offering. To the extent that the underwriters exercise their option, each
underwriter will become obligated, subject to conditions, to purchase a number
of additional shares approximately proportionate to their initial purchase
commitment. We have agreed that if any of the selling stockholders fail to
deliver their shares upon the exercise of the over-allotment option, we will
sell to the underwriters that number of shares of our common stock at the same
price. We will pay all of the offering expenses, estimated to be $1.5 million.
We and the selling stockholders have agreed to indemnify the underwriters
against specified civil liabilities, including liabilities under the Securities
Act, or to contribute to payments that the underwriters may be required to make
in respect of any of those liabilities.
We, our executive officers and directors and substantially all of our
stockholders have agreed, for a period of 180 days after the date of this
prospectus, not to, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities convertible
into or exercisable or exchangeable for our common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock, regardless of whether any of the transactions described in these
clauses are to be settled by the delivery of common stock, or such other
securities, in cash or otherwise.
However, we may:
- grant stock options or stock awards under our existing benefit or
compensation plans;
78
<PAGE>
- issue shares of our common stock upon the exercise of options, warrants or
rights or the conversion of currently outstanding securities; and
- issue, offer and sell shares of our common stock or securities convertible
into, or exercisable or exchangeable for, our common stock in transactions
not involving a public offering, or in connection with future
acquisitions, as long as each recipient of the securities agrees in
writing to be bound by the restrictions in this paragraph.
In addition, during this period, we have agreed not to file any registration
statement with respect to, and each of our executive officers and directors and
a significant majority of our stockholders have agreed not to make any demand
for, or exercise any right with respect to, the registration of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock (other than a registration statement registering options or
shares granted under a stock option plan) without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation.
Prior to this offering, there was no established trading market for our
common stock. The initial public offering price for our common stock will be
determined by negotiation among us and the representatives of the underwriters.
The factors to be considered in determining the initial public offering price
include:
- the history of and the prospects for the industry in which we compete;
- the ability of our management;
- our past and present operations;
- our prospects for future earnings;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of securities of generally comparable companies.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of our common
stock offered in this prospectus in any jurisdiction where action for that
purpose is required. The shares of our common stock offered in this prospectus
may not be offered or sold, directly or indirectly, nor may this prospectus or
any other offering material or advertisements in connection with the offer and
sale of any shares of our common stock be distributed or published in any
jurisdiction, except under circumstances that will result in compliance with the
applicable rules and regulations of the jurisdiction. Persons who receive this
prospectus are advised to inform themselves about and to observe any
restrictions relating to the offering of our common stock and the distribution
of this prospectus. This prospectus is not an offer to sell or a solicitation of
an offer to buy any shares of our common stock included in this offering in any
jurisdiction where that would not be permitted or legal.
In connection with this offering, some underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of our common stock in the open market to cover syndicate
short positions or to stabilize the price of our common stock. In addition, the
underwriting syndicate may reclaim
79
<PAGE>
selling concessions from syndicate members and selected dealers if they
repurchase previously distributed shares of our common stock in syndicate
covering transactions, stabilizing transactions or otherwise. These activities
may stabilize or maintain the market price of our common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
At our request, Donaldson, Lufkin & Jenrette Securities Corporation has
reserved up to five percent of the shares offered by this prospectus for sale at
the initial public offering price to our employees, officers, directors and
other individuals associated with us and members of their families. The number
of shares of common stock available for sale to the general public will be
reduced to the extent any reserved shares are purchased. Any reserved shares not
so purchased will be offered by Donaldson, Lufkin & Jenrette Securities
Corporation on the same basis as the other shares of our common stock. Any
employees, directors or other persons purchasing such reserved shares will be
prohibited from selling, transferring, assigning, pledging or hypothecating such
shares for a period of three months following the effective date of this
offering.
We have applied to have our common stock listed on the New York Stock
Exchange under the symbol "MSV."
DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V., DLJ
ESC II, L.P., DLJ First ESC, L.P., DLJ Merchant Banking Funding, Inc., DLJ
Offshore Partners, C.V., DLJ Investment Partners II, L.P., DLJ Investment
Partners, L.P. and DLJ Investment Funding II, L.P., each of which are affiliates
of Donaldson, Lufkin & Jenrette Securities Corporation, are stockholders of MSL.
In addition, DLJ Merchant Banking Partners, L.P., has the right to appoint a
majority of the members of our board of directors. So long as shares of our
senior preferred stock are held by any of the DLJ Entities, DLJ Investment
Partners II, L.P. has the right to elect one member of our board of directors
pursuant to the terms of the stockholders agreement. DLJ Capital Funding, Inc.
acted as syndication agent and is a lender under our bank credit facility and is
expected to be the syndication agent and a lender under our new bank credit
facility. In addition, affiliates of some of the underwriters are lenders under
our bank credit facility and will receive proceeds from this offering upon
repayment of this indebtedness. Prior to this offering, Donaldson, Lufkin &
Jenrette Securities Corporation and its affiliates and employees own an
aggregate of approximately 90% percent of the issued and outstanding shares of
our common stock. See "Principal and Selling Stockholders."
The offering is being conducted in accordance with Rule 2720 of the Conduct
Rules of the NASD, which provides that, among other things, when an NASD member
participates in the underwriting of its parent's equity securities, the initial
public offering price can be no higher than that recommended by a "qualified
independent underwriter" meeting specified standards. In accordance with this
requirement, Banc of America Securities LLC will serve in this role and will
recommend a price in compliance with the requirements of Rule 2720. In
connection with this offering, Banc of America Securities LLC, in its role as
qualified independent underwriter, has exercised its usual standards of "due
diligence" and has reviewed and participated in the preparation of this
prospectus and the registration statement of which this prospectus forms a part
and will recommend the maximum price at which our common stock may be offered
hereby. Banc of America Securities LLC will receive a separate fee of $5,000 for
its services as qualified
80
<PAGE>
independent underwriter. In addition, the underwriters may not confirm sales to
any discretionary account without the prior specific written approval of the
customer.
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be passed
upon for us by Ropes & Gray, Boston, Massachusetts. Various legal matters
related to the sale of our common stock offered hereby will be passed upon for
the underwriters by Davis, Polk & Wardwell, New York, New York.
EXPERTS
The financial statements as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus and the financial statement schedules included in the registration
statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules which are part of the registration statement. For further
information about us and our common stock, you should refer to the registration
statement. With respect to each such contract, agreement or other document filed
as an exhibit to the registration statement you should refer to the exhibit for
a more complete description of the matter involved, and each statement in this
prospectus shall be deemed qualified in its entirety by this reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information in the files at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C., 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
request copies of these documents upon payment of a duplicating fee by writing
to the Commission. You may call the Commission at 1-800-SEC-0330 for further
information on the operation of its public reference rooms. Our filings,
including the registration statement, will also be available to you on the
Internet site maintained by the Commission at http://www.sec.gov.
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You can request copies of these documents,
for a copying fee, by writing to the SEC. We intend to furnish our stockholders
with annual reports containing financial statements audited by our independent
auditors.
81
<PAGE>
MANUFACTURERS' SERVICES LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended
December 31, 1997, 1998 and 1999.......................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to the Consolidated Financial Statements.............. F-7
Consolidated Balance Sheets as of December 31, 1999 and
April 2, 2000 (unaudited)................................. F-30
Consolidated Statements of Operations for the three months
ended April 4, 1999 and April 2, 2000 (unaudited)......... F-31
Consolidated Statements of Cash Flows for the three months
ended April 4, 1999 and April 2, 2000 (unaudited)......... F-33
Notes to Interim Consolidated Financial Statements
(unaudited)............................................... F-34
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Manufacturers' Services Limited
The recapitalization described in Note 13 to the financial statements has
not been consummated at April 28, 2000. When it has been consummated, we will be
in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of stockholders'
equity and of cash flows present fairly, in all material respects,
the financial position of Manufacturers' Services Limited and its
subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United
States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 2000
F-2
<PAGE>
MANUFACTURERS' SERVICES LIMITED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------------
ASSETS 1998 1999
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 23,969 $ 24,182
Accounts receivable, less allowance for doubtful accounts
of $698 and $728
at December 31, 1998 and 1999, respectively............. 118,513 131,301
Inventories............................................... 87,487 125,164
Deferred tax asset........................................ 824 1,068
Prepaid expenses and other current assets................. 4,241 17,550
-------- --------
Total current assets.................................... 235,034 299,265
Property and equipment, net............................... 33,786 62,814
Goodwill and other intangibles............................ 676 37,949
Deferred tax asset........................................ 763 121
Other assets.............................................. 7,349 11,634
-------- --------
Total assets............................................ $277,608 $411,783
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations............................................. $ 4,939 $ 5,414
Accounts payable.......................................... 146,619 164,261
Accrued expenses and other current liabilities............ 21,953 26,177
Restructuring reserve..................................... 4,671 668
Income taxes payable...................................... 2,512 4,472
-------- --------
Total current liabilities............................... 180,694 200,992
Long-term debt and capital lease obligations................ 57,188 121,929
Other liabilities........................................... 552 1,037
-------- --------
Total liabilities....................................... 238,434 323,958
Commitments and contingencies (Note 10)
Senior redeemable preferred stock, 2,000,000 shares
authorized; 0 and
2,000,000 shares issued and outstanding at December 31,
1998 and 1999,
respectively; redemption value of $25 per share........... -- 39,204
Stockholders' equity:
Preferred stock, $0.001 par value, 3,000,000 shares
authorized; no shares
issued and outstanding.................................. -- --
Common stock, $0.001 par value; 150,000,000 shares
authorized;
18,849,480 and 19,588,897 shares issued and outstanding
at
December 31, 1998 and 1999, respectively................ 19 20
Additional paid in capital................................ 75,455 88,471
Accumulated deficit....................................... (32,371) (30,361)
Accumulated other comprehensive loss...................... (3,929) (9,509)
-------- --------
Total stockholders' equity.............................. 39,174 48,621
-------- --------
Total liabilities and stockholders' equity.............. $277,608 $411,783
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
MANUFACTURERS' SERVICES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Net sales...................................... $ 562,666 $ 837,993 $ 920,722
Cost of goods sold............................. 526,787 792,734 865,489
----------- ----------- -----------
Gross profit................................... 35,879 45,259 55,233
Operating expenses:
Selling, general and administrative.......... 28,037 29,494 37,580
Restructuring and other asset writedowns..... 12,094 6,729 780
Non cash stock based compensation............ -- 341 462
----------- ----------- -----------
40,131 36,564 38,822
----------- ----------- -----------
Operating income (loss)........................ (4,252) 8,695 16,411
Interest expense, net.......................... (7,723) (10,161) (8,081)
Foreign exchange gain (loss)................... (931) 721 (2,510)
----------- ----------- -----------
Income (loss) before provision for income taxes
and extraordinary loss....................... (12,906) (745) 5,820
Provision for income taxes..................... 4,372 3,294 3,810
----------- ----------- -----------
Income (loss) before extraordinary loss........ (17,278) (4,039) 2,010
Extraordinary loss............................. -- (2,202) --
----------- ----------- -----------
Net income (loss).............................. $ (17,278) $ (6,241) $ 2,010
=========== =========== ===========
Net income (loss) applicable to common stock... $ (17,278) $ (6,241) $ 1,201
=========== =========== ===========
Basic income (loss) per share:
Income (loss) before extraordinary loss...... $ (1.07) $ (0.21) $ 0.06
Extraordinary loss........................... $ -- $ (0.12) $ --
Net income (loss)............................ $ (1.07) $ (0.33) $ 0.06
Weighted average shares outstanding.......... 16,171,809 18,745,786 19,384,277
Diluted income (loss) per share:
Income (loss) before extraordinary loss...... $ (1.07) $ (0.21) $ 0.06
Extraordinary loss........................... $ -- $ (0.12) $ --
Net income (loss)............................ $ (1.07) $ (0.33) $ 0.06
Weighted average shares outstanding.......... 16,171,809 18,745,786 19,608,168
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
MANUFACTURERS' SERVICES LIMITED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common stock Accumulated
-------------------- Additional other Total
Number paid in Accumulated comprehensive Comprehensive stockholders'
of shares Amount capital deficit income (loss) income (loss) equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................. 13,253 $13 $49,242 $ (8,852) $(1,071) $ 39,332
Net loss................ (17,278) $(17,278) (17,278)
Issuance of stock....... 5,208 5 24,995 25,000
Fees associated with
stock issuance........ (300) (300)
Exercise of stock
options............... 163 1 650 651
Redemption of preferred
stock of subsidiary... (171) (171)
Translation
adjustment............ (5,137) (5,137) (5,137)
------ --- ------- -------- ------- -------- --------
Comprehensive income
(loss)................ $(22,415)
--------
Balance at December 31,
1997.................. 18,624 $19 $74,416 $(26,130) $(6,208) $ 42,097
Net loss................ (6,241) (6,241) (6,241)
Issuance of stock....... 71 341 341
Exercise of stock
options............... 54 217 217
Purchase of shares...... 100 481 481
Translation
adjustment............ 2,279 2,279 2,279
------ --- ------- -------- ------- -------- --------
Comprehensive income
(loss)................ $ (3,962)
--------
Balance at December 31,
1998.................. 18,849 $19 $75,455 $(32,371) $(3,929) $ 39,174
Net income.............. 2,010 2,010 2,010
Issuance of stock....... 90 430 430
Exercise of stock
options............... 559 1 2,236 2,237
Purchase of shares...... 91 436 436
Dividends declared on
preferred shares...... (671) (671)
Issuance of warrants.... 10,723 10,723
Accretion of preferred
stock................. (138) (138)
Translation
adjustment............ (5,580) (5,580) (5,580)
------ --- ------- -------- ------- -------- --------
Comprehensive income
(loss)................ $ (3,570)
--------
Balance at December 31,
1999.................. 19,589 $20 $88,471 $(30,361) $(9,509) $ 48,621
====== === ======= ======== ======= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
MANUFACTURERS' SERVICES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
<S> <C> <C> <C>
Cash flows relating to operating activities:
Net income (loss)......................................... $(17,278) $ (6,241) $ 2,010
Adjustments to reconcile net income to net cash provided
by
(used in) operating activities:
Depreciation and amortization......................... 8,376 10,933 14,433
Amortization of capitalized finance fees.............. 1,419 1,800 777
Write off of capitalized bank fees.................... -- 2,202 --
Additions to allowance for doubtful accounts.......... 232 319 339
Issuance of shares to founders........................ -- 341 422
Non cash charge for option issuance................... -- -- 40
Foreign exchange (gain) loss.......................... 870 (485) 2,249
Deferred taxes........................................ 1,189 1,196 370
Writedowns and loss on disposal of fixed assets....... 5,184 1,302 1,854
Changes in operating assets and liabilities:
Accounts receivable..................................... (51,199) (3,282) (16,094)
Inventories............................................. (20,297) 5,284 (42,591)
Prepaid expenses and other assets....................... (2,577) (1,447) (13,910)
Accounts payable........................................ 44,545 26,700 20,122
Accrued expenses and other liabilities.................. 12,140 2,448 4,858
-------- -------- --------
Net cash provided by (used in) operating activities......... (17,396) 41,070 (25,121)
-------- -------- --------
Cash flows relating to investing activities:
Acquisition of businesses, net of cash acquired........... -- -- (1,844)
Intangible assets acquired................................ -- -- (35,287)
Proceeds from sale of fixed assets........................ -- 785 406
Purchases of property and equipment....................... (25,780) (2,774) (39,094)
Cost of internal use software............................. (198) (2,494) (5,956)
-------- -------- --------
Net cash used in investing activities....................... (25,978) (4,483) (81,775)
-------- -------- --------
Cash flows relating to financing activities:
Proceeds from long-term debt.............................. 37,195 50,000 --
Net proceeds from (payments on) new revolving line of
credit.................................................. (2,057) 3,500 64,600
Repayment of old revolving line of credit................. -- (22,000) --
Repayments of long-term debt and capital lease
obligations............................................. (9,233) (52,599) (6,268)
Debt issuance and amendment costs......................... (365) (3,104) (894)
Proceeds from exercise of stock options................... 651 217 2,237
Proceeds from issuance of common stock.................... 24,700 481 436
Proceeds from issuance of preferred stock and warrants.... -- -- 50,000
Issuance costs of preferred stock and warrants............ -- -- (882)
Redemption of preferred stock of subsidiary............... (671) -- --
-------- -------- --------
Net cash provided by (used in) financing activities......... 50,220 (23,505) 109,229
-------- -------- --------
Effect of foreign exchange rate changes on cash............. (980) 1,374 (2,120)
-------- -------- --------
Net increase in cash........................................ 5,866 14,456 213
Cash and cash equivalents at beginning of year.............. 3,647 9,513 23,969
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 9,513 $ 23,969 $ 24,182
======== ======== ========
Supplemental cash flow data:
Interest paid............................................. $ 5,782 $ 8,417 $ 8,140
======== ======== ========
Taxes paid................................................ $ 4,804 $ 1,826 $ 1,342
======== ======== ========
Assets acquired under capital leases...................... $ 6,021 $ 2,578 $ 2,861
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1. Description of Operations
Manufacturers' Services Limited (the "Company" or "MSL") is a leading global
provider of advanced electronics design, manufacturing and related services to
original equipment manufacturers ("OEMs") primarily in the voice and data
communications, computer and related peripherals, medical equipment and
industrial and consumer electronics industries. The Company provides OEMs with a
range of services including product design and new product introduction
services, material procurement and management, assembly and manufacturing,
testing services, order fulfillment and distribution, and after-market support.
The Company has established a network of manufacturing facilities in the world's
major electronics markets, including North America, Europe and Asia.
2. Summary of Significant Accounting Policies
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of all significant
intercompany accounts and transactions.
CASH EQUIVALENTS
The Company considers all highly liquid financial instruments purchased with
a remaining maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market with cost being
determined on the FIFO basis.
INCOME TAXES
Income taxes for financial reporting purposes are recorded in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax bases of the Company's assets and liabilities. The measurement of deferred
tax assets is reduced, if necessary, by a valuation allowance.
U.S. income taxes have not been provided on a portion of undistributed
earnings of foreign subsidiaries as such earnings are expected to be permanently
reinvested. Such earnings would become taxable upon the sale or liquidation of
these foreign subsidiaries or upon the remittance of dividends. It is not
practicable to estimate the amount of the deferred tax liability on foreign
undistributed earnings that are intended to be permanently reinvested.
F-7
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed based
on the estimated useful lives of the respective assets, using the straight-line
method. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Machinery and equipment............................... 1 to 10 years
Land improvements..................................... 5 to 15 years
Building improvements................................. 5 to 15 years
Buildings............................................. 45 years
</TABLE>
Repair and maintenance costs are expensed as incurred.
OTHER ASSETS
Debt issuance costs associated with the Company's credit agreements are
capitalized and amortized on a straight line basis over the life of the
agreement. Amortization of these assets is included in interest expense.
Straight line amortization is not considered to be materially different from
amortization under the interest method.
The Company capitalizes the cost of software for internal use in accordance
with Statement of Position No. 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." In compliance with SOP 98-1,
the Company expenses costs incurred in the preliminary project stage and
capitalizes costs incurred to develop or obtain internal use software. Certain
costs, such as maintenance and training, are expensed as incurred. Capitalized
costs are amortized over a period of three to five years and include direct
materials and external consultant costs.
OTHER INTANGIBLE ASSETS
In connection with a current year asset acquisition (see Note 9), the
Company acquired the following intangible assets:
<TABLE>
<S> <C>
Customer relationships..................................... $32,784
Workforce in place......................................... 1,155
Internal use software...................................... 1,348
-------
$35,287
=======
</TABLE>
These assets are being amortized over their estimated useful lives, ranging
from four to six years. The amortization expense recorded in 1999 relating to
these assets amounted to $497.
GOODWILL
The excess of cost over fair value of the net assets of businesses acquired
is amortized on a straight-line basis over periods ranging from five to ten
years. Goodwill amortization during the
F-8
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
years ended 1997, 1998 and 1999 was $1,415, $397 and $575, respectively.
Accumulated amortization as of December 31, 1997, 1998 and 1999 was $2,533,
$2,930 and $3,505, respectively.
In a 1995 acquisition, the estimated fair values of assets acquired exceeded
the purchase price. The excess was applied ratably to reduce the carrying value
of the long-term assets and the residual value was recorded as negative goodwill
in other long-term liabilities and was amortized over three years. Negative
goodwill amortized during the years ended December 31, 1997 and 1998 was $1,265
and $844, respectively. Net negative goodwill was fully amortized as of
December 31, 1998.
IMPAIRMENT OF ASSETS
The Company evaluates long-lived assets and intangibles whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposal are less than its carrying amount. In such instances, the
carrying value of long-lived assets is reduced to the estimated fair value as
determined using an appraisal or discounted cash flow, as appropriate. During
1997, the Company wrote-off the remaining value of goodwill relating to the
Company's subsidiary in Athlone, Ireland, of $838 as this subsidiary continued
to generate negative cash flows. This amount was recorded as amortization in
operating income in 1997.
FOREIGN CURRENCY CONTRACTS
The Company has from time to time entered into forward foreign exchange and
option contracts to hedge firm commitments and existing transactions. The
Company does not engage in currency speculation. These financial instruments are
designed to minimize exposure and reduce risk from exchange rate fluctuations in
the regular course of business. These contracts have maturities which do not
exceed six months. Gains and losses on these contracts are accounted for as part
of the underlying transaction being hedged.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This pronouncement will require the
Company to recognize derivatives on its balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company is continuing to evaluate the
impact that this new standard will have on its results of operations. Statement
of Financial Accounting Standards No. 137 "Accounting For Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of SFAS 133"
("SFAS 137") deferred the effective date of SFAS 133 to fiscal years beginning
after June 15, 2000, which is fiscal year 2001 for the Company.
F-9
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The Company enters into forward foreign currency agreements to hedge certain
foreign currency transactions. Realized and unrealized gains and losses arising
from forward currency contracts are recognized as adjustments to the gains and
losses resulting from the underlying hedged transactions. The table below
summarizes the notional amounts and fair values of the Company's foreign
exchange contracts which have been entered into by the Company's Spanish
subsidiary:
<TABLE>
<CAPTION>
Currency Notional Amount Buy (Sell) Fair Value
- -------- -------------------------- ----------
<S> <C> <C>
US Dollar................................... $(12,000) $(113)
US Dollar................................... $ 6,500 $ 55
</TABLE>
The fair values of the Company's forward foreign exchange contracts are the
estimated amounts the Company would receive or pay to terminate the agreements
based on quoted market prices obtained from brokers.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of product or as services are
rendered to customers.
RESEARCH AND DEVELOPMENT
Research and development costs related to the Company's manufacturing
processes are expensed currently. Costs related to manufacturing design services
provided to customers are charged to cost of goods sold as services are
rendered. Total expenditures on research and development for the years ended
December 31, 1997, 1998 and 1999 were $1,600, $2,500 and $3,200, respectively.
FOREIGN CURRENCY
Monetary assets and liabilities of foreign subsidiaries with the US dollar
as the functional currency are remeasured at year-end exchange rates and
non-monetary assets and liabilities are remeasured at historical rates. Foreign
subsidiaries with functional currencies other than the US dollar translate
assets and liabilities at year-end exchange rates; income, expenses and cash
flows at average exchange rates; and stockholders' equity at historical rates.
The effects of these translation adjustments are reported as accumulated other
comprehensive income or loss in stockholders' equity. Foreign exchange gains and
losses arising from transactions denominated in a currency other than the
functional currency of the entity involved are included in income.
EARNINGS (LOSS) PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128
"Earnings per Share," ("SFAS 128"), the Company presents basic and diluted
earnings (loss) per share ("EPS") amounts. Basic EPS is calculated based on net
earnings (loss) available to common stockholders
F-10
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
and the weighted average number of shares outstanding during the reported
period. Diluted EPS gives effect to all dilutive potential common shares that
were outstanding during the period.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk include foreign exchange contracts and accounts receivable.
The exposure to credit risk from foreign exchange contracts is minimized
since they are held with major financial institutions and because the impact of
movements in currency exchange rates on such contracts offsets the related
impact of such movements on other transactions and balances.
Potential concentrations of credit risk in the Company's trade accounts
receivable are substantially mitigated by the Company's credit evaluation
process, reasonably short collection terms and geographical dispersion of sales
transactions. Collateral is generally not required by the Company. The Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of trade receivables, other current assets, accounts
payable, and accrued expenses and other current liabilities approximate their
fair value due to their current nature.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
SEGMENT REPORTING
The Company has adopted Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information,"
which requires financial and descriptive information about an enterprise's
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available and regularly
evaluated by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. The Company operates in one business
segment, electronics design and manufacturing services.
RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified to
conform to the current year presentation.
F-11
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
3. Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
<S> <C> <C>
Raw materials and purchased inventory.................. $65,595 $ 91,944
Work-in-process........................................ 17,997 29,623
Finished goods......................................... 3,895 3,597
------- --------
$87,487 $125,164
======= ========
</TABLE>
4. Prepaid and Other Current Assets
Prepaids and other current assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
<S> <C> <C>
Non-trade receivables.................................... $ -- $ 8,954
Value added tax receivables.............................. -- 3,701
Other.................................................... 4,241 4,895
------ -------
$4,241 $17,550
====== =======
</TABLE>
5. Property and Equipment
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
<S> <C> <C>
Land, buildings and leasehold improvements............. $ 4,560 $ 19,608
Machinery, equipment, computer equipment,
furniture and fixtures............................... 49,028 73,742
-------- --------
53,588 93,350
Less accumulated depreciation.......................... (19,802) (30,536)
-------- --------
$ 33,786 $ 62,814
======== ========
</TABLE>
Depreciation expense totaled $7,575, $10,686 and $11,686 for the periods
ended December 31, 1997, 1998 and 1999, respectively. Gross value of equipment
under capital leases, primarily machinery and equipment was $13,092 and $8,673
and the related accumulated depreciation on those assets totaled $5,695 and
$5,252 at December 31, 1998 and 1999, respectively.
F-12
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
6. Other Assets
Other assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
<S> <C> <C>
Debt issuance costs...................................... $2,683 $ 2,800
Internal use software costs, net......................... 4,001 8,332
Other.................................................... 665 502
------ -------
$7,349 $11,634
====== =======
</TABLE>
Amortization of debt issuance costs for the periods ended December 31, 1997,
1998 and 1999 was $1,419, $1,800 and $777, respectively. In 1998, the Company
wrote off $2,202 of debt issuance costs related to the old credit facility (see
Note 8).
The gross cost of internal use software at December 31, 1998 and 1999 was
$5,267 and $11,223, respectively. Amortization of internal use software costs
for the periods ended December 31, 1997, 1998 and 1999 was $651, $694 and
$1,675, respectively.
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised of the
following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
<S> <C> <C>
Payroll and other employee costs........................ $ 9,383 $12,363
Value added tax and withholding tax payable............. 3,677 3,054
Other................................................... 8,893 10,760
------- -------
$21,953 $26,177
======= =======
</TABLE>
F-13
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
8. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
<S> <C> <C>
Revolving Facility..................................... $ 3,500 $ 68,100
Term Loans............................................. 49,875 49,375
Unsecured non-interest bearing obligation due to former
owner of an acquired subsidiary. Payments are due in
equal annual installments of approximately $245,
beginning January 1998 and continuing through
January 2001......................................... 735 490
Unsecured interest bearing obligations due to former
owners of acquired businesses with an interest rate
of 5%. Payments are due in annual installments of
approximately $700, beginning April 2000 and
continuing through June 2002......................... -- 1,916
Obligations under capital leases....................... 8,017 7,462
------- --------
62,127 127,343
Less: Current portion.................................. 4,939 5,414
------- --------
$57,188 $121,929
======= ========
</TABLE>
CREDIT AGREEMENT
On August 21, 1998, the Company and one of its Dutch finance subsidiaries
(MSL Overseas Finance B.V., herein "Overseas") entered into a six year credit
agreement (the "Credit Agreement") with a consortium of banks, including an
affiliate of a significant stockholder. The Credit Agreement contains two
facilities: a $50,000 bank term loan facility (the "Term Loans") and a $75,000
revolving credit facility (the "Revolving Facility").
On August 28, 1998, MSL borrowed $15,000 and Overseas borrowed $35,000 in
Term Loans. There are regular quarterly principal payments of $125, split $38 by
MSL and $87 by Overseas through the quarter ended May 31, 2004, with the
remaining balance of $47,125 split $14,137 by MSL and $32,988 by Overseas due on
July 31, 2004. At December 31, 1999, $14,810 of the Term Loans was owed by MSL
and $34,565 was owed by Overseas.
In November 1999, the Company entered into an amendment to the Credit
Agreement (the "Amendment"). The Amendment served to modify the Company's
borrowing base on the revolving credit facility and to modify the spread used in
calculating interest on the outstanding borrowings. In 1999, the Company
incurred $894 of debt issuance costs in association with the closing of the
Amendment.
F-14
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The cost of borrowings under the Term Loans is the applicable spread plus
the underlying cost of funds option (base rate or Adjusted LIBOR). The spread on
the base rate loans is 2.75% and the spread on the Adjusted LIBOR loans is
3.75%. All interest is payable in arrears quarterly. At December 31, 1999, the
interest rate on the Term Loans was 9.938%.
Borrowings under the Revolving Facility are limited to (i) between 80% and
90% of the Company's eligible accounts receivable (dependent on the customer)
plus 35% of the Company's eligible inventory, to the extent that inventory does
not represent more than 50% of the total borrowing base, less (ii) the total
amounts outstanding under the Term Loans. The Company must calculate these
restrictions separately for MSL and Overseas. The Revolving Facility expires on
July 31, 2002 and provides for a commitment fee of between 0.45% and 0.50% on
the unused portion of the Revolving Facility, payable in arrears quarterly. On
December 31, 1999, the Company had available credit of $6,900 under the
Revolving Facility.
The cost of borrowings under the Revolving Facility is the applicable spread
plus the underlying cost of funds option (either the base rate or Adjusted
LIBOR). The spread on the base rate loans varies between 1.75% and 2.25%, based
on the Company's consolidated leverage ratio. The spread on the Adjusted LIBOR
loans is between 2.75% and 3.25%, based on the Company's consolidated leverage
ratio. All interest is payable in arrears quarterly. At December 31, 1999, the
interest rate on the Revolving Facility was between 9.188% and 10.50%.
Up to $10,000 of the Revolving Facility is available to MSL or Overseas in
the form of either financial or performance standby letters of credit.
Outstanding letters of credit are subject to a one-time issuance fee and to an
amount, payable quarterly, calculated on the available amount to be drawn. The
Company had no letters of credit outstanding at December 31, 1999.
Borrowings by either MSL or Overseas under the Credit Agreement are
collateralized by the assets of all domestic subsidiaries of the Company while
assets of all foreign subsidiaries secure only the borrowings by Overseas. The
borrowings are subject to certain restrictive covenants, including the
maintenance of key financial ratios, limitations on capital expenditures and a
limitation on paying dividends on Common Stock.
In 1998, the Company wrote off $2,202 of unamortized debt issuance costs in
conjunction with the cancellation of a prior facility that was replaced with the
Credit Agreement. This writeoff is classified as an extraordinary loss on the
statement of operations. A valuation allowance was provided on the tax benefit
associated with this writeoff.
F-15
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Principal due on long-term debt for each of the years following
December 31, 1999 is as follows:
<TABLE>
<S> <C>
2000........................................................ $ 1,449
2001........................................................ 1,384
2002........................................................ 69,171
2003........................................................ 503
2004........................................................ 47,374
--------
$119,881
========
</TABLE>
CAPITAL LEASES
The Company leases certain equipment under capital lease arrangements.
Future minimum lease payments under capitalized leases for each of the years
following December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000........................................................ $4,203
2001........................................................ 2,213
2002........................................................ 1,474
2003........................................................ 2
------
Future minimum payments..................................... 7,892
Less amounts representing interest.......................... 430
------
Present value of future minimum lease payments
(including current portion of $3,965)..................... $7,462
======
</TABLE>
9. Acquisitions
BUSINESS ACQUISITIONS
In April 1999, MSL acquired the assets of Electronic System Packaging, Inc.,
a privately held company located in Massachusetts, which provides electronics
design services, for a purchase price of $2,850. The purchase price consisted of
cash of $2,600 and 208,000 shares of the Company's Common Stock.
In June 1999, MSL acquired the assets of Ronlin Design Co., Inc., a
privately held company located in Massachusetts, which provides electronics
design services, for a total purchase price of $1,596. The purchase price
consisted of cash of $1,416 and 150,000 shares of the Company's Common Stock.
With respect to the cash component of these acquisitions, $2,100 was paid on
the dates of the transactions, with the remaining balances of $1,916 to be paid
in future installments (see Note 8).
F-16
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
These acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on the estimated fair values at the date
of acquisition.
ASSET ACQUISITIONS
In June 1998, the Company entered into a three-year outsourcing agreement to
perform and manage certain manufacturing, fulfillment, integration and other
services to IBM. As part of this agreement, MSL purchased certain machinery and
equipment at its estimated fair value of $125 and leased a manufacturing
facility from IBM. In addition, MSL purchased certain inventory at its estimated
fair value of $30,000.
In November 1999, the Company acquired certain assets from 3Com Corporation
("3Com") used in the production of Palm handheld computing devices and modems
and network interface cards for total consideration of $79,480, including
approximately $776 of assumed liabilities. These assets consisted primarily of a
manufacturing facility, other fixed assets, inventory and certain intangible
assets, consisting primarily of customer relationships, workforce in place and
internal use software. The transaction was accounted for as a purchase of
assets, and the purchase price was allocated to the assets acquired based on the
relative fair values of the tangible and intangible assets at the date of
acquisition, as follows:
<TABLE>
<CAPTION>
<S> <C>
Land and buildings.......................................... $16,510
Other fixed assets.......................................... 15,025
Inventory................................................... 12,658
Intangible assets........................................... 35,287
-------
$79,480
=======
</TABLE>
Under the terms of related supply agreements with 3Com and Palm, Inc, a
subsidiary of 3Com, the Company will provide a full range of manufacturing
services related to the production of Palm handheld computing devices and modems
and network interface cards for an initial term of two years.
F-17
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
10. Commitments and Contingencies
OPERATING LEASES
The Company leases certain facilities and equipment under operating leases
extending until the year 2017. Future minimum commitments under these leases for
each of the years following December 31, 1999 are summarized as follows:
<TABLE>
<S> <C>
2000....................................................... $ 8,146
2001....................................................... 3,952
2002....................................................... 1,830
2003....................................................... 1,248
2004....................................................... 1,209
Thereafter................................................. 2,556
-------
Future minimum payments.................................... $18,941
=======
</TABLE>
Total rent expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $3,516, $7,743 and $8,109, respectively.
LITIGATION
In 1998, Lockheed Martin Corporation ("LM") filed a complaint against the
Company and certain principal stockholders. The complaint alleges that the
Company failed to complete the acquisition of one of LM's subsidiaries under a
purchase agreement signed in 1997. The complaint alleges unspecified damages,
which may exceed $70 million based on the ultimate selling price of LM's
subsidiary to another unrelated party. It is the Company's position that a
material adverse change to the subsidiary's business relieved the Company of the
obligation to close the purchase agreement. Although no assurance can be given
as to the ultimate outcome with respect to this lawsuit, the Company believes
that it has meritorious defenses and, accordingly, that the outcome of this
action will not have a material adverse effect on the Company's financial
position or its results of operations.
In addition, the Company is from time to time subject to legal proceedings
and claims which arise in the normal course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions will
not have a material adverse effect on the Company's financial position or its
results of operations. See Note 21 for discussion of the settlement of this
litigation subsequent to the original issuance of these financial statements.
F-18
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
11. Income Taxes
Worldwide income (loss) before income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
<S> <C> <C> <C>
Domestic................................. $(15,824) $(2,478) $(5,368)
Foreign.................................. 2,918 1,733 11,188
-------- ------- -------
$(12,906) $ (745) $ 5,820
======== ======= =======
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
<S> <C> <C> <C>
Current:
Federal................................... $ -- $ -- $ --
State..................................... -- -- 150
Foreign................................... 3,197 1,960 3,487
------ ------ ------
3,197 1,960 3,637
Deferred:
Federal................................... -- -- --
State..................................... -- -- --
Foreign................................... 1,175 1,334 173
------ ------ ------
1,175 1,334 173
------ ------ ------
$4,372 $3,294 $3,810
====== ====== ======
</TABLE>
The overall effective income tax rate differs from the expected federal U.S.
income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
<S> <C> <C> <C>
Income tax (benefit) expense at expected
rate of 34%.............................. $(4,388) $ (253) $ 1,979
Change in valuation allowance.............. 8,904 978 1,482
Foreign tax credits........................ (1,998) (192) (1,668)
Deemed remittance of foreign earnings...... 81 -- 1,526
Income of foreign subsidiaries taxed
at different rates....................... 1,225 1,997 (97)
Other...................................... 548 764 588
------- ------ -------
Income tax expense......................... $ 4,372 $3,294 $ 3,810
======= ====== =======
</TABLE>
F-19
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
<S> <C> <C>
Deferred tax assets:
Accruals, allowances and reserves.............. $ 8,016 $ 7,904
NOL carryforwards.............................. 10,028 10,894
Plant and equipment............................ 653 942
Foreign Tax Credits............................ 1,880 3,431
Other.......................................... 38 73
-------- --------
Total deferred tax assets........................ 20,615 23,244
-------- --------
Deferred tax liabilities:
Plant and equipment............................ (873) (1,977)
Other.......................................... (457) (93)
-------- --------
Total deferred tax liabilities................... (1,330) (2,070)
-------- --------
Deferred tax valuation allowance................. (17,698) (19,985)
-------- --------
Net deferred tax assets.......................... $ 1,587 $ 1,189
======== ========
</TABLE>
Management believes that it is more likely than not that it will generate
taxable income in certain jurisdictions sufficient to realize a portion of the
tax benefit associated with the future deductible temporary differences
identified above. This belief is based upon a review of all available evidence,
including historical operating results and projections of future taxable income.
The valuation allowance relates primarily to net deferred tax assets generated
in the United States and Ireland as more fully disclosed below.
The Company's provision for income taxes results from the mix of profits and
losses experienced across the jurisdictions in which it operates. Losses in the
United States and Ireland provide no income tax benefit while profits in Spain
and Singapore require tax provisions. At December 31, 1999, the Company had
gross operating loss carryforwards of $22,350 for federal and state income tax
purposes and $18,843 for foreign tax purposes. The federal and state
carryforwards expire between 2011 and 2018. The foreign carryforwards do not
expire. A change in ownership of the Company may reduce the amount of operating
loss carryforwards the Company is able to utilize. The Company also has foreign
tax credit carryovers of $3,431 which expire between 2002 and 2004.
The Company has not provided for U.S. federal and foreign withholding taxes
on approximately $30,700 of its foreign subsidiaries' undistributed earnings as
of December 31, 1999 because such earnings are intended to be permanently
reinvested.
F-20
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
12. Senior Redeemable Preferred Stock
In conjunction with the asset acquisition from 3Com (see Note 9), the
Company issued 2,000,000 shares of preferred stock with a par value of $0.001
per share and warrants to purchase Common Stock (see Note 12). The total
consideration received of $49,118, net of issuance costs incurred of $882, has
been allocated to the preferred stock and the warrants based on their fair
values, as determined by an independent third party appraisal, of $38,395 and
$10,723, respectively. The preferred stock is mandatorily redeemable on
November 26, 2006 at its liquidation value of $25 per share plus accumulated
dividends. The securities are callable by the Company at 114% of the liquidation
value prior to November 26, 2000 and at 115% from that date up through the date
of mandatory redemption.
Holders of the securities are entitled to cumulative cash dividends at an
annual rate of 14% through November 26, 2000. Subsequent to that date, dividends
will accrue at an annual rate of 15% and will be paid in cash on the redemption
date or paid in additional shares of preferred stock prior to that date. The
securities are convertible, at the option of the Company, to Subordinated
Exchange Debentures with an annual interest rate of 14% through November 26,
2000 and 15% thereafter. Such conversion is, however, subject to certain
restrictions including the Company's inability to convert the preferred stock as
long as the initial purchaser continues to hold it. The preferred stock (and
debentures, if converted) ranks senior to all other subordinated debt, preferred
stock and common equity of the Company.
The discount on the preferred stock of $13,509 is being accreted, using the
interest method, through the mandatory redemption date and is recorded as a
charge against additional paid in capital. The amount of accretion recorded
against additional paid in capital in 1999 was $138.
In the event that the Company elects to call the preferred stock in advance
of the mandatory redemption date, accretion of the remaining discount as well as
accretion of the call premium will occur. Such amounts would be deductible from
net income available to common stockholders, for purposes of earnings per share
calculations, in the period in which the call is exercised.
13. Common Stock
On April 27, 2000, the Company's Board of Directors declared a four-for-one
reverse stock split of the Company's Common Stock. All earnings per common share
amounts, references to common stock and stockholders' equity amounts have been
restated as if the reverse stock split had occurred as of the earliest period
presented.
In 1998, the Company issued an aggregate of 71,000 shares of Common Stock to
three founders of the Company in connection with their shareholder agreements.
In 1999 the Company was obligated to issue an additional 34,341 shares of Common
Stock to the three founders of the Company. These shares will be issued in
fiscal 2000. A non-cash charge of $341 and $422 was recorded in selling, general
and administrative expenses related to the above shares, representing the fair
value of $4.80 and $12.28 per share at the time of the obligation to issue
shares, in 1998 and
F-21
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1999, respectively. At December 31, 1999, $422 has been included in accrued
expenses related to the shares to be issued in 2000.
In January 2000, the Board of Directors approved a grant of 200,000 shares
of Common Stock to the Company's Chief Executive Officer. In connection with
this grant, the Company expects to record a one time non-cash charge of
approximately $2,456 in the first quarter of 2000.
14. Warrants
The Company issued warrants to purchase 1,160,542 shares of Common Stock in
conjunction with the issuance of the senior redeemable preferred stock (see
Note 12). The warrants, which have an exercise price of $4.80 per share, were
issued in two tranches. The first tranche is comprised of warrants, which are
immediately exercisable to purchase 222,730 shares of Common Stock. The second
tranche is comprised of warrants, which are held in escrow, to purchase 937,812
shares of Common Stock. The second tranche of warrants will be released from
escrow on November 26, 2000 if the preferred stock remains outstanding at that
date.
In conjunction with a prior credit agreement, the Company issued a stock
purchase warrant to a lending bank entitling the holder to purchase shares of
the Company's Common Stock. The warrant is exercisable at any time, has no
expiration date and was determined to have an insignificant value at its time of
issuance. The number of shares that can be acquired at an exercise price of
$4.00 per share is 128,008.
15. Option Plan
Effective December 4, 1996, the Board of Directors adopted a non-qualified
stock option plan (the "Plan"). Under the terms of the Plan, the Board of
Directors, or its designee, shall have the ability to grant two types of options
("Share Value" and "Ordinary") to employees of the Company to purchase the
Company's Common Stock at an exercise price which will be determined by the
Board of Directors or its designee at the date of grant. The Company has
reserved 312,500 common shares for issuance of Share Value options and 2,687,500
common shares for issuance of Ordinary options. The Plan terminates in
November 2006.
For Ordinary options granted, one-half of the award will vest ratably over
four years following the date of grant. The remainder of the grant vests eight
years from the date of grant, with provisions for acceleration based on
pre-established financial performance goals. Ordinary options expire ten years
from the date of grant.
Share Value options have been issued by the Company at exercise prices of
$4.00 and $20.00. Under the original terms of the plan, these options vest based
on certain pre-established financial performance goals, which were measured
through January 2000. Prior to January 1, 1999, none of the pre-established
financial goals were met and, as such, none of the options vested and no
compensation was recognized. In January 1999, the Plan was amended to convert
the Share Value options with a $20.00 exercise price to Ordinary options, with
fifty percent vested as of January 1999 and the remaining vesting in January
2000. In addition, the vesting of the Share Value options
F-22
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
with a $4.00 exercise price was adjusted to provide for vesting four years from
the modification date, subject to acceleration based on pre-established Company
share price goals. Compensation expense of $40 was recognized in 1999 due to
this modification.
A summary of stock option activity for the Company's option Plan is as
follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Option Price Exercise Price
<S> <C> <C> <C>
Outstanding at December 31, 1996............... 1,414,425 $ 4.00 $ 4.00
Granted...................................... 1,045,603 4.00-20.00 11.52
Exercised.................................... (162,778) 4.00 4.00
Forfeited.................................... (311,476) 4.00 4.00
----------
Outstanding at December 31, 1997............... 1,985,774 4.00-20.00 7.96
Granted...................................... 265,500 4.00-20.00 5.04
Exercised.................................... (54,459) 4.00 4.00
Forfeited.................................... (106,468) 4.00-20.00 10.16
----------
Outstanding at December 31, 1998............... 2,090,347 4.00-20.00 7.60
Granted...................................... 1,315,514 4.00-12.28 10.88
Exercised.................................... (559,292) 4.00-4.80 4.00
Forfeited.................................... (866,628) 4.00-20.00 12.16
----------
Outstanding at December 31, 1999............... 1,979,941 $4.00-20.00 $ 8.48
==========
Exercisable at December 31, 1999............... 733,646 $4.00-20.00 $ 9.04
==========
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------------
Number Weighted Number Weighted
outstanding at Weighted average average exercisable at average
Exercise price December 31, 1999 remaining years exercise price December 31, 1999 exercise price
<S> <C> <C> <C> <C> <C>
$ 4.00 801,298 7 $ 4.00 406,413 $ 4.00
$ 4.80 580,105 9 $ 4.80 100,320 $ 4.80
$12.28 152,313 10 $12.28 1,551 $12.28
$20.00 446,225 8 $20.00 225,362 $20.00
--------- ---------
1,979,941 733,646
========= =========
</TABLE>
As permitted, the Company applied Accounting Principles Board Opinion 25 and
related Interpretations in accounting for its stock-based compensation plan. If
compensation cost for the Company's stock-based compensation plan had been
determined based on the fair value of the options at the grant dates of the
awards consistent with the alternative method of Statement of
F-23
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's pro forma net income (loss) would have been as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
<S> <C> <C> <C>
Net income (loss) available to common stockholders:
As reported............................................... $(17,278) $(6,241) $1,201
Pro forma................................................. $(18,387) $(6,630) $ 370
Diluted net income (loss) per share:
As reported............................................... $ (1.07) $ (0.33) $ 0.06
Pro forma................................................. $ (1.14) $ (0.35) $ 0.02
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for options granted in 1997: risk free interest rate of 6.49%;
expected life of 7 years; volatility of 41% and no dividend declarations. The
weighted average assumptions for options granted in 1998 are as follows: risk
free interest rate of 5.74%; expected life of 7 years; volatility of 42% and no
dividend declarations. The weighted average assumptions for options granted in
1999 are as follows: risk-free interest rate of 5.78%; expected life of 7 years;
volatility of 51% and no dividend declarations.
16. Earnings Per Share
The following table illustrates the reconciliation of the numerator and
denominator of basic and diluted income (loss) per share before extraordinary
loss computations as required by SFAS 128:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Numerator--basic and diluted earnings per share:
Income (loss) before extraordinary loss................ $ (17,278) $ (4,039) $ 2,010
Dividends on senior redeemable preferred stock......... -- -- (671)
Accretion of senior redeemable preferred stock......... -- -- (138)
---------- ---------- ----------
Income (loss) available to common stockholders before
extraordinary loss................................... $ (17,278) $ (4,039) $ 1,201
========== ========== ==========
Denominator:
Basic income (loss) per share--weighted average shares
outstanding.......................................... 16,171,809 18,745,786 19,384,277
Effect of dilutive securities--stock options and
warrants............................................. -- -- 223,891
---------- ---------- ----------
Diluted income (loss) per share--weighted average
shares outstanding................................... 16,171,809 18,745,786 19,608,168
========== ========== ==========
Basic income (loss) per share.......................... $ (1.07) $ (0.21) $ 0.06
Diluted income (loss) per share........................ $ (1.07) $ (0.21) $ 0.06
</TABLE>
For the years ended December 31, 1997, December 31, 1998 and December 31,
1999 anti-dilutive options and warrants of 499,225, 2,218,347 and 1,752,830,
respectively, have been excluded
F-24
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
from the calculation of EPS as either the Company had a net loss for the year or
the options' exercise price was greater than the estimated fair market price of
the common shares. In addition, options and warrants to purchase Common Stock of
1,670,800 were excluded for 1997 as the exercise price of the options and
warrants was equal to the estimated fair market price of the common shares and
therefore had no impact on the dilutive weighted shares outstanding.
17. Retirement and Benefit Programs
The Company sponsors a defined contribution plan covering its eligible U.S.
employees. The plan permits the Company to make non-discretionary contributions
on behalf of its employees. In 1997, 1998 and 1999, the Company made
contributions to the plan of $0, $282 and $636, respectively.
Employees of certain foreign operations participate in various local defined
benefit and defined contribution plans which, in the aggregate, are not
significant to the consolidated financial statements. Amounts charged to pension
expense for 1997, 1998 and 1999 under these plans were $223, $216 and $228,
respectively.
In 1997, the Company terminated a defined benefit plan in Athlone, Ireland,
which resulted in a gain of $1,378. In 1999, the Company curtailed its defined
benefit plan in Valencia, Spain. There was no significant gain or loss recorded
in relation to this curtailment.
18. Business Segment Information
The Company's operations comprise a single line of business, providing
electronics design and manufacturing services. Information about the Company's
operations in different geographic regions is presented in the table below:
<TABLE>
<CAPTION>
Operating Identifiable
Net sales income (loss) assets
<S> <C> <C> <C>
Year Ended December 31, 1997
United States -- Corporate................................ $ -- $(13,157) $ 12,683
-- Operations.................................. 97,765 (9,277) 43,005
Europe.................................................... 336,964 16,357 133,347
Asia...................................................... 127,937 1,825 77,894
-------- -------- --------
$562,666 $ (4,252) $266,929
======== ======== ========
Year Ended December 31, 1998
United States -- Corporate................................ $ -- $(14,639) $ 10,041
-- Operations.................................. 301,011 6,863 87,720
Europe.................................................... 349,229 9,292 122,615
Asia...................................................... 187,753 7,179 57,232
-------- -------- --------
$837,993 $ 8,695 $277,608
======== ======== ========
</TABLE>
F-25
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
<TABLE>
<CAPTION>
Operating Identifiable
Net sales income (loss) assets
<S> <C> <C> <C>
Year Ended December 31, 1999
United States -- Corporate................................ $ -- $(23,044) $ 14,167
-- Operations.................................. 457,390 15,432 236,705
Europe.................................................... 289,611 13,993 99,610
Asia...................................................... 173,721 10,030 61,301
-------- -------- --------
$920,722 $ 16,411 $411,783
======== ======== ========
</TABLE>
Identifiable assets are those assets used in the Company's operations in
each location.
19. Major Customers
The Company had sales to two customers aggregating 51% and 19% of total
sales for the year ended December 31, 1997. Accounts receivable from these two
customers represented 44% and 34%, respectively, of total accounts receivable at
December 31, 1997.
The Company had sales to two customers totaling 51% and 20%, respectively,
of total sales for the year ended December 31, 1998. Accounts receivable from
these customers represented 46% and 23%, respectively, of total accounts
receivable at December 31, 1998.
The Company had sales to two customers totaling 49% and 14%, respectively,
of total sales for the year ended December 31, 1999. Accounts receivable from
these customers represented 19% and 13%, respectively, of total accounts
receivable at December 31, 1999.
20. Restructuring and Other Asset Writedowns
The Company enters into business acquisitions or asset acquisitions and
related supply agreements with the intention of improving the existing
manufacturing operations to reduce costs and improve operating margins. In order
to do this, the Company typically assesses the manufacturing processes and
employee base and restructures the operations to achieve the expected operating
margins.
In the fourth quarter of 1997, management approved a plan to restructure
certain operations in the United States and Spain. Pursuant to the restructuring
plan, the Company's Fremont, California facility was closed during the first
quarter of 1998. During the year ended December 31, 1997, the facility generated
revenues of $19,009 and a net operating loss, excluding the restructuring
charge, of $5,446. Restructuring costs totaling $7,198 were recorded for the
closing of this facility. These costs related primarily to the writeoff of
machinery and equipment, lease termination costs and severance costs for
approximately 103 manufacturing and managerial employees. The fixed asset
impairment totaled $4,932. Assets were written down to their estimated fair
market value and were disposed of during the first quarter of 1998. All 103
employees were terminated in 1998. Also included in the 1997 restructuring plan
were charges of $4,896 related to the severance for approximately 40 managerial
and manufacturing employees located at the Company's facility in Spain. All of
these employees were terminated in 1998.
F-26
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
In the fourth quarter of 1998, management approved a plan to restructure
certain operations in the United States, Spain and Asia. The total charge
recorded for this plan was $6,729, which was comprised primarily of the
write-off of certain capitalized assets in Asia of $1,135, lease termination
costs in Asia, Europe and the United States of $1,226, and the severance related
to personnel reductions of approximately 72 managerial and manufacturing
employees in both the United States and Spain of $3,672. The impairment of
capitalized assets in Asia related to manufacturing machinery and equipment and
resulted from a significant reduction in the demand from one customer. The
assets, which were taken out of service in 1998, were written down to their fair
market value and were treated as held for disposal. Depreciation on these assets
ceased. The assets were disposed during 1999.
During the fourth quarter of 1999, management approved a restructuring plan
designed to improve its manufacturing operations at its Charlotte facility. This
restructuring plan, which is expected to be substantially complete over the next
twelve months, is comprised primarily of severance costs of $780 related to
personnel reductions of approximately 33 manufacturing and managerial employees.
The major components of the restructuring plans are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
<S> <C> <C> <C>
Employee severance.................................. $ 5,387 $3,673 $780
Asset writedowns.................................... 4,932 1,135 --
Lease terminations.................................. 1,000 1,921 --
Other............................................... 775 -- --
------- ------ ----
$12,094 $6,729 $780
======= ====== ====
</TABLE>
Certain severance charges are being paid over periods that extend beyond one
year. Asset writedowns relate primarily to the closing of facilities and the
losses resulting from equipment dispositions. Other charges include
miscellaneous costs and other commitments.
F-27
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The following table sets forth the activity in the restructuring reserves
through December 31, 1999:
<TABLE>
<CAPTION>
1997 1998 1999 Total
<S> <C> <C> <C> <C>
Restructuring provision..................... $12,094 $ -- $ -- $12,094
Cash payments............................... -- --
Asset writedowns............................ 4,932 -- -- 4,932
------- ------ ---- -------
Balance at December 31, 1997................ 7,162 -- -- 7,162
Restructuring provision..................... -- 6,729 -- 6,729
Cash payments............................... 6,958 1,127 -- 8,085
Asset writedowns............................ -- 1,135 -- 1,135
------- ------ ---- -------
Balance at December 31, 1998................ 204 4,467 -- 4,671
Restructuring provision..................... -- -- 780 780
Cash payments............................... 204 3,819 266 4,289
Asset writedowns............................ -- 494 -- 494
------- ------ ---- -------
Balance at December 31, 1999................ $ -- $ 154 $514 $ 668
======= ====== ==== =======
</TABLE>
Reserves remaining at December 31, 1999 primarily represent liabilities for
severance payments under the 1999 restructuring plan. The remaining balance of
$668 will be fully utilized during the year 2000.
F-28
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
21. Subsequent Events (unaudited)
CREDIT AGREEMENT
During the quarter ended April 2, 2000, the Company amended its credit
facility to increase the borrowings under the term loan by $25.0 million. These
additional borrowings are subject to the same terms and conditions, including
debt covenants and interest rate arrangements, as the prior borrowings under the
facility. The Company capitalized $540 of debt issuance costs incurred in
connection with the closing of this amendment.
LITIGATION
In 1998, Lockheed Martin Corporation ("LM") filed a complaint against the
Company and certain principal stockholders. The complaint alleged that the
Company failed to complete the acquisition of one of LM's subsidiaries under a
purchase agreement signed in 1997. The complaint alleged unspecified damages,
which could have exceeded $70 million based on the ultimate selling price of
LM's subsidiary to another unrelated party. It was the Company's position that a
material adverse change to the subsidiary's business relieved the Company of the
obligation to close the purchase agreement.
In April 1999, the Company and LM agreed to terms of an out of court
settlement, whereby the Company will pay LM $5 million in three separate
payments: $1 million in cash on May 1, 2000; a $2 million non-interest bearing
note due on August 1, 2000; and a $2 million note due and payable on August 1,
2001, which will bear interest at a market rate at the time of issuance. In
addition, the Company's major shareholder has agreed to provide services to LM
with a fair market value of $1 million.
In addition, the Company is from time to time subject to legal proceedings
and claims which arise in the normal course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions will
not have a material adverse effect on the Company's financial position or its
results of operations.
F-29
<PAGE>
MANUFACTURERS' SERVICES LIMITED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, April 2,
------------ -----------
ASSETS 1999 2000
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 24,182 $ 11,736
Accounts receivable, less allowance for doubtful accounts
of $728 and $1,026 at December 31, 1999 and April 2,
2000, respectively...................................... 131,301 174,579
Inventories............................................... 125,164 133,904
Deferred tax asset........................................ 1,068 1,068
Marketable securities..................................... -- 448
Prepaid expenses and other current assets................. 17,550 10,879
-------- --------
Total current assets.................................... 299,265 332,614
Property and equipment, net............................... 62,814 68,321
Goodwill and other intangibles............................ 37,949 36,745
Deferred tax asset........................................ 121 121
Other assets.............................................. 11,634 13,435
-------- --------
Total assets............................................ $411,783 $451,236
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations............................................. $ 5,414 $ 7,500
Accounts payable.......................................... 164,261 193,986
Accrued expenses and other current liabilities............ 26,177 23,487
Restructuring reserve..................................... 668 299
Income taxes payable...................................... 4,472 4,398
-------- --------
Total current liabilities............................... 200,992 229,670
Long-term debt and capital lease obligations................ 121,929 142,215
Other liabilities........................................... 1,037 559
-------- --------
Total liabilities....................................... 323,958 372,444
-------- --------
Commitments and contingencies (Note 3)
Senior redeemable preferred stock, 2,000,000 shares
authorized; 0 and
2,000,000 shares issued and outstanding at December 31,
1998 and 1999,
respectively; redemption value of $25 per share........... 39,204 39,595
-------- --------
Stockholders' equity:
Preferred stock, $0.001 par value, 3,000,000 shares
authorized; no shares
issued and outstanding.................................. -- --
Common stock, $0.001 par value; 150,000,000 shares
authorized;
19,588,897 and 19,947,770 shares issued and outstanding
at
December 31, 1999 and April 2, 2000, respectively....... 20 20
Additional paid in capital................................ 88,471 92,042
Accumulated deficit....................................... (30,361) (41,184)
Accumulated other comprehensive loss...................... (9,509) (11,681)
-------- --------
Total stockholders' equity.............................. 48,621 39,197
-------- --------
Total liabilities and stockholders' equity.............. $411,783 $451,236
======== ========
</TABLE>
See accompanying notes to the interim consolidated financial statements.
F-30
<PAGE>
MANUFACTURERS' SERVICES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS -- Unaudited
(In thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
April 4, 1999 April 2, 2000
------------- -------------
<S> <C> <C>
Net sales.................................................. $ 206,964 $ 332,820
Cost of goods sold......................................... 195,879 316,505
----------- -----------
Gross profit............................................... 11,085 16,315
Operating expenses:
Selling, general and administrative...................... 7,918 12,715
Non cash stock based compensation........................ 10 3,987
Legal settlement......................................... -- 6,000
----------- -----------
Operating income (loss).................................... 3,157 (6,387)
Interest expense, net...................................... (1,702) (3,476)
Foreign exchange gain (loss)............................... (1,160) (673)
----------- -----------
Income (loss) before provision for income taxes............ 295 (10,536)
Provision for income taxes................................. 192 287
----------- -----------
Net income (loss).......................................... $ 103 $ (10,823)
=========== ===========
Net income (loss) applicable to common stock............... $ 103 $ (12,954)
=========== ===========
Basic income (loss) per share:
Net income (loss)........................................ $ 0.01 $ (0.66)
Weighted average shares outstanding...................... 19,053,219 19,673,082
Diluted income (loss) per share:
Net income (loss)........................................ $ 0.01 $ (0.66)
Weighted average shares outstanding...................... 19,208,317 19,673,082
</TABLE>
See accompanying notes to the interim consolidated financial statements.
F-31
<PAGE>
MANUFACTURERS' SERVICES LIMITED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY -- Unaudited
(In thousands)
<TABLE>
<CAPTION>
Common stock Accumulated
-------------------- Additional other Total
Number paid in Accumulated comprehensive Comprehensive stockholders'
of shares Amount capital deficit income (loss) income (loss) equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996..... 19,589 $20 $88,471 $(30,361) $ (9,509) $ -- $ 48,621
Net loss................ (10,823) (10,823) (10,823)
Issuance of stock....... 213 3,826 3,826
Exercise of stock
options............... 112 455 455
Purchase of shares...... 34 421 421
Dividends declared on
preferred shares...... (1,783) (1,783)
Accretion of preferred
stock................. (348) (348)
Translation
adjustment............ (2,240) (2,240) (2,240)
Unrealized gain on
securities held for
sale.................. 68 68 68
Stockholder contribution
for legal
settlement............ 1,000 1,000
Comprehensive income
(loss)................ $(12,995)
Balance at April 2,
2000.................. 19,948 $20 $92,042 $(41,184) $(11,681) $ 39,197
</TABLE>
See accompanying notes to the interim consolidated financial statements.
F-32
<PAGE>
MANUFACTURERS' SERVICES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS--Unaudited
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended
-------------------
April 4 April 2
1999 2000
<S> <C> <C>
Cash flows relating to operating activities:
Net income (loss)......................................... $ 103 $(10,823)
Adjustments to reconcile net income to net cash provided
by
(used in) operating activities:
Depreciation and amortization......................... 2,921 6,084
Amortization of capitalized finance fees.............. 167 282
Additions to allowance for doubtful accounts.......... 78 (91)
Non cash charge for stock issuance.................... -- 3,826
Foreign exchange (gain) loss.......................... 1,160 614
Deferred taxes........................................ 41 --
Writedowns and loss on disposal of fixed assets....... -- (21)
Gain on sale of securities............................ (8) --
Litigation settled by shareholder..................... -- 1,000
Changes in operating assets and liabilities:
Accounts receivable..................................... 173 (43,241)
Inventories............................................. 7,382 (10,686)
Prepaid expenses and other assets....................... (4,199) 3,564
Accounts payable........................................ (13,214) 31,392
Accrued expenses and other liabilities.................. (3,385) (2,614)
-------- --------
Net cash used in operating activities....................... (8,781) (20,714)
-------- --------
Cash flows relating to investing activities:
Proceeds from sale of fixed assets........................ 13 43
Purchases of property and equipment....................... (2,178) (6,222)
Cost of internal use software............................. (2,275) (2,627)
-------- --------
Net cash used in investing activities....................... (4,440) (8,806)
-------- --------
Cash flows relating to financing activities:
Proceeds from long-term debt.............................. -- 25,000
Net proceeds from (payments on) new revolving line of
credit.................................................. 15,500 (4,000)
Repayments of long-term debt and capital lease
obligations............................................. (2,664) (1,596)
Debt issuance and amendment costs......................... (81) (540)
Proceeds from exercise of stock options................... -- 455
Proceeds from issuance of common stock.................... 1,107 --
Dividend payments on preferred stock...................... -- (1,750)
-------- --------
Net cash provided by financing activities................... 13,862 17,569
-------- --------
Effect of foreign exchange rate changes on cash............. (1,497) (495)
-------- --------
Net increase in cash........................................ (856) (12,446)
Cash and cash equivalents at beginning of year.............. 23,969 24,182
-------- --------
Cash and cash equivalents at end of year.................... $ 23,113 $ 11,736
======== ========
Supplemental cash flow data:
Interest paid............................................. $ 1,213 $ 3,758
======== ========
Taxes paid................................................ -- 361
======== ========
Assets acquired under capital leases...................... $ 698 $ 80
======== ========
</TABLE>
See accompanying notes to the interim consolidated financial statements.
F-33
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
(In thousands, except per share data)
1. Basis of Presentation
The consolidated balance sheet at April 2, 2000 and the consolidated
statements of income, of cash flow and of stockholders' equity for the three
months ended April 4, 1999 and April 2, 2000 are unaudited, and certain
information and footnote disclosure related thereto normally included in
financial statements prepared in accordance with generally accepted accounting
principles, has been omitted in accordance with Rule 10-01 of Regulation S-X. In
the opinion of management, the accompanying unaudited consolidated financial
statements were prepared following the same policies and procedures used in the
preparation of the audited financial statements and reflect all adjustments
(consisting of normal recurring adjustments) considered necessary to present
fairly the financial position of the Company. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
2. Supplemental Balance Sheet Information
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31, April 2,
1999 2000
------------ --------
<S> <C> <C>
Raw materials and purchased inventory....................... $ 91,944 $107,277
Work-in-process............................................. 29,623 22,889
Finished goods.............................................. 3,597 3,738
-------- --------
$125,164 $133,904
======== ========
</TABLE>
3. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations are comprised of the following:
<TABLE>
<CAPTION>
December 31, April 2,
1999 2000
------------ --------
<S> <C> <C>
Revolving Facility.......................................... $ 68,100 $ 64,100
Term Loans.................................................. 49,375 74,250
Unsecured non-interest bearing obligation due to former
owner of an acquired subsidiary. Payments are due in equal
annual installments of approximately $245, beginning
January 1998 and continuing through January 2001.......... 490 245
Unsecured interest bearing obligations due to former owners
of acquired businesses with an interest rate of 5%.
Payments are due in annual installments of approximately
$700, beginning April 2000 and continuing through June
2002...................................................... 1,916 1,915
Obligations under capital leases............................ 7,462 9,205
-------- --------
127,343 149,715
Less: Current portion....................................... (5,414) (7,500)
-------- --------
121,929 142,215
======== ========
</TABLE>
F-34
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
(In thousands, except per share data)
CREDIT AGREEMENT
During the quarter ended April 2, 2000, the Company amended its credit
facility to increase the borrowings under the term loan by $25.0 million. These
additional borrowings are subject to the same terms and conditions including
debt covenants and interest rate arrangements as the prior borrowings under the
facility. The Company capitalized $540 of debt issuance costs incurred in
connection with the closing of this amendment.
At April 2, 2000, the interest rate for the term loan facility was 9.9375%
and the revolving credit facility was between 9.125% and 11.00%.
4. Accounts Receivable
As of April 2, 2000, the Company had outstanding receivables with a
significant customer of $6,900 which are being disputed by that customer. The
dispute involves inventory that was purchased by the Company at a premium in
order to meet the customers' increase in forecast demand. The Company purchased
the inventory with the full knowledge and agreement of the customer that the
customer would bear the expense of the premium price.
The Company is in the process of resolving this issue with the customer and
has not provided a reserve as of April 2, 2000 as management believes that the
receivable is valid and that the amount will ultimately be collected.
LITIGATION
In 1998, Lockheed Martin Corporation ("LM") filed a complaint against the
Company and certain principal stockholders. The complaint alleged that the
Company failed to complete the acquisition of one of LM's subsidiaries under a
purchase agreement signed in 1997. The complaint alleged unspecified damages,
which could have exceeded $70 million based on the ultimate selling price of
LM's subsidiary to another unrelated party. It was the Company's position that a
material adverse change to the subsidiary's business relieved the Company of the
obligation to close the purchase agreement.
In April 2000, the Company and LM agreed to terms on an out of court
settlement, whereby the Company will pay LM $5 million in three separate
payments: $1 million in cash on May 1, 2000; a $2 million non-interest bearing
note due on August 1, 2000; and a $2 million note due and payable on August 1,
2001, which will bear interest at a market rate at the time of issuance. In
addition, the Company's major shareholder has agreed to provide service to LM
with a fair market value of $1 million. The Company has recorded a $6 million
charge with a corresponding $5 million liability and a $1 million capital
contribution in the accompanying condensed consolidated financial statements as
of and for the three months ended April 2, 2000.
In addition, the Company is from time to time subject to legal proceedings
and claims which arise in the normal course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions will
not have a material adverse effect on the Company's financial position or its
results of operations.
F-35
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
(In thousands, except share data)
5. Asset Acquisitions
In November 1999, the Company acquired certain assets from 3Com Corporation
used in the production of Palm handheld computing devices and modems and network
interface cards for total consideration of $79,480. In the first quarter of
2000, the Company finalized the purchase price allocation, resulting in an
increase of $1,273 to the long-term assets acquired in the transaction.
6. Forward Foreign Currency Contracts
The Company enters into forward foreign currency agreements to hedge certain
foreign currency transactions. Realized and unrealized gains and losses arising
from forward currency contracts are recognized as adjustments to the gains and
losses resulting from the underlying hedged transactions. The table below
summarizes the notional amounts and fair values of the Company's foreign
exchange contracts, which have been entered into by the Company's Spanish
subsidiary:
<TABLE>
<CAPTION>
Currency Notional Amount Buy (Sell) Fair Value
- -------- -------------------------- ----------
<S> <C> <C>
US Dollar................................... $(17,700) $ 714
US Dollar................................... $ 9,000 $(351)
</TABLE>
7. Business Segment Information
The Company's operations comprise a single line of business, providing
electronics design and manufacturing services. Information about the Company's
operations in different geographic regions is presented in the table below:
<TABLE>
<CAPTION>
Operating
Net sales income (loss)
<S> <C> <C>
Three Months Ended April 2, 2000
United States-- Corporate................................. $ -- $(15,798)
-- Operations.................................. 233,551 6,415
Europe.................................................... 63,759 2,184
Asia...................................................... 35,510 812
-------- --------
332,820 $ (6,387)
======== ========
Three Months Ended April 4, 1999
United States-- Corporate................................. -- (4,419)
-- Operations.................................. 100,567 2,945
Europe.................................................... 60,731 1,797
Asia...................................................... 45,666 2,834
-------- --------
206,964 3,157
======== ========
</TABLE>
F-36
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, April 2,
1999 2000
------------ --------
<S> <C> <C>
Identifiable Assets
United States-- Corporate................................. $ 14,167 $ 4,933
-- Operations.................................. 236,705 266,742
Europe.................................................... 99,610 103,186
Asia...................................................... 61,301 76,375
-------- --------
$411,783 $451,236
======== ========
</TABLE>
8. Option Plan
The stockholders approved the 2000 Equity Incentive Plan (the "2000 Plan")
in January 2000. The 2000 Plan is administered by the board of directors and
selected employees, directors and non-employees, who provide services to the
Company, are eligible to participate. The 2000 Plan provides for the award of a
broad variety of stock-based compensation alternatives, such as non-qualified
stock options, incentive stock options, restricted stock, performance awards and
stock appreciation rights. The 2000 Plan provided 2,668,750 shares of common
stock to be offered from either authorized and unissued shares or issued shares
which have been reacquired by the Company.
For options granted under the 2000 Plan, which totalled 404,543, one-half of
the award will vest ratably over four years following the date of grant. The
remainder of the grant vests eight years from the date of grant, with provisions
for acceleration based on pre-established financial performance goals.
During the first quarter of 2000, all remaining shares available for awards
under the Company's previous non-qualified stock option plan were granted.
A summary of stock option activity for the Company's option Plan is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended April 2, 2000
----------------------------------------------------
Weighted
Number of Average
Shares Option Price Exercise Price
<S> <C> <C> <C>
Outstanding at December 31, 1999.................... 1,979,941 $ 4.00--$20.00 $ 8.48
Granted........................................... 745,900 $ 12.28 $12.28
Exercised......................................... (112,034) $ 4.00--$ 4.80 $ 4.08
Forfeited......................................... (92,104) $ 4.00--$12.28 $ 5.36
-----------
Outstanding at April 2, 2000........................ 2,521,703 $ 4.00--$20.00 $ 9.88
===========
Exercisable at April 2, 2000........................ 889,929 $ 4.00--$20.00 $12.12
===========
</TABLE>
Compensation expense of $162 was recognized during the quarter ended
April 2, 2000 to account for the vesting of options granted below the fair
market price of the Company's Common Stock.
F-37
<PAGE>
MANUFACTURERS' SERVICES LIMITED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
(In thousands, except share data)
In the quarter ended April 2, 2000, the Board of Directors approved a grant
of 200,000 shares of Common Stock to the Company's Chief Executive Officer, and
a grant of 50,000 shares of Common Stock to senior management of the Company. In
connection with this grant, the Company recorded a one time non-cash charge of
$3,825.
9. Earnings Per Share
The following table illustrates the reconciliation of the numerator and
denominator of basic and diluted income (loss) per share before extraordinary
loss computations as required by SFAS 128:
<TABLE>
<CAPTION>
Three Months Ending
------------------------
April 4, April 2,
1999 2000
----------- ----------
<S> <C> <C>
Numerator--basic and diluted earnings per share:
Income (loss)............................................ $ 103 (10,823)
Dividends on senior redeemable preferred stock........... -- (1,783)
Accretion of senior redeemable preferred stock........... -- (348)
----------- ----------
Income (loss) available to common stockholders........... $ 103 (12,954)
=========== ==========
Denominator:
Basic income (loss) per share--weighted average shares
outstanding............................................ 19,053,219 19,673,082
Effect of dilutive securities--stock options and
warrants............................................... 155,098 --
----------- ----------
Diluted income (loss) per share--weighted average shares
outstanding............................................ 19,208,317 19,673,082
=========== ==========
Basic income (loss) per share............................ $ 0.01 $ (0.66)
Diluted income (loss) per share.......................... $ 0.01 $ (0.66)
</TABLE>
For the three months ended April 4, 1999 and April 2, 2000, anti-dilutive
options and warrants of 840,127 and 3,810,253, respectively, have been excluded
from the calculation of EPS as either the Company had a net loss for the year or
the exercise price was greater than the estimated fair market price of the
common shares.
10. Restructuring and Other Asset Writedowns
The following table sets forth the activity in the restructuring reserves
through April 2, 2000:
<TABLE>
<S> <C>
Balance at December 31, 1999................................ $668
Cash payments............................................... 369
Asset writedowns............................................ --
Balance at April 2, 2000.................................... $299
</TABLE>
The restructuring reserve relates primarily to severance at the Company's
Charlotte facility and is expected to be fully utilized in the Company's second
quarter of 2000.
F-38
<PAGE>
Report of Independent Accountants on Financial Statement Schedules
To the Board of Directors
of Manufacturers' Services Limited
Our audits of the consolidated financial statements referred to in our report
dated February 2, 2000 appearing in the Form S-1 Registration Statement of
Manufacturers' Services Limited also included an audit of the financial
statement schedule listed in Item 16 of this Form S-1. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 2000
S-1
<PAGE>
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1999.................................. $ 698 339 700 (1,009) $ 728
1998.................................. $ 1,942 319 -- (1,563) $ 698
1997.................................. $ 1,724 232 -- (14) $ 1,942
Deferred tax asset valutation allowance:
1999.................................. $17,698 1,482 805 -- $19,985
1998.................................. $13,960 978 2,760 -- $17,698
1997.................................. $ 6,936 8,904 -- (1,880) $13,960
</TABLE>
S-2
<PAGE>
- ---------------------------------------------------------
- ---------------------------------------------------------
, 2000
MANUFACTURERS' SERVICES LIMITED
11,000,000 Shares of Common Stock
----------------------
P R O S P E C T U S
----------------------
DONALDSON, LUFKIN & JENRETTE
BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS
THOMAS WEISEL PARTNERS LLC
DLJDIRECT Inc.
- ---------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of
Manufacturers' Services Limited have not changed since the date hereof.
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter in this offering and when selling
previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee and the National
Association of Securities Dealers, Inc. filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..... $ 63,453
National Association of Securities Dealers, Inc. filing
fee................................................... 24,535
New York Stock Exchange listing fee..................... 105,600
Printing and engraving expenses......................... 275,000
Legal fees and expenses................................. 500,000
Accounting fees and expenses............................ 435,000
Blue sky fees and expenses.............................. 5,000
Transfer Agent and Registrar fees....................... 18,000
Miscellaneous........................................... 113,412
----------
Total................................................. $1,540,000
==========
</TABLE>
- --------------------------
* To be included by amendment.
Item 14. Indemnification of Directors and Officers.
The Registrant's Restated Certificate of Incorporation provides that the
Registrant's Directors shall not be liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent that the exculpation from liabilities is not permitted under the Delaware
General Corporation Law as in effect at the time such liability is determined.
The Amended and Restated By-Laws provide that the Registrant shall indemnify its
directors to the full extent permitted by the laws of the State of Delaware.
Prior to the consummation of this offering, the Company will enter into
indemnification agreements with each of its directors and executive officers
that provide for indemnification and expense advancement to the fullest extent
permitted under the Delaware General Corporation Law.
Item 15. Recent Sales of Unregistered Securities.
In the three years preceding the filing of this Registration Statement, the
Registrant has issued the following securities which were not registered under
the Securities Act of 1933, as amended:
(1) On June 13, 1997, MSL issued:
(a) an aggregate of 5,208,334 shares of common stock to the DLJ Entities
for an aggregate of $25 million; and
(b) 157,250 shares of common stock to Kevin C. Melia pursuant to the
exercise of outstanding options for an aggregate of $629,000.
II-1
<PAGE>
(2) Between April 4, 1998 and April 2, 2000, MSL sold an aggregate of
623,069 shares of common stock to employees and persons having business
relationships with MSL for an aggregate of $1,464,598.
(3) On November 26, 1999, MSL sold an aggregate of 2,000,000 shares of
senior exchangeable preferred stock due 2006 to investment entities affiliated
with Donaldson, Lufkin & Jenrette, Inc. for an aggregate of $50 million.
(4) Between November 4, 1997 and April 2, 2000, MSL sold an aggregate of
693,800 shares of common stock to employees of MSL pursuant to the exercise of
outstanding options for an aggregate of $2,782,754 and in consideration of
services rendered.
The sales and issuances listed above in paragraphs (1), (2) and (3) were
deemed exempt from registration under the Securities Act by virtue of Section
4(2) thereof, as transactions not involving a public offering. The issuances of
securities listed in paragraph (4) were deemed exempt from registration under
the Securities Act by virtue of Rule 701. Defined terms used herein not
otherwise defined have the meanings ascribed to them in the prospectus, which
forms a part of this Registration Statement.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
**2.1+ Securities Purchase Agreement dated as of January 20, 1995
by and among MSL and the parties listed therein.
**2.2 Warrant Agreement dated as of August 31, 1995 by and among
MSL, Bank of America National Trust and Savings
Association and the parties listed therein.
**2.3+ Preferred Stock and Warrant Subscription Agreement dated as
of November 26, 1999 by and among MSL and the parties
listed therein.
**2.4 Escrow Agreement dated as of November 26, 1999 by and among
MSL and the parties listed therein.
**2.5+ Asset Purchase Agreement dated as of November 19, 1999,
among 3Com Corporation, Manufacturers' Services Limited
and Manufacturers' Services Salt Lake City
Operations, Inc.
2.6 Securities Purchase Agreement dated as of May 19, 1995 by
and among MSL and the parties listed therein.
2.7 Securities Purchase Agreement dated as of September 1, 1995
by and among MSL and the parties listed therein.
2.8 Securities Purchase Agreement dated as of June 11, 1997 by
and among MSL and the parties listed therein.
3.1 Restated Certificate of Incorporation of MSL.
3.2 Amended and Restated By-laws of MSL.
3.3 Form of certificate representing shares of common stock,
$.001 par value per share.
**4.1 Stockholders Agreement dated as of January 20, 1995 by and
among MSL and the stockholders named therein.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
**4.2 Stockholders Agreement Amendment dated as of November 26,
1999 by and among MSL and the stockholders names therein.
**4.3+ Credit Agreement dated August 21, 1998 among MSL, MSL
Overseas Finance B.V. and the lenders named therein.
**4.4 First Amendment to Credit Agreement and Limited Waiver dated
as of February 26, 1999 by and among MSL, MSL Overseas
Finance B.V. and the lenders named in the Credit
Agreement.
**4.5 Second Amendment to Credit Agreement and Consent dated as of
November 23, 1999 by and among MSL, MSL Overseas Finance
B.V. and the lenders named in the Credit Agreement.
4.6 Third Amendment to Credit Agreement and Consent dated as of
February 10, 2000 by and among MSL, MSL Overseas Finance
B.V. and the lenders named in the Credit Agreement.
5.1 Opinion of Ropes & Gray.
**10.1 Employment Agreement dated as of January 20, 1995 by and
between MSL and Kevin C. Melia.
**10.2 Employment Letter dated as of June 20, 1997 by and between
MSL and Robert E. Donahue.
**10.3 Employment Letter dated as of September 27, 1995 by and
between MSL and Rodolfo Archbold.
**10.4 Employment Letter dated as of January 4, 1996 by and between
MSL and Dale R. Johnson.
**10.5 Severance Letter dated June 25, 1996 by and between MSL and
Dale R. Johnson.
**10.6 Employment Letter dated as of January 23, 1998 by and
between MSL and James N. Poor.
**10.7 Second Amended and Restated Non-Qualified Stock Option Plan.
10.8 Form of 2000 Equity Incentive Plan.
10.9 Form of 2000 Employee Stock Purchase Plan.
10.10 Form of Indemnification Agreement.
**10.11 Office/Warehouse Lease dated as of April 14, 1997 by and
between Amberjack, Ltd. and Manufacturers' Services
Limited - Roseville, Inc.
**10.12 Lease dated as of May 5, 1998 by and between International
Business Machines Corporation and Manufacturers' Services
Western U.S. Operations, Inc.
**X10.13 Supply Agreement dated as of November 27, 1999 by and
between MSL and 3Com Corporation.
**X10.14 Outsourcing Agreement dated as of June 1, 1998 by and
between International Business Machines Corporation and
Manufacturers' Services Western US Operations, Inc.
**X10.15 Manufacturing, Integration and Fulfillment Contract dated as
of June 26, 1998 by and between International Business
Machines S.A. and Global Manufacturers' Services -
Valencia.
**X10.16 Global Requirements Agreement No. MSL 183G dated as of
July 30, 1997 by and between MSL and Iomega Corporation.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
**X10.17 Supply Agreement dated as of November 27, 1999 by and
between MSL and Palm Computing, Inc.
**X10.18 Manufacturing Services Agreement dated as of June 1, 1999 by
and between Hewlett-Packard Singapore Pte Ltd. and
Manufacturers' Services Singapore Pte Ltd.
10.19 2000 Cash Incentive Compensation Plan.
**21.1 Subsidiaries of MSL.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ropes & Gray (included in the opinion filed as
Exhibit 5.1).
23.3 Consent of Technology Forecasters, Inc.
24.1 Power of attorney pursuant to which amendments to this
registration statement may be filed (included on the
signature page in Part II).
**27.1 Financial Data Schedule.
</TABLE>
- --------------------------
* To be filed by amendment.
** Previously filed.
X Confidential treatment requested on portions of this exhibit. An unredacted
version of this exhibit has been filed separately with the Commission.
+ MSL agrees to furnish supplementally to the Commission a copy of any omitted
schedule or exhibit to such agreement upon request by the Commission.
(b) Financial Statement Schedules.
The following financial statement schedule of the Company is included in
Part II of the Registration Statement:
<TABLE>
<S> <C>
Report of Independent Accountants on Financial Statement
Schedules................................................. S-1
Schedule II - Valuation and Qualifying Accounts............. S-2
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable or not material, or the information called for thereby is
otherwise included in the financial statements and therefore has been omitted.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such manner as requested by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-4
<PAGE>
(2) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14--Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Manufacturers' Services Limited has duly caused this Amendment No. 3 to the
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Concord, Commonwealth of
Massachusetts, on this 26th day of April, 2000.
<TABLE>
<S> <C> <C>
MANUFACTURERS' SERVICES LIMITED
By: /s/ KEVIN C. MELIA
--------------------------------------
Name: Kevin C. Melia
Title: CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Kevin C.
Melia and Thompson Dean and each of them singly, his or her true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement on Form S-1 to be filed by Manufacturers'
Services Limited, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to
be done by virtue hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
Chairman of the Board,
/s/ KEVIN C. MELIA Chief Executive Officer
---------------------------------------- (Principal Executive April 26, 2000
KEVIN C. MELIA Officer) and Director
President, Chief Financial
/s/ ROBERT E. DONAHUE Officer (Principal
---------------------------------------- Financial and Accounting April 27, 2000
ROBERT E. DONAHUE Officer) and Director
*
---------------------------------------- Director April 26, 2000
THOMPSON DEAN
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S> <C>
*
---------------------------------------- Director April 26, 2000
KARL WYSS
/s/ WILLIAM WEYAND
---------------------------------------- Director April 27, 2000
WILLIAM WEYAND
*
---------------------------------------- Director April 26, 2000
JOHN F. FORT, III
</TABLE>
The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 pursuant to the Powers of Attorney executed by the above named
directors of the Registrant and previously filed with the Securities and
Exchange Commission on behalf of such directors.
<TABLE>
<S> <C> <C> <C>
*By: /s/ KEVIN C. MELIA
------------------------------------- Attorney-in-Fact April 26, 2000
KEVIN C. MELIA
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
**2.1+ Securities Purchase Agreement dated as of January 20, 1995
by and among MSL and the parties listed therein.
**2.2 Warrant Agreement dated as of August 31, 1995 by and among
MSL, Bank of America National Trust and Savings
Association and the parties listed therein.
**2.3+ Preferred Stock and Warrant Subscription Agreement dated as
of November 26, 1999 by and among MSL and the parties
listed therein.
**2.4 Escrow Agreement dated as of November 26, 1999 by and among
MSL and the parties listed therein.
**2.5+ Asset Purchase Agreement dated as of November 19, 1999,
among 3Com Corporation, Manufacturers' Services Limited
and Manufacturers' Services Salt Lake City
Operations, Inc.
2.6 Securities Purchase Agreement dated as of May 19, 1995 by
and among MSL and the parties listed therein.
2.7 Securities Purchase Agreement dated as of September 1, 1995
by and among MSL and the parties listed therein.
2.8 Securities Purchase Agreement dated as of June 11, 1997 by
and among MSL and the parties listed therein.
3.1 Restated Certificate of Incorporation of MSL.
3.2 Amended and Restated By-laws of MSL.
3.3 Form of certificate representing shares of common stock,
$.001 par value per share.
**4.1 Stockholders Agreement dated as of January 20, 1995 by and
among MSL and the stockholders named therein.
**4.2 Stockholders Agreement Amendment dated as of November 26,
1999 by and among MSL and the stockholders names therein.
**4.3+ Credit Agreement dated August 21, 1998 among MSL, MSL
Overseas Finance B.V. and the lenders named therein.
**4.4 First Amendment to Credit Agreement and Limited Waiver dated
as of February 26, 1999 by and among MSL, MSL Overseas
Finance B.V. and the lenders named in the Credit
Agreement.
**4.5 Second Amendment to Credit Agreement and Consent dated as of
November 23, 1999 by and among MSL, MSL Overseas Finance
B.V. and the lenders named in the Credit Agreement.
4.6 Third Amendment to Credit Agreement and Consent dated as of
February 10, 2000 by and among MSL, MSL Overseas Finance
B.V. and the lenders named in the Credit Agreement.
5.1 Opinion of Ropes & Gray.
**10.1 Employment Agreement dated as of January 20, 1995 by and
between MSL and Kevin C. Melia.
**10.2 Employment Letter dated as of June 20, 1997 by and between
MSL and Robert E. Donahue.
**10.3 Employment Letter dated as of September 27, 1995 by and
between MSL and Rodolfo Archbold.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
**10.4 Employment Letter dated as of January 4, 1996 by and between
MSL and Dale R. Johnson.
**10.5 Severance Letter dated June 25, 1996 by and between MSL and
Dale R. Johnson.
**10.6 Employment Letter dated as of January 23, 1998 by and
between MSL and James N. Poor.
**10.7 Second Amended and Restated Non-Qualified Stock Option Plan.
10.8 Form of 2000 Equity Incentive Plan.
10.9 Form of 2000 Employee Stock Purchase Plan.
10.10 Form of Indemnification Agreement.
**10.11 Office/Warehouse Lease dated as of April 14, 1997 by and
between Amberjack, Ltd. and Manufacturers' Services
Limited - Roseville, Inc.
**10.12 Lease dated as of May 5, 1998 by and between International
Business Machines Corporation and Manufacturers' Services
Western U.S. Operations, Inc.
**X10.13 Supply Agreement dated as of November 27, 1999 by and
between MSL and 3Com Corporation.
**X10.14 Outsourcing Agreement dated as of June 1, 1998 by and
between International Business Machines Corporation and
Manufacturers' Services Western US Operations, Inc.
**X10.15 Manufacturing, Integration and Fulfillment Contract dated as
of June 26, 1998 by and between International Business
Machines S.A. and Global Manufacturers' Services -
Valencia.
**X10.16 Global Requirements Agreement No. MSL 183G dated as of
July 30, 1997 by and between MSL and Iomega Corporation.
**X10.17 Supply Agreement dated as of November 27, 1999 by and
between MSL and Palm Computing, Inc.
**X10.18 Manufacturing Services Agreement dated as of June 1, 1999 by
and between Hewlett-Packard Singapore Pte Ltd. and
Manufacturers' Services Singapore Pte Ltd.
10.19 2000 Cash Incentive Compensation Plan.
**21.1 Subsidiaries of MSL.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ropes & Gray (included in the opinion filed as
Exhibit 5.1).
23.3 Consent of Technology Forecasters, Inc.
24.1 Power of attorney pursuant to which amendments to this
registration statement may be filed (included on the
signature page in Part II).
**27.1 Financial Data Schedule.
</TABLE>
- --------------------------
* To be filed by amendment.
** Previously filed.
X Confidential treatment requested on portions of this exhibit. An unredacted
version of this exhibit has been filed separately with the Commission.
+ MSL agrees to furnish supplementally to the Commission a copy of any omitted
schedule or exhibit to such agreement upon request by the Commission.
<PAGE>
Exhibit 2.6
SECURITIES PURCHASE AGREEMENT
AGREEMENT dated May 19, 1995 by and among DLJ Merchant Banking
Partners, L.P., a Delaware limited partnership, DLJ International Partners,
C.V., a Netherlands Antilles limited partnership, DLJ Offshore Partners, C.V., a
Netherlands Antilles limited partnership, DLJ Merchant Banking Funding, Inc., a
Delaware corporation (each of the foregoing, a "DLJ Buyer", and collectively,
the "DLJ Buyers") and Manufacturers' Services Limited, a Delaware corporation
(the "Issuer").
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; PROVIDED that no securityholder of the Issuer shall be deemed an
Affiliate of any other securityholder of the Issuer or any Subsidiary solely by
reason of any investment in the Issuer. For the purpose of this definition, the
term "control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Common Stock" means the Common Stock, one tenth of $.01 par value per
share, of the Issuer.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
<PAGE>
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"Person" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Purchase Price" has the meaning set forth in Section 2.1.
"Securities" means the shares of Common Stock to be acquired pursuant
to Article 2 of this Agreement.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions (including, in the case
of a partnership, a general partner) are at the time directly or indirectly
owned by the Issuer. Notwithstanding the foregoing, Omnitron Services Limited,
an Irish limited liability company, shall be deemed to be a Subsidiary for
purposes of this Agreement.
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Upon the basis of the representations and
warranties and agreements contained herein, the Issuer agrees to issue and sell
to each DLJ Buyer and each DLJ Buyer agrees, severally and not jointly, to
purchase from the Issuer those Securities as are set forth opposite such DLJ
Buyer's name on Schedule 2.1(a). The purchase price to be paid in cash by each
DLJ Buyer for the Securities to be purchased by it (the "Purchase Price") is set
forth opposite such DLJ Buyer's name on Schedule 2.1(a).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
The Issuer represents and warrants to each DLJ Buyer as of the date
hereof that:
3.1 CORPORATE AUTHORIZATION. The execution, delivery and performance by
the Issuer of this Agreement are within the Issuer's corporate powers and have
been duly authorized by all necessary corporate action on the part of the
Issuer. This Agreement constitutes a valid and binding agreement of the Issuer.
2
<PAGE>
3.2 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by the Issuer of this Agreement require no action by or in respect of, or filing
with, any governmental body, agency or official.
3.3 NON-CONTRAVENTION. The execution, delivery and performance by the
Issuer of this Agreement do not and will not (i) violate the certificate of
incorporation or bylaws of the Issuer or any Subsidiary, (ii) violate any
applicable material law, rule, regulation, judgment, injunction, order or
decree, (iii) require any consent or other action by any Person, constitute a
default, give rise to any right of termination, cancellation or acceleration of
any right or obligation of the Issuer or any Subsidiary or result in the loss of
any benefit to which the Issuer or any Subsidiary is entitled under any
agreement or other instrument binding upon the Issuer or any Subsidiary or
result in the loss of any license, franchise, permit or other similar
authorization held by the Issuer or any Subsidiary or (iv) result in the
creation or imposition of any Lien on any asset of the Issuer or any Subsidiary.
3.4 CAPITALIZATION. The Securities have been duly authorized by the
Issuer and, when issued and delivered in accordance with the terms of this
Agreement, upon payment therefor by the DLJ Buyers, will be validly issued,
fully paid and non-assessable, and will be free and clear of any Lien or other
right or claim (except any created by or through the DLJ Buyers) and will not be
subject to any preemptive or other similar rights (except any created by or
through the DLJ Buyers) except as contemplated by the Stockholders Agreement
dated as of January 20, 1995 by and among the DLJ Buyers, certain trusts and
individuals and the Issuer.
3.5 FINDERS' FEES. Except for Donaldson, Lufkin & Jenrette Securities
Corporation, whose fee in respect of services on behalf of the Issuer and the
Subsidiaries will be paid by the Issuer, there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Issuer or any Subsidiary who might be entitled to any fee or
commission in connection with the purchase of the Securities.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE DLJ BUYERS
Each DLJ Buyer, severally as to itself and not jointly, represents and
warrants to the Issuer and the Founders as follows:
3
<PAGE>
4.1 CORPORATE AUTHORIZATION. The execution, delivery and performance by
such DLJ Buyer of this Agreement are within the powers (corporate, partnership
or otherwise) of such DLJ Buyer and have been duly authorized by all necessary
action on the part of such DLJ Buyer. This Agreement constitutes a valid and
binding agreement of such DLJ Buyer.
4.2 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by such DLJ Buyer of this Agreement require no action by or in respect of, or
filing with, any governmental body, agency or official.
4.3 NON-CONTRAVENTION. The execution, delivery and performance by such
DLJ Buyer of this Agreement do not and will not (i) violate the partnership
agreement or articles of incorporation and bylaws, as the case may be, of such
DLJ Buyer, (ii) violate any material indenture, agreement or mortgage to which
such DLJ Buyer is a party or by which such DLJ Buyer is bound or (iii) violate
any applicable material law, rule, regulation, judgment, injunction, order or
decree or require any material consent of any other Person.
4.4 PURCHASE FOR INVESTMENT. Such DLJ Buyer acknowledges that the
Securities have not been registered under the 1933 Act or any state securities
laws and that the purchase and sale of the Securities contemplated hereby is to
be effected pursuant to an exemption from the registration requirements imposed
by such laws. In this regard, such DLJ Buyer is purchasing the Securities to be
purchased by it hereunder for its own account and not with a view to, or for
sale in connection with, any distribution thereof in violation of the 1933 Act.
Such DLJ Buyer (either alone or together with its advisors) is an "accredited
investor" (as defined in Regulation D under the 1933 Act), has sufficient
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of its investment in such Securities and is
capable of bearing the economic risks of such investment.
4.5 PRIVATE PLACEMENT. Such DLJ Buyer (i) was not formed for the
specific purpose of acquiring the Securities and (ii) understands that there is
no existing public or other market for the Securities and that there can be no
assurance that such DLJ Buyer will be able to sell or dispose of such DLJ
Buyer's Securities.
4
<PAGE>
ARTICLE 5
MISCELLANEOUS
5.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding among the parties hereto and supersedes all prior agreements
and understandings, both oral and written, among the parties relating to the
subject matter of this Agreement.
5.2 AMENDMENTS AND WAIVERS. Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by all parties hereto.
5.3 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of each other party hereto.
5.4 SURVIVAL. The representations and warranties herein shall survive
beyond the date hereof.
5.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the law of the State of New York, without regard to the
conflicts of law rules of such state.
5.6 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories as of the day and year
first above written.
DLJ MERCHANT BANKING PARTNERS, L.P.
By DLJ MERCHANT BANKING, INC.
Managing General Partner
By: _______________________________
Name:
Title:
DLJ INTERNATIONAL PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: _______________________________
Name:
Title:
DLJ OFFSHORE PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: _______________________________
Name:
Title:
DLJ MERCHANT BANKING FUNDING, INC.
By: _______________________________
Name:
Title:
MANUFACTURERS' SERVICES LIMITED
By: _______________________________
Name: Kevin C. Melia
Title: Chairman and
Chief Executive Officer
6
<PAGE>
SCHEDULE 2.1(a)
SECURITIES TO BE PURCHASED FROM THE ISSUER
<TABLE>
<CAPTION>
Aggregate
Buyer Securities Purchase Price
----- ---------- --------------
<S> <C> <C>
DLJ Merchant Banking
Partners, L.P. 6,118,708 $6,118,708
DLJ International
Partners, C.V. 2,740,173 $2,740,173
DLJ Offshore Partners,
C.V. 158,874 $ 158,874
DLJ Merchant Banking
Funding, Inc. 3,982,245 $3,982,245
</TABLE>
<PAGE>
Exhibit 2.7
SECURITIES PURCHASE AGREEMENT
AGREEMENT dated as of September 1, 1995 by and among DLJ Merchant Banking
Partners, L.P., a Delaware limited partnership, DLJ International Partners,
C.V., a Netherlands Antilles limited partnership, DLJ Offshore Partners, C.V., a
Netherlands Antilles limited partnership, DLJ Merchant Banking Funding, Inc., a
Delaware corporation (each of the foregoing, a "DLJ Buyer", and collectively,
the "DLJ Buyers") and Manufacturers' Services Limited, a Delaware corporation
(the "Issuer").
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the following
meanings:
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person;
PROVIDED that no securityholder of the Issuer shall be deemed an Affiliate of
any other securityholder of the Issuer or any Subsidiary solely by reason of any
investment in the Issuer. For the purpose of this definition, the term "control"
(including with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Common Stock" means the Common Stock, one tenth of $.01 par value per
share, of the Issuer.
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For the purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
<PAGE>
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"Person" means an individual, corporation, partnership, association, trust
or other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.
"Purchase Price" has the meaning set forth in Section 2.1.
"Securities" means the shares of Common Stock to be acquired pursuant to
Article 2 of this Agreement.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions (including, in the case
of a partnership, a general partner) are at the time directly or indirectly
owned by the Issuer.
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Upon the basis of the representations and warranties
and agreements contained herein, the Issuer agrees to issue and sell to each DLJ
Buyer and each DLJ Buyer agrees, severally and not jointly, to purchase from the
Issuer those Securities as are set forth opposite such DLJ Buyer's name on
Schedule 2.1(a). The purchase price to be paid in cash by each DLJ Buyer for the
Securities to be purchased by it (the "Purchase Price") is set forth opposite
such DLJ Buyer's name on Schedule 2.1(a). The purchase price to be paid by each
DLJ Buyer shall be paid in accordance with instructions given to such DLJ Buyer
by the Issuer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
The Issuer represents and warrants to each DLJ Buyer as of the date hereof
that:
3.1 CORPORATE AUTHORIZATION. The execution, delivery and performance by the
Issuer of this Agreement are within the Issuer's corporate powers and have been
duly authorized by all necessary corporate action on the part of the Issuer.
This Agreement constitutes a valid and binding agreement of the Issuer.
2
<PAGE>
3.2 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by
the Issuer of this Agreement require no action by or in respect of, or filing
with, any governmental body, agency or official.
3.3 NON-CONTRAVENTION. The execution, delivery and performance by the
Issuer of this Agreement do not and will not (i) violate the certificate of
incorporation or bylaws of the Issuer or any Subsidiary, (ii) violate any
applicable material law, rule, regulation, judgment, injunction, order or
decree, (iii) require any consent or other action by any Person, constitute a
default, give rise to any right of termination, cancellation or acceleration of
any right or obligation of the Issuer or any Subsidiary or result in the loss of
any benefit to which the Issuer or any Subsidiary is entitled under any
agreement or other instrument binding upon the Issuer or any Subsidiary or
result in the loss of any license, franchise, permit or other similar
authorization held by the Issuer or any Subsidiary or (iv) result in the
creation or imposition of any Lien on any asset of the Issuer or any Subsidiary.
3.4 CAPITALIZATION. The Securities have been duly authorized by the Issuer
and, when issued and delivered in accordance with the terms of this Agreement,
upon payment therefor by the DLJ Buyers, will be validly issued, fully paid and
non-assessable, and will be free and clear of any Lien or other right or claim
(except any created by or through the DLJ Buyers) and will not be subject to any
preemptive or other similar rights (except any created by or through the DLJ
Buyers) except as contemplated by the Stockholders Agreement dated as of January
20, 1995 by and among the DLJ Buyers, certain trusts and individuals and the
Issuer.
3.5 FINDERS' FEES. Except for Donaldson, Lufkin & Jenrette Securities
Corporation, whose fee in respect of services on behalf of the Issuer and the
Subsidiaries will be paid by the Issuer, there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Issuer or any Subsidiary who might be entitled to any fee or
commission in connection with the purchase of the Securities.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE DLJ BUYERS
Each DLJ Buyer, severally as to itself and not jointly, represents and
warrants to the Issuer as follows:
3
<PAGE>
4.1 CORPORATE AUTHORIZATION. The execution, delivery and performance by
such DLJ Buyer of this Agreement are within the powers (corporate, partnership
or otherwise) of such DLJ Buyer and have been duly authorized by all necessary
action on the part of such DLJ Buyer. This Agreement constitutes a valid and
binding agreement of such DLJ Buyer.
4.2 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by
such DLJ Buyer of this Agreement require no action by or in respect of, or
filing with, any governmental body, agency or official.
4.3 NON-CONTRAVENTION. The execution, delivery and performance by such DLJ
Buyer of this Agreement do not and will not (i) violate the partnership
agreement or articles of incorporation and bylaws, as the case may be, of such
DLJ Buyer, (ii) violate any material indenture, agreement or mortgage to which
such DLJ Buyer is a party or by which such DLJ Buyer is bound or (iii) violate
any applicable material law, rule, regulation, judgment, injunction, order or
decree or require any material consent of any other Person.
4.4 PURCHASE FOR INVESTMENT. Such DLJ Buyer acknowledges that the
Securities have not been registered under the 1933 Act or any state securities
laws and that the purchase and sale of the Securities contemplated hereby is to
be effected pursuant to an exemption from the registration requirements imposed
by such laws. In this regard, such DLJ Buyer is purchasing the Securities to be
purchased by it hereunder for its own account and not with a view to, or for
sale in connection with, any distribution thereof in violation of the 1933 Act.
Such DLJ Buyer (either alone or together with its advisors) is an "accredited
investor" (as defined in Regulation D under the 1933 Act), has sufficient
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of its investment in such Securities and is
capable of bearing the economic risks of such investment.
4.5 PRIVATE PLACEMENT. Such DLJ Buyer (i) was not formed for the specific
purpose of acquiring the Securities and (ii) understands that there is no
existing public or other market for the Securities and that there can be no
assurance that such DLJ Buyer will be able to sell or dispose of such DLJ
Buyer's Securities.
4
<PAGE>
ARTICLE 5
MISCELLANEOUS
5.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes all prior agreements and
understandings, both oral and written, among the parties relating to the subject
matter of this Agreement.
5.2 AMENDMENTS AND WAIVERS. Any provision of this Agreement may be amended
or waived if, but only if, such amendment or waiver is in writing and is signed
by all parties hereto.
5.3 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of each other party hereto.
5.4 SURVIVAL. The representations and warranties herein shall survive
beyond the date hereof.
5.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the law of the State of New York, without regard to the
conflicts of law rules of such state.
5.6 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories as of the day and year
first above written.
DLJ MERCHANT BANKING PARTNERS, L.P.
By DLJ MERCHANT BANKING, INC.
Managing General Partner
By: _______________________________
Name:
Title:
DLJ INTERNATIONAL PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: _______________________________
Name:
Title:
DLJ OFFSHORE PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: _______________________________
Name:
Title:
DLJ MERCHANT BANKING FUNDING, INC.
By: _______________________________
Name:
Title:
MANUFACTURERS' SERVICES LIMITED
By: _______________________________
Name: Kevin C. Melia
Title: Chairman and
Chief Executive Officer
6
<PAGE>
SCHEDULE 2.1(a)
SECURITIES TO BE PURCHASED FROM THE ISSUER
<TABLE>
<CAPTION>
Aggregate
Buyer Securities Purchase Price
------- ---------- --------------
<S> <C> <C>
DLJ Merchant Banking 14,118,724 $14,118,724
Partners, L.P.
DLJ International 6,324,022 $ 6,324,022
Partners, C.V.
DLJ Offshore Partners, 366,665 $ 366,665
C.V.
DLJ Merchant Banking 9,190,589 $ 9,190,589
Funding, Inc.
</TABLE>
<PAGE>
Exhibit 2.8
SECURITIES PURCHASE AGREEMENT
AGREEMENT dated as of June 11, 1997 by and among DLJ Merchant Banking
Partners, L.P., a Delaware limited partnership, DLJ International Partners,
C.V., a Netherlands Antilles limited partnership, DLJ Offshore Partners, C.V., a
Netherlands Antilles limited partnership, DLJ Merchant Banking Funding, Inc., a
Delaware corporation, DLJ First ESC LLC, a Delaware limited liability company
(each of the foregoing, a "DLJ BUYER," and collectively, the "DLJ BUYERS") and
Manufacturers' Services Limited, a Delaware corporation (the "ISSUER").
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; PROVIDED that no securityholder of the Issuer shall be deemed an
Affiliate of any other securityholder of the Issuer or any Subsidiary solely by
reason of any investment in the Issuer. For the purpose of this definition, the
term "CONTROL" (including with correlative meanings, the terms "CONTROLLING,"
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"COMMON STOCK" means the common stock, one-tenth of $.01 par value per
share, of the Issuer.
"LIEN" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any
<PAGE>
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"1933 ACT" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"PERSON" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PURCHASE PRICE" has the meaning set forth in Section 2.1.
"SECURITIES" means the shares of Common Stock to be acquired pursuant
to Article 2 of this Agreement.
"SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions (including, in the case
of a partnership, a general partner) are at the time directly or indirectly
owned by the Issuer.
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Upon the basis of the representations and
warranties and agreements contained herein, the Issuer agrees to issue and sell
to each DLJ Buyer and each DLJ Buyer agrees, severally and not jointly, to
purchase from the Issuer those Securities as are set forth opposite such DLJ
Buyer's name on Schedule 2.1(a). The purchase price to be paid in cash by each
DLJ Buyer for the Securities to be purchased by it (the "PURCHASE PRICE") is set
forth opposite such DLJ Buyer's name on Schedule 2.1(a). The purchase price to
be paid by each DLJ Buyer shall be paid in accordance with instructions given to
such DLJ Buyer by the Issuer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
The Issuer represents and warrants to each DLJ Buyer as of the date
hereof that:
3.1 CORPORATE AUTHORIZATION. The execution, delivery and
performance by the Issuer of this Agreement are within the Issuer's corporate
powers and have been duly authorized by all necessary corporate action on the
part of the Issuer. This Agreement constitutes a valid and binding agreement of
the Issuer.
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3.2 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Issuer of this Agreement require no action by or in respect
of, or filing with, any governmental body, agency or official.
3.3 NON-CONTRAVENTION. The execution, delivery and performance by
the Issuer of this Agreement do not and will not (i) violate the certificate of
incorporation or bylaws of the Issuer or any Subsidiary, (ii) violate any
applicable material law, rule, regulation, judgment, injunction, order or
decree, (iii) require any consent or other action by any Person, constitute a
default, give rise to any right of termination, cancellation or acceleration of
any right or obligation of the Issuer or any Subsidiary or result in the loss of
any benefit to which the Issuer or any Subsidiary is entitled under any
agreement or other instrument binding upon the Issuer or any Subsidiary or
result in the loss of any license, franchise, permit or other similar
authorization held by the Issuer or any Subsidiary or (iv) result in the
creation or imposition of any Lien on any asset of the Issuer or any Subsidiary.
3.4 CAPITALIZATION. The Securities have been duly authorized by
the Issuer and, when issued and delivered in accordance with the terms of this
Agreement, upon payment therefor by the DLJ Buyers, will be validly issued,
fully paid and non-assessable, and will be free and clear of any Lien or other
right or claim (except any created by or through the DLJ Buyers) and will not be
subject to any preemptive or other similar rights (except any created by or
through the DLJ Buyers).
3.5 FINDERS' FEES. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of the Issuer or any Subsidiary who might be entitled to any fee or
commission in connection with the purchase of the Securities.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE DLJ BUYERS
Each DLJ Buyer, severally as to itself and not jointly, represents and
warrants to the Issuer as follows:
4.1 CORPORATE AUTHORIZATION. The execution, delivery and
performance by such DLJ Buyer of this Agreement are within the powers
(corporate, partnership or otherwise) of such DLJ Buyer and have been duly
authorized by all necessary action on the part of such DLJ Buyer. This Agreement
constitutes a valid and binding agreement of such DLJ Buyer.
3
<PAGE>
4.2 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by such DLJ Buyer of this Agreement require no action by or in
respect of, or filing with, any governmental body, agency or official.
4.3 NON-CONTRAVENTION. The execution, delivery and performance by
such DLJ Buyer of this Agreement do not and will not (i) violate the partnership
agreement, limited liability company agreement or articles of incorporation and
bylaws, as the case may be, of such DLJ Buyer, (ii) violate any material
indenture, agreement or mortgage to which such DLJ Buyer is a party or by which
such DLJ Buyer is bound or (iii) violate any applicable material law, rule,
regulation, judgment, injunction, order or decree or require any material
consent of any other Person.
4.4 PURCHASE FOR INVESTMENT. Such DLJ Buyer acknowledges that the
Securities have not been registered under the 1933 Act or any state securities
laws and that the purchase and sale of the Securities contemplated hereby is to
be effected pursuant to an exemption from the registration requirements imposed
by such laws. In this regard, such DLJ Buyer is purchasing the Securities to be
purchased by it hereunder for its own account and not with a view to, or for
sale in connection with, any distribution thereof in violation of the 1933 Act.
Such DLJ Buyer (either alone or together with its advisors) is an "ACCREDITED
INVESTOR" (as defined in Regulation D under the 1933 Act), has sufficient
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of its investment in such Securities and is
capable of bearing the economic risks of such investment.
4.5 PRIVATE PLACEMENT. Such DLJ Buyer (i) was not formed for the
specific purpose of acquiring the Securities and (ii) understands that there is
no existing public or other market for the Securities and that there can be no
assurance that such DLJ Buyer will be able to sell or dispose of such DLJ
Buyer's Securities.
ARTICLE 5
MISCELLANEOUS
5.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding among the parties hereto and supersedes all prior
agreements and understandings, both oral and written, among the parties relating
to the subject matter of this Agreement.
5.2 AMENDMENTS AND WAIVERS. Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by all parties hereto.
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5.3 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; PROVIDED that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto.
5.4 SURVIVAL. The representations and warranties herein shall
survive beyond the date hereof.
5.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard to
the conflicts of law rules of such state.
5.6 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories as of the day and year
first above written.
DLJ MERCHANT BANKING PARTNERS, L.P.
By DLJ MERCHANT BANKING, INC.
Managing General Partner
By: _______________________________
Name: Ivy Dodes
Title:
DLJ INTERNATIONAL PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: _______________________________
Name: Ivy Dodes
Title:
DLJ OFFSHORE PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: _______________________________
Name: Ivy Dodes
Title:
DLJ MERCHANT BANKING FUNDING, INC.
By: _______________________________
Name: Ivy Dodes
Title:
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DLJ FIRST ESC LLC
By DLJ LBO PLANS MANAGEMENT
CORPORATION
By: _______________________________
Name: Ivy Dodes
Title:
MANUFACTURERS' SERVICES LIMITED
By: _______________________________
Name: Kevin C. Melia
Title: Chairman and
Chief Executive Officer
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SCHEDULE 2.1(a)
SECURITIES TO BE PURCHASED FROM THE ISSUER
<TABLE>
<CAPTION>
AGGREGATE
BUYER SECURITIES PURCHASE PRICE
----- ---------- --------------
<S> <C> <C>
DLJ Merchant Banking 9,803,384* $ 11,764,060.80
Partners, L.P.
DLJ International 4,392,194* $ 5,270,632.80
Partners, C.V.
DLJ Offshore Partners, 254,658 $ 305,589.60
C.V.
DLJ Merchant Banking 3,829,859* $ 4,595,830.80
Funding, Inc.
DLJ First ESC LLC 2,553,239 $ 3,063,886.80
</TABLE>
* Pursuant to the amendment to the Issuer's Certificate of Incorporation,
these shares of Common Stock will be non-voting until such time as such
entity has, if applicable, complied with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to the acquisition of
such shares as voting securities.
<PAGE>
Exhibit 3.1
MANUFACTURERS' SERVICES LIMITED
RESTATED CERTIFICATE OF INCORPORATION
Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, Manufacturers' Services Limited has adopted this Restated
Certificate of Incorporation restating, integrating and further amending its
Certificate of Incorporation (originally filed December 1, 1994), which Restated
Certificate of Incorporation has been duly proposed by the directors and adopted
by the stockholders of this corporation (by written consent pursuant to Section
228 of said General Corporation Law) in accordance with the provisions of said
Sections 242 and 245.
ARTICLE I
The name of this corporation is Manufacturers' Services Limited
(hereinafter referred to as the "Corporation").
ARTICLE II
The registered office of this Corporation in the State of Delaware is
located at 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent, Delaware 19901. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose of this Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 155,000,000 shares, consisting of
(i) 150,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.001 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
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1. Common Stock.
A. GENERAL. Subject to the powers, preferences and rights of any
Preferred Stock, including any series thereof, having any
preference or priority over, or rights superior to, the Common
Stock and except as otherwise provided by law and this
Article, the holders of the Common Stock shall have and
possess all powers and voting and other rights pertaining to
the stock of the corporation and each share of Common Stock
shall be entitled to one vote. Except as otherwise provided by
the Delaware General Corporation Law or this Certificate of
Incorporation, the holders of record of Common Stock shall
share ratably in all dividends payable in cash, stock or
otherwise and other distributions, whether in respect of
liquidation or dissolution (voluntary or involuntary) or
otherwise. The holders of the Common Stock shall have no
preemptive rights to subscribe for any shares of any class of
stock of this Corporation whether now or hereafter authorized.
B. VOTING. The holders of the Common Stock are entitled to one
vote for each share of Common Stock held at all meetings of
stockholders. There shall be no cumulative voting.
Notwithstanding the foregoing, the 9,803,384, 4,392,194 and
3,829,859 shares of Common Stock issued to DLJ Merchant
Banking Partners, L.P., DLJ International Partners, C.V. and
DLJ Merchant Banking Funding, Inc. respectively, pursuant to
the Securities Purchase Agreement dated as of June 11, 1997
among such entities, the Corporation and certain other parties
will not be entitled to be voted by any such entity at any
time unless, and except to the extent that, at such time, such
entity has, if applicable, complied with the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, with
respect to the acquisition of such shares as voting
securities, PROVIDED that the foregoing shall not limit the
right of any other party to acquire or vote any shares of
Common Stock.
C. NUMBER. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the
holders of a majority of the stock of the Corporation entitled
to vote, irrespective of the provisions of Section 242(b)(2)
of the General Corporation Law of the State of Delaware.
D. DIVIDENDS. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when
determined by the Board of Directors and subject to any
preferential dividend rights of any then outstanding Preferred
Stock.
E. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of
Common Stock will be entitled to receive all assets of the
Corporation available for distribution to its stockholders,
subject to any preferential rights of any then outstanding
Preferred Stock.
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<PAGE>
2. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law or this Certificate of
Incorporation. Different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided in the resolution or resolutions providing for the
issue of such series adopted by the Board of Directors as hereinafter provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of the State of Delaware. Without limiting the generality of the
foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by law
and this Certificate of Incorporation. Except as otherwise provided in this
Certificate of Incorporation, no vote of the holders of the Preferred Stock or
Common Stock shall be a prerequisite to the designation or issuance of any
shares of any series of the Preferred Stock authorized by and complying with the
conditions of this Certificate of Incorporation, the right to have such vote
being expressly waived by all present and future holders of the capital stock of
the Corporation.
Two million shares of the Preferred Stock of the Corporation shall be
designated as Senior Exchangeable Preferred Stock Due 2006 (the "Senior
Preferred Stock"). The powers, designations, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions of the Senior Preferred Stock is as set forth on
ANNEX I attached hereto.
ARTICLE V
The Corporation shall have a perpetual existence.
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ARTICLE VI
Unless and except to the extent that the By-Laws of this Corporation
shall so require, the election of directors need not be by written ballot.
ARTICLE VII
In furtherance of and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of this Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to alter and repeal the By-Laws adopted or
amended by the Board of Directors; PROVIDED, HOWEVER, that, notwithstanding the
fact that a lesser percentage may be specified by law, the By-Laws shall not be
altered, amended or repealed by the stockholders of the Corporation except by
the affirmative vote of holders of not less than seventy-five percent (75%) of
the then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors.
ARTICLE VIII
Except to the extent that the General Corporation Law of the State of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
ARTICLE IX
1. INDEMNIFICATION. The Corporation shall, to the maximum extent permitted
under the General Corporation Law of the State of Delaware and except as set
forth below, indemnify, hold harmless and, upon request, advance expenses to
each person (and the heirs, executors or administrators of such person) who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was, or has agreed to
become, a director or officer of the Corporation, or is or was serving, or has
agreed to serve, at the request of the Corporation, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise, including any employee benefit plan
(any such person being referred to hereafter as an "Indemnitee"), or by reason
of any action alleged to have been taken or omitted in such capacity, against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her or on his or her
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he or she acted in good faith and in a manner he or she reasonably
believed
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<PAGE>
to be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. Notwithstanding anything to the contrary in
this Article, the Corporation shall not indemnify an Indemnitee seeking
indemnification in connection with any action, suit, proceeding, claim or
counterclaim, or part thereof, initiated by the Indemnitee unless the initiation
thereof was approved by the Board of Directors of the Corporation.
2. ADVANCE OF EXPENSES. Notwithstanding any other provisions, this
Certificate of Incorporation, the By-Laws of the Corporation, or any agreement,
vote of stockholder or disinterested directors, or arrangement to the contrary,
the Corporation shall advance payment of expenses incurred by an Indemnitee in
advance of the final disposition of any matter only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
3. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of the
State of Delaware or any other applicable laws shall affect or diminish in any
way the rights of any Indemnitee to indemnification under the provisions hereof
with respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
4. OTHER RIGHTS. The Corporation may, to the extent authorized from time
to time by its Board of Directors, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
5. RELIANCE. Persons who after the date of the adoption of this provision
become or remain directors or officers of the Corporation or who, while a
director or officer of the Corporation, become or remain a director, officer,
employee or agent of a subsidiary, shall be conclusively presumed to have relied
on the rights to indemnity, advance of expenses and other rights contained in
this Article in entering into or continuing such service. The rights to
indemnification and to the advance of expenses conferred in this Article shall
apply to claims made against an indemnitee arising out of acts or omissions
which occurred or occur both prior and subsequent to the adoption hereof.
6. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
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<PAGE>
7. INSURANCE. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was, or has agreed to become, a
director, officer, employee or agent of the Corporation, or is or was serving,
or has agreed to serve, at the request of the Corporation as a director,
officer, employee, agent or trustee of another corporation, partnership, joint
venture, trust or other enterprise, including any employee benefit plan, against
all expenses (including attorney's fees) judgments, fines or amounts paid in
settlement incurred by such person in any such capacity or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such expenses under the General Corporation Law of
the State of Delaware.
8. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XI
This Article is inserted for the management of the business and for the
conduct of the affairs of the Corporation.
1. NUMBER OF DIRECTORS. The number of directors of the Corporation shall
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the By-Laws of the Corporation.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class III, and if such fraction is two-thirds, one of the extra directors shall
be a member of Class III and one of the extra directors shall be a member of
Class II, unless otherwise provided from time to time by resolution adopted by
the Board of Directors.
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3. ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. TERMS OF OFFICE. Except as provided in Section 6 of this Article XI,
each director shall serve for a term ending on the date of the third annual
meeting following the annual meeting at which such director was elected;
PROVIDED, HOWEVER, that each initial director in Class I shall serve for a term
ending on the date of the annual meeting in 2000; each initial director in Class
II shall serve for a term ending on the date of the annual meeting in 2001; and
each initial director in Class III shall serve for a term ending on the date of
the annual meeting in 2002; and PROVIDED, FURTHER, that the term of each
director shall be subject to the election and qualification of his or her
successor and to his or her earlier death, resignation or removal.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member and (ii) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors among
the three classes of directors so as to ensure that no one class has more than
one director more than any other class. To the extent possible, consistent with
the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. REMOVAL. The directors of the Corporation may not be removed without
cause and may be removed for cause only by the affirmative vote of the holders
of at least seventy-five percent (75%) of the shares of the capital stock of the
Corporation issued and outstanding and entitled to vote generally in the
election of directors cast at a meeting of the stockholders called for that
purpose, notwithstanding the fact that a lesser percentage may be specified by
law.
7. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected for the unexpired term of his or her predecessor in office, and
a director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his or her successor and to his or her earlier death, resignation or removal.
8. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders
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before either an annual or special meeting of stockholders shall be given in the
manner provided by the By-Laws of this Corporation.
9. AMENDMENT TO ARTICLE. Notwithstanding any other provisions of law, this
Certificate of Incorporation or the By-Laws, each as amended, and
notwithstanding the fact that a lesser percentage may be specified by law, this
Certificate of Incorporation or the By-Laws of the Corporation, the affirmative
vote of least seventy-five percent (75%) of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors shall be required to amend or repeal, or to adopt any provisions
inconsistent with the purpose or intent of, this Article XI.
ARTICLE XII
1. DIVIDENDS. 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 purpose or
purposes, and to abolish or add to any such reserve or reserves from time to
time as said board may deem to be in the interest of the Corporation; and said
Board shall likewise have power to determine in its discretion, except as herein
otherwise provided, what part of the assets of the Corporation available for
dividends in excess of such reserve or reserves shall be declared in dividends
and paid to the stockholders of the Corporation.
2. ISSUANCE OF STOCK. The shares of all classes of stock of the
Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the Board of Directors of the
Corporation, provided that shares of stock having a par value shall not be
issued for a consideration less than such par value, as determined by the Board.
At any time, or from time to time, the Corporation may grant rights or options
to purchase from the Corporation any shares of its stock of any class or classes
to run for such period of time, for such consideration, upon such terms and
conditions, and in such form as the Board of Directors may determine. The Board
of Directors shall have authority, as provided by law, to determine that only a
part of the consideration which shall be received by the Corporation for the
shares of its stock which it shall issue from time to time, shall be capital;
provided, however, that, if all the shares issued shall be shares having a par
value, the amount of the part of such consideration so determined to be capital
shall be equal to the aggregate par value of such shares. The excess, if any, at
any time, of the total net assets of the Corporation over the amount so
determined to be capital, as aforesaid, shall be surplus. All classes of stock
of the Corporation shall be and remain at all times nonassessable.
The Board of Directors is hereby expressly authorized, in its
discretion, in connection with the issuance of any obligations or stock of the
Corporation (but without intending hereby to limit its general power so to do in
other cases), to grant rights or options to purchase stock of the Corporation of
any class upon such terms and during such period as the Board of
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Directors shall determine, and to cause such rights to be evidenced by such
warrants or other instruments as it may deem advisable.
3. INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall have
power from time to time to determine to what extent and at what times and places
and under what conditions and regulations the accounts and books of the
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 the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
4. LOCATION OF MEETINGS, BOOKS AND RECORDS. Except as otherwise provided
in the By-laws, the stockholders of the Corporation and the Board of Directors
may hold their meetings and have an office or offices outside of the State of
Delaware and, subject to the provisions of the laws of said State, may keep the
books of the Corporation outside of said State at such places as may, from time
to time, be designated by the Board of Directors or by the By-laws of this
Corporation.
ARTICLE XIII
At any time during which a class of capital stock of this Corporation
is registered under Section 12 of the Securities Exchange Act of 1934 or any
similar successor statute, stockholders of the Corporation may not take any
action by written consent in lieu of a meeting. Notwithstanding any other
provisions of law, this Certificate of Incorporation or the By-Laws, each as
amended, and notwithstanding the fact that a lesser percentage may be specified
by law, this Certificate of Incorporation or the By-Laws of the Corporation, the
affirmative vote of seventy-five percent (75%) of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors shall be required to amend or repeal, or to adopt any provisions
inconsistent with the purpose or intent of, this Article XIII.
ARTICLE XIV
Special meetings of stockholders may be called at any time by only the
Chairman of the Board of Directors, the Chief Executive Officer (or if there is
no Chief Executive Officer, the President), or by the Board of Directors of the
Corporation pursuant to a resolution adopted by the affirmative vote of a
majority of the total number of directors then in office. Any business
transacted at any special meeting of stockholders shall be limited to matters
relating to the purpose or purposes stated in the notice of meeting.
Notwithstanding any other provisions of law, this Certificate of Incorporation
or the By-Laws, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
By-Laws of the Corporation, the affirmative vote of seventy-five percent (75%)
of the then outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors shall be
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required to amend or repeal, or to adopt any provisions inconsistent with the
purpose or intent of, this Article XIV.
ARTICLE XV
The Board of Directors of this Corporation, when evaluating any offer
of another party to make a tender or exchange offer for any equity security of
the Corporation, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation as a whole, be
authorized to give due consideration to any such factors as the Board of
Directors determines to be relevant, including without limitation: (i) the
interests of the stockholders of the Corporation; (ii) whether the proposed
transaction might violate federal or state laws; (iii) not only the
consideration being offered in the proposed transaction, in relation of the then
current market price for the outstanding capital stock of the Corporation, but
also to the market price for the capital stock of the Corporation over a period
of years, the estimated price that might be achieved in a negotiated sale of the
Corporation as a whole or in part or through orderly liquidation, the premiums
over market price for the securities of other corporations in similar
transactions, current political, economic and other factors bearing on
securities prices and the Corporation's financial condition and future
prospects; and (iv) the social, legal and economic effects upon employees,
suppliers, customers and others having similar relationships with the
Corporation, and the communities in which the Corporation conducts its business.
In connection with any such evaluation, the Board of Directors is
authorized to conduct such investigations and to engage in such legal
proceedings as the Board of Directors may determine.
ARTICLE XVI
The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law. Notwithstanding the terms of Section 203 of
the Delaware General Corporation Law, Donaldson, Lufkin & Jenrette, Inc. and its
affiliates (the "DLJ Entities") shall not be deemed at any time and without
regard to the percentage of voting stock of the Corporation owned by the DLJ
Entities to be an "interested stockholder" as such term is defined in Section
203(c)(5) of the Delaware General Corporation Law.
* * * * * *
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IN WITNESS WHEREOF, the undersigned, for the purpose of amending and
restating the Certificate of Incorporation of the Corporation pursuant to the
General Corporation Laws of the State of Delaware, under penalties of perjury
does hereby declare and certify that this is the act and deed of the Corporation
and accordingly has hereunto executed this Restated Certificate of Incorporation
on this ____ day of ____________, 2000.
--------------------------------------
Name: Kevin C. Melia
Title: Chief Executive Officer
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ANNEX I
(1) NUMBER AND DESIGNATION. Two million shares of the Preferred
Stock of the Corporation shall be designated as Senior Exchangeable Preferred
Stock Due 2006 (the "SENIOR PREFERRED STOCK").
(2) RANK. The Senior Preferred Stock shall, with respect to
dividend rights and rights on liquidation, dissolution and winding up, rank
prior to all classes of or series of common stock of the Corporation, including
the Corporation's common stock, par value $0.001 per share ("COMMON STOCK"), and
each other class of capital stock of the Corporation, the terms of which provide
that such class shall rank junior to the Senior Preferred Stock or the terms of
which do not specify any rank relative to the Senior Preferred Stock. All equity
securities of the Corporation to which the Senior Preferred Stock ranks prior
(whether with respect to dividends or upon liquidation, dissolution, winding up
or otherwise), including the Common Stock, are collectively referred to herein
as the "JUNIOR SECURITIES." All equity securities of the Corporation with which
the Senior Preferred Stock ranks on a parity (whether with respect to dividends
or upon liquidation, dissolution or winding up) are collectively referred to
herein as the "PARITY SECURITIES." The respective defini tions of Junior
Securities and Parity Securities shall also include any rights or options
exercisable for or convertible into any of the Junior Securities and Parity
Securities, as the case may be. The Senior Preferred Stock shall be subject to
the creation of Junior Securities.
(3) DIVIDENDS. (a) (i) The holders of shares of Senior Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of dividends,
dividends (subject to Sections 3(a)(ii) and (iii) hereof) at a rate equal to (A)
through the fourth Dividend Payment Date (as defined below), 14% per annum, and
(B) thereafter, 15% per annum (each of the preceding (A) and (B) shall be
computed on the basis of a 360 day year and shall be referred to herein as the
applicable "DIVIDEND RATE"). In the event the Corporation is unable or shall
fail to discharge its obligation to redeem all outstanding shares of Senior
Preferred Stock pursuant to paragraph 5(b) or 5(c) hereof, the Dividend Rate as
provided above shall increase by .50% per quarter (each, a "DEFAULT DIVIDEND")
for each quarter or portion thereof following the date on which such redemption
was required to be made until cured, PROVIDED that the aggregate increase shall
not exceed 10%. Such dividends shall be payable in the manner set forth below in
Sections 3(a)(ii) and (iii) quarterly on February 26, May 26, August 26, and
November 26 of each year (unless such day is not a business day, in which event
on the next succeeding business day) (each of such dates being a "DIVIDEND
PAYMENT DATE" and each such quarterly period being a "DIVIDEND PERIOD"). Such
dividends shall be cumulative from the date of issue, whether or not in any
Dividend Period or Periods there shall be funds of the Corporation legally
available for the payment of such dividends.
(ii) Prior to and including the fourth Dividend
Payment Date (the "ACCRETION DATE"), each such dividend shall
be payable in cash on the Liquidation Value per share of the
Senior Preferred Stock, in equal quarterly amounts (to which
the Default Dividend, if any, shall be added), to the holders
of record of shares of the
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Senior Preferred Stock, as they appear on the stock records of
the Corporation at the close of business on such record dates,
not more than 60 days or less than 10 days preceding the
payment dates thereof, as shall be fixed by the Board of
Directors. Accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record
on such date, not more than 45 days preceding the payment date
thereof, as may be fixed by the Board of Directors.
(iii) After the Accretion Date, dividends shall
not be payable in cash to holders of shares of Senior
Preferred Stock but shall, subject to Section 3(b) hereof,
accrete to the Liquidation Value in accordance with Section
4(a) hereof.
(b) After the Accretion Date, upon the written request of
the holders of a majority of the shares of Senior Preferred Stock, the
Corporation shall, commencing on the first Dividend Payment Date after
such request, be required to pay all dividends on shares of Senior
Preferred Stock by the issuance of additional shares of Senior
Preferred Stock ("ADDITIONAL SHARES"). The Additional Shares shall be
identical to all other shares of Senior Preferred Stock, except as set
forth in Section 4. For the purposes of determining the number of
Additional Shares to be issued as dividends pursuant to this Paragraph
(b), such Additional Shares shall be valued at their Applicable
Liquidation Value as provided in Section 4(c).
(c) Holders of shares of Senior Preferred Stock shall not
be entitled to any dividends, whether payable in cash, property or
stock, in excess of the cumulative dividends, as herein provided, on
the Senior Preferred Stock. Except as provided in this Section 3, no
interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Senior Preferred
Stock that may be in arrears.
(d) So long as any shares of the Senior Preferred Stock
are outstanding, no dividends, except as described in the next
succeeding sentence, shall be declared or paid or set apart for payment
or other distribution declared or made upon Parity Securities, nor
shall any Parity Securities be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation, directly or indirectly, unless, in each
case (to the extent such dividends are payable in cash), full
cumulative dividends have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart
for such payment on the Senior Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of the dividend on, or
the acquisition of, as applicable, such class or series of Parity
Securities. When (to the extent such dividends are payable in cash)
dividends are not paid in full or a sum sufficient for such payment is
not set apart, as aforesaid, all dividends declared upon shares of the
Senior Preferred Stock and all dividends declared upon any other class
or series of Parity Securities shall (in each case, to the extent
payable in cash) be declared ratably in proportion to the respective
amounts of
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dividends accumulated and unpaid on the Senior Preferred Stock and
accumulated and unpaid on such Parity Securities.
(e) So long as any shares of the Senior Preferred Stock
are outstanding, no dividends (other than dividends or distributions
paid in shares of, or options, warrants or rights to subscribe for or
purchase shares of, Junior Securities) shall be declared or paid or set
apart for payment or other distribution declared or made upon Junior
Securities, nor shall any Junior Securities be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other
acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan of the Corporation or any subsidiary) (all
such dividends, distributions, redemptions or purchases being
hereinafter referred to as a "JUNIOR SECURITIES DISTRIBUTION") for any
consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly (except by conversion into or
exchange for Junior Securities), unless in each case (i) the full
cumulative dividends on all outstanding shares of the Senior Preferred
Stock and any other Parity Securities shall (to the extent payable in
cash) have been paid or set apart for payment for all past Dividend
Periods with respect to the Senior Preferred Stock and all past
dividend periods with respect to such Parity Securities and (ii) (to
the extent payable in cash) sufficient funds shall have been paid or
set apart for the payment of the dividend for the current Dividend
Period with respect to the Senior Preferred Stock and the current
dividend period with respect to such Parity Securities.
(4) LIQUIDATION PREFERENCE. (a) In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
before any payment or distribution of the assets of the Corporation (whether
capital or surplus) shall be made to or set apart for the holders of Junior
Securities, the holders of the shares of Senior Preferred Stock shall be
entitled to receive an amount equal to the Liquidation Value of such share plus
any accrued and unpaid cash dividends to the date of distribution. "LIQUIDATION
VALUE" on any date means, with respect to (x) any share of Senior Preferred
Stock other than any Additional Shares, the sum of (1) $25.00 per share and (2)
the aggregate of all dividends accreted on such share until the most recent
Dividend Payment Date upon which an accretion to Liquidation Value has occurred
(or if such date is a Dividend Payment Date upon which an accretion to
Liquidation Value has occurred, such date), PROVIDED that in the event of an
actual liquidation, dissolution or winding up of the Corporation or the
redemption of any shares of Senior Preferred Stock pursuant to Section 5
hereunder, the amount referred to in (2) shall be calculated by including
dividends accreting to the actual date of such liquidation, dissolution or
winding up or the redemption date, as the case may be, rather than the Dividend
Payment Date referred to above, and PROVIDED FURTHER that in no event will
dividends accrete beyond the most recent Dividend Payment Date prior to the
Dividend Payment Date on which dividends on the Senior Preferred Stock are
payable in Additional Shares, and (y) any Additional Share, the Applicable
Liquidation Value. All accretions to Liquidation Value will be calculated using
compounding on a quarterly basis. Except as provided in the preceding sentences,
holders of shares of Senior Preferred Stock shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of the
affairs of the Corporation. If, upon any liquidation, dissolution or winding up
of
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the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of the shares of Senior Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid and liquidating
payments on any Parity Securities, then such assets, or the proceeds thereof,
shall be distributed among the holders of shares of Senior Preferred Stock and
any such other Parity Securities ratably in accordance with the respective
amounts that would be payable on such shares of Senior Preferred Stock and any
such other stock if all amounts payable thereon were paid in full. For the
purposes of this paragraph (4), (i) a consolidation or merger of the Corporation
with one or more corporations or (ii) a sale or transfer of all or substantially
all of the Corporation's assets, shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the Corporation.
(b) Subject to the rights of the holders of any Parity
Securities, after payment shall have been made in full to the holders
of the Senior Preferred Stock, as provided in this paragraph (4), any
other series or class or classes of Junior Securities shall, subject to
the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Senior Preferred Stock shall not be
entitled to share therein.
(c) The Applicable Liquidation Value of any Additional
Shares shall be the Liquidation Value of Senior Preferred Stock
outstanding immediately prior to the first Dividend Payment Date
occurring after a request for payment in Additional Shares has been
made in accordance with Section 3(b).
(5) REDEMPTION.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
dated as of January 20, 1995, among DLJ Merchant Banking Partners,
L.P., DLJ International Partners, C.V., DLJ Offshore Partners, C.V.,
DLJ Merchant Banking Funding, Inc., The Kevin C. Melia 1995 Irrevocable
Trust, The Robert J. Graham 1995 Irrevocable Trust, The Julie Kent 1995
Irrevocable Trust, Kevin C. Melia, Robert J. Graham, Julie Kent, the
Company, and the other parties thereto, as amended from time to time.
(a) REDEMPTION AT THE OPTION OF THE CORPORATION. At any
time, provided that the Corporation has funds legally available for
such payment, the Corporation may, at its option, redeem all but not
less than all shares of Senior Preferred Stock at redemption prices per
share in cash set forth in the table below, together with accrued and
unpaid cash dividends thereon to the date fixed for redemption, without
interest:
<TABLE>
<CAPTION>
YEAR BEGINNING PERCENTAGE OF LIQUIDATION VALUE
- -------------- -------------------------------
<S> <C>
November 26,1999 114.0%
November 26, 2000 115.0%
and thereafter
</TABLE>
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(b) REDEMPTION IN THE EVENT OF A CHANGE OF CONTROL. In
the event of a Change of Control, to the extent that the Corporation
shall have funds available for such payment, the Corporation shall be
required to offer to redeem all of the shares of Senior Preferred Stock
then outstanding and shall be required to redeem the shares of Senior
Preferred Stock of any holder of such shares that shall consent to such
redemption, upon a date no later than five days following the Change in
Control and at a redemption price per share equal to 107.50% of the
Liquidation Value, in cash, together with accrued and unpaid cash
dividends thereon to the date fixed for redemption, without interest.
"CHANGE OF CONTROL" means such time as: (a) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended), other than any person or
group comprised solely of the 1999 Investors, has become the beneficial
owner, by way of merger, consolidation or otherwise, of 30% or more of
the voting power of all classes of voting securities of the
Corporation, and such person or group has become the beneficial owner
of a greater percentage of the voting power of all classes of voting
securities of the Corporation than that beneficially owned by the 1999
Investors; or (b) a sale or transfer of all or substantially all of the
assets of the Corporation to any person or group (other than any group
consisting solely of the 1999 Investors or their affiliates) has been
consummated; or (c) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board
of Directors of the Corporation (together with any new directors whose
election was approved by a vote of a majority of the directors then
still in office, who either were directors at the beginning of such
period or whose election or nomination for the election was previously
so approved) cease for any reason to constitute a majority of the
directors of the Corporation, then in office.
"1999 INVESTORS" means the Stockholders (determined as of the
date of initial issuance of the Senior Preferred Stock) and their
Permitted Transferees, each as defined in the Stockholders Agreement.
(c) MANDATORY REDEMPTION. To the extent the Corporation
shall have funds legally available for such payment, on November 26,
2006, if any shares of the Senior Preferred Stock shall be outstanding,
the Corporation shall redeem all outstanding shares of the Senior
Preferred Stock, at a redemption price equal to the aggregate
Liquidation Value, in cash, together with any accrued and unpaid cash
dividends thereon to the date fixed for redemption, without interest.
(d) STATUS OF REDEEMED SHARES. Shares of Senior Preferred
Stock which have been issued and reacquired in any manner, including
shares purchased or redeemed, shall (upon compliance with any
applicable provisions of the laws of the State of Delaware) have the
status of authorized and unissued shares of the class of Preferred
Stock undesignated as to series and may be redesignated and reissued as
part of any series of the Preferred Stock,
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PROVIDED that no such issued and reacquired shares of Senior Preferred
Stock shall be reissued or sold as Senior Preferred Stock.
(e) FAILURE TO REDEEM. If the Corporation is unable or
shall fail to discharge its obligation to redeem all outstanding shares
of Senior Preferred Stock pursuant to paragraph (5)(b) or 5(c) (each, a
"MANDATORY REDEMPTION OBLIGATION"), such Mandatory Redemption
Obligation shall be discharged as soon as the Corporation is able to
discharge such Mandatory Redemption Obligation. If and so long as any
Mandatory Redemption Obligation with respect to the Senior Preferred
Stock shall not be fully discharged, the Corporation shall not (i)
directly or indirectly, redeem, purchase, or otherwise acquire any
Parity Security or discharge any mandatory or optional redemption,
sinking fund or other similar obligation in respect of any Parity
Securities (except in connection with a redemption, sinking fund or
other similar obligation to be satisfied PRO RATA with the Senior
Preferred Stock) or (ii) in accordance with paragraph 3(e), declare or
make any Junior Securities Distribution, or, directly or indirectly,
discharge any mandatory or optional redemption, sinking fund or other
similar obligation in respect of the Junior Securities.
(f) FAILURE TO PAY DIVIDENDS. Notwithstanding the
foregoing provisions of this paragraph (5), unless full cumulative cash
dividends (whether or not declared) on all outstanding shares of Senior
Preferred Stock shall have been paid or contemporaneously are declared
and paid or set apart for payment for all dividend periods terminating
on or prior to the applicable redemption date, none of the shares of
Senior Preferred Stock shall be redeemed, and no sum shall be set aside
for such redemption, unless shares of Senior Preferred Stock are
redeemed pro rata.
(6) PROCEDURE FOR REDEMPTION. (a) In the event the Corporation
shall redeem shares of Senior Preferred Stock pursuant to Section 5(a) or (c),
notice of such redemption shall be given by first class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the redemption date,
to each holder of record of the shares to be redeemed at such holder's address
as the same appears on the stock register of the Corporation, PROVIDED that
neither the failure to give such notice nor any defect therein shall affect the
validity of the giving of notice for the redemption of any share of Senior
Preferred Stock to be redeemed except as to the holder to whom the Corporation
has failed to give said notice or except as to the holder whose notice was
defective. Each such notice shall state: (i) the redemption date; (ii) the
number of shares of Senior Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; and (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date.
(b) In the case of any redemption pursuant to Section
5(a) or (c) hereof, notice having been mailed as provided in Section
6(a) hereof, from and after the redemption date (unless default shall
be made by the Corporation in providing money for the payment of the
redemption price of the shares called for redemption), dividends on the
shares of Senior Preferred Stock so called for redemption shall cease
to accrue, and all rights of the holders
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thereof as stockholders of the Corporation (except the right to receive
from the Corporation the redemption price) shall cease. Upon surrender
in accordance with said notice of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of
Directors of the Corporation shall so require and the notice shall so
state), such shares shall be redeemed by the Corporation at the
redemption price aforesaid. In case fewer than all the shares
represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares without cost to the
holder thereof.
(c) In the case of a redemption pursuant to Section 5(b)
hereof, notice of such redemption shall be given by first class mail,
postage prepaid, mailed not more than 20 days prior to the occurrence
of the Change of Control and not less than 5 days prior to the
redemption date, to each holder of record of the shares to be redeemed
at such holder's address as the same appears on the stock register of
the Corporation, PROVIDED that neither the failure to give such notice
nor any defect therein shall affect the validity of the giving of
notice for the redemption of any share of Senior Preferred Stock to be
redeemed except as to the holder to whom the Corporation has failed to
give said notice or except as to the holder whose notice was defective.
Each such notice shall state: (i) that a Change of Control has
occurred; (ii) the redemption date; (iii) the redemption price; (iv)
that such holder may elect to cause the Corporation to redeem all or
any of the shares of Senior Preferred Stock held by such holder; (v)
the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; and (vi) that
dividends on the shares the holder elects to cause the Corporation to
redeem will cease to accrue on such redemption date.
Upon receipt of such notice, the holder shall, within 20 days
of receipt thereof, return such notice to the Corporation indicating
the number of shares of Senior Preferred Stock such holder shall elect
to cause the Corporation to redeem, if any.
(d) In the case of a redemption pursuant to Section 5(b)
hereof, notice having been mailed as provided in Section 6(c) hereof,
from and after the redemption date (unless default shall be made by the
Corporation in providing money for the payment of the redemption price
of the shares called for redemption), dividends on such shares of
Senior Preferred Stock as the holder elects to cause the Corporation to
redeem shall cease to accrue, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price) shall cease. Upon surrender in
accordance with said notice of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of
Directors of the Corporation shall so require and the notice shall so
state), such share shall be redeemed by the Corporation at the
redemption price aforesaid.
(7) EXCHANGE. (a) Subject to the provisions of this paragraph (7)
the Corporation may, at its option, at any time and from time to time on any
Dividend Payment Date exchange, to the extent it is legally permitted to do so,
all, but not less than all, outstanding shares (and fractional shares) of Senior
Preferred Stock, for Exchange Debentures, PROVIDED that (i) on or prior to the
date
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of exchange the Corporation shall have paid to or declared and set aside for
payment to the holders of outstanding shares of Senior Preferred Stock all
accrued and unpaid cash dividends on shares of Senior Preferred Stock through
the exchange date in accordance with the next succeeding paragraph; (ii) no
event of default under the indenture (as defined in such indenture) governing
the Exchange Debentures shall have occurred and be continuing; and (iii) no
shares of Senior Preferred Stock are held on such date by the Mezzanine Holders
(as defined in the Stockholders Agreement) or any of their Affiliates. The
principal amount of Exchange Debentures deliverable upon exchange of a share of
Senior Preferred Stock, adjusted as hereinafter provided, shall be determined in
accordance with the Exchange Ratio (as defined below).
Cash dividends on any shares of Senior Preferred Stock exchanged for
Exchange Debentures which have accrued but have not been paid as of the date of
exchange shall be paid in cash. In no event shall the Corporation issue Exchange
Debentures in denominations other than $1,000 or in an integral multiple
thereof. Cash will be paid in lieu of any such fraction of an Exchange Debenture
which would otherwise have been issued (which shall be determined with respect
to the aggregate principal amount of Exchange Debentures to be issued to a
holder upon any such exchange). Interest will accrue on the Exchange Debentures
from the date of exchange.
Prior to effecting any exchange hereunder, the Corporation shall
appoint a trustee to serve in the capacity contemplated by an indenture between
the Corporation and such trustee, containing customary terms and conditions.
The EXCHANGE RATIO shall be, as of any Dividend Payment Date, $1.00 (or
fraction thereof) of principal amount of Exchange Debenture for each $1.00 of
(i) Liquidation Value plus (ii) accrued and unpaid dividends, if any, per share
of Senior Preferred Stock held by a holder on the applicable exchange date.
"AFFILIATES" shall have the meaning ascribed to such term in the
Stockholders Agreement.
"EXCHANGE DEBENTURES" means the Subordinated Exchange Debentures due
2006 of the Corporation, to be issued pursuant to an indenture between the
Corporation and a trustee, containing customary terms and conditions, in
accordance with the Term Sheet attached as EXHIBIT A hereto.
(b) PROCEDURE FOR EXCHANGE. (i) In the event the
Corporation shall exchange shares of Senior Preferred Stock, notice of
such exchange shall be given by first class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the
exchange date, to each holder of record of the shares to be exchanged
at such holder's address as the same appears on the stock register of
the Corporation, PROVIDED that neither the failure to give such notice
nor any defect therein shall affect the validity of the giving of
notice for the exchange of any share of Senior Preferred Stock to be
exchanged except as to the holder to whom the Corporation has failed to
give said notice or except as to the holder whose notice was defective.
Each such notice shall state: (A) the exchange date; (B) the number of
shares of Senior Preferred Stock to be exchanged and, if fewer than all
the shares held by such
A-8
<PAGE>
holder are to be exchanged, the number of shares to be exchanged from
such holder; (C) the Exchange Ratio; (D) the place or places where
certificates for such shares are to be exchanged for notes evidencing
the Exchange Debentures to be received by the exchanging holder; and
(E) that dividends on the shares to be exchanged will cease to accrue
on such exchange date.
(ii) Prior to giving notice of intention to
exchange, the Corporation shall execute and deliver with a
bank or trust company selected by the Corporation an indenture
containing customary terms and conditions. The Corporation
will cause the Exchange Debentures to be authenticated on the
Dividend Payment Date on which the exchange is effective, and
will pay interest on the Exchange Debentures at the rate and
on the dates specified in such indenture from the exchange
date.
The Corporation will not give notice of its intention
to exchange under paragraph 6(b)(i) hereof unless it shall
file at the place or places (including a place in the Borough
of Manhattan, The City of New York) maintained for such
purpose an opinion of counsel (who may be an employee of the
Corporation) to the effect that (i) the indenture has been
duly authorized, executed and delivered by the Corporation,
has been duly qualified under the Trust Indenture Act of 1939
(or that such qualification is not necessary) and constitutes
a valid and binding instrument enforceable against the
Corporation in accordance with its terms (subject, as to
enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles, and
subject to such other qualifications as are then customarily
contained in opinions of counsel experienced in such matters),
(ii) the Exchange Debentures have been duly authorized and,
when executed and authenticated in accordance with the
provisions of the indenture and delivered in exchange for the
shares of Preferred Stock, will constitute valid and binding
obligations of the Corporation entitled to the benefits of the
indenture (subject as aforesaid), (iii) neither the execution
nor delivery of the indenture or the Exchange Debentures nor
compliance with the terms, conditions or provisions of such
instruments will result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or agreement or instrument,
known to such counsel, to which the Corporation or any of its
subsidiaries is a party or by which it or any of them is
bound, or any decree, judgment, order, rule or regulation,
known to such counsel, of any court or governmental agency or
body having jurisdiction over the Corporation and such
subsidiaries or any of their properties, (iv) the Exchange
Debentures have been duly registered for such exchange with
the Securities and Exchange Commission under a registration
statement that has become effective under the Securities Act
of 1933 (the "ACT") or that the exchange of the Exchange
Debentures for the shares of Senior Preferred Stock is exempt
from registration under the Act, and (v) the Corporation has
sufficient legally available funds for such exchange such that
such exchange is permitted under applicable law.
A-9
<PAGE>
(iii) Notice having been mailed as aforesaid, from
and after the exchange date (unless default shall be made by
the Corporation in issuing Exchange Debentures in exchange for
the shares called for exchange), dividends on the shares of
Senior Preferred Stock so called for exchange shall cease to
accrue, and all rights of the holders thereof as stockholders
of the Corporation (except the right to receive from the
Corporation the Exchange Debentures and any rights such
holder, upon the exchange, may have as a holder of the
Exchange Debenture) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so
exchanged (properly endorsed or assigned for transfer, if the
Board of Directors of the Corporation shall so require and the
notice shall so state), such share shall be exchanged by the
Corporation for the Exchange Debentures at the Exchange Ratio.
In case fewer than all the shares represented by any such
certificate are exchanged, a new certificate shall be issued
representing the unexchanged shares without cost to the holder
thereof.
(iv) Each exchange shall be deemed to have been
effected immediately after the close of business on the
relevant Dividend Payment Date, and the person in whose name
or names any Exchange Debentures shall be issuable upon such
exchange shall be deemed to have become the holder of record
of the Exchange Debentures represented thereby at such time on
such Dividend Payment Date.
(v) Prior to the delivery of any securities
which the Corporation shall be obligated to deliver upon
exchange of the Senior Preferred Stock, the Corporation shall
comply with all applicable federal and state laws and
regulations which require action to be taken by the
Corporation.
(c) The Corporation will pay any and all documentary
stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of notes evidencing Exchange Debentures on exchange
of the Senior Preferred Stock pursuant hereto, PROVIDED that the
Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issue or delivery of
Exchange Debentures in a name other than that of the holder of the
Senior Preferred Stock to be exchanged and no such issue or delivery
shall be made unless and until the person requesting such issue or
delivery has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has
been paid.
(8) VOTING RIGHTS. (a) The holders of record of shares of Senior
Preferred Stock shall not be entitled to any voting rights except as hereinafter
provided in this paragraph (8), as otherwise provided by law or as provided in
the Stockholders Agreement.
(b) If and whenever (i) four consecutive cash dividends
payable on the Senior Preferred Stock have not been paid in full, (ii)
for any reason (including the reason that funds are not legally
available for a redemption), the Corporation shall have failed to
discharge any
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<PAGE>
Mandatory Redemption Obligation, (iii) the Corporation shall have
failed to provide the notice required by Section 6(c) hereof within the
time period specified in such section or (iv) the Corporation shall
have failed to comply with Sections 3(d), 3(e) or 8(c) hereof, the
number of directors then constituting the Board of Directors shall be
increased by two and the holders of a majority of the outstanding
shares of Senior Preferred Stock shall be entitled to elect the two
additional directors to serve on the Board of Directors at any annual
meeting of stockholders or special meeting held in place thereof, or at
a special meeting of the holders of the Senior Preferred Stock called
as hereinafter provided.
(c) Whenever (i) all arrears in cash dividends on the
Senior Preferred Stock then outstanding shall have been paid and cash
dividends thereon for the current quarterly dividend period shall have
been paid or declared and set apart for payment, (ii) the Corporation
shall have fulfilled its Mandatory Redemption Obligation, (iii) the
Corporation shall have fulfilled its obligation to provide notice as
specified in subsection (b)(iii) hereof, or (iv) the Corporation shall
have complied with Sections 3(d), 3(e) and 8(c) hereof, as the case may
be, then the right of the holders of the Senior Preferred Stock to
elect such additional directors shall cease (but subject always to the
same provisions for the vesting of such voting rights in the case of
any similar future (i) arrearage in four consecutive quarterly cash
dividends, (ii) failure to fulfill any Mandatory Redemption Obligation,
(iii) failure to fulfill the obligation to provide the notice required
by Section 6(c) hereof within the time period specified in such section
or (iv) failure to comply with Sections 3(d), 3(e) or 8(c)), the terms
of office of the persons elected as directors by the holders of the
Senior Preferred Stock shall forthwith terminate and the number of the
Board of Directors shall be reduced accordingly. At any time after such
voting power shall have been so vested in the holders of shares of
Senior Preferred Stock, the secretary of the Corporation may, and upon
the written request of any holder of Senior Preferred Stock (addressed
to the secretary at the principal office of the Corporation) shall,
call a special meeting of the holders of the Senior Preferred Stock for
the election of the directors to be elected by them as herein provided,
such call to be made by notice similar to that provided in the Bylaws
of the Corporation for a special meeting of the stockholders or as
required by law. If any such special meeting required to be called as
above provided shall not be called by the secretary within 20 days
after receipt of any such request, then any holder of shares of Senior
Preferred Stock may call such meeting, upon the notice above provided,
and for that purpose shall have access to the stock books of the
Corporation. The directors elected at any such special meeting shall
hold office until the next annual meeting of the stockholders or
special meeting held in lieu thereof if such office shall not have
previously terminated as above provided. If any vacancy shall occur
with respect to the directors elected by the holders of the Senior
Preferred Stock, a successor shall be elected in accordance with the
procedures of Section 8(b) to serve until the next annual meeting of
the stockholders or special meeting held in place thereof, if such
office shall not have previously terminated as provided above.
(d) Without the written consent of 66 2/3% of the
outstanding shares of Senior Preferred Stock or the vote of holders of
66 2/3% of the outstanding shares of Senior Preferred
A-11
<PAGE>
Stock at a meeting of the holders of Senior Preferred Stock called for
such purpose, the Corporation will not (i) amend, alter or repeal any
provision of the Certificate of Incorporation (by merger or otherwise)
so as to adversely affect the preferences, rights or powers of the
Senior Preferred Stock, PROVIDED that any such amendment that decreases
the dividend payable on or the Liquidation Value of the Senior
Preferred Stock shall require the affirmative vote of holders of each
share of Senior Preferred Stock at a meeting of holders of Senior
Preferred Stock called for such purpose or written consent of the
holder of each share of Senior Preferred Stock; (ii) create, authorize
or issue any class or series of stock ranking prior to, or on a parity
with, the Senior Preferred Stock with respect to dividends or upon
liquidation, dissolution, winding up or otherwise, or increase the
authorized number of shares of any such class or series, or reclassify
any authorized stock of the Corporation into any such prior or parity
shares or create, authorize or issue any obligation or security
convertible into or evidencing the right to purchase any such prior or
parity shares, except that the Corporation may, without such approval,
create, authorize and issue Parity Securities for the purpose of
utilizing the proceeds from the issuance of such Parity Securities for
the redemption or repurchase of all outstanding shares of Senior
Preferred Stock in accordance with the terms hereof; (iii) merge or
consolidate, or sell, exchange or convey all or substantially all of
the assets, property or business of the Corporation unless, in the case
of a merger or consolidation, (A) if the Corporation is not the
surviving corporation, the seniority, rights, powers and preferences of
the Senior Preferred Stock continue unimpaired and on identical terms
after such transaction or (B) the surviving corporation has a
Consolidated Net Worth (immediately following any such transaction) at
least equal to that of the Corporation immediately prior to such
transaction or (iv) issue any additional shares of Senior Preferred
Stock, other than the issuance of Additional Shares in accordance with
Section 3(b) hereof.
"CONSOLIDATED NET WORTH" means at any date and with respect to
any Person, the consolidated stockholders' equity of such Person and
its consolidated subsidiaries less their consolidated Intangible
Assets, all determined as of such date. For purposes of this
definition, "INTANGIBLE ASSETS" means the amount (to the extent
reflected in determining such consolidated stockholders' equity) of (i)
all write-ups (other than write-ups of assets of a going concern
business made within twelve months after the acquisition of such
business) subsequent to November 26, 1999 in the book value of any
asset owned by such Person or a consolidated subsidiary, (ii) all
investments in unconsolidated subsidiaries and all equity investments
in Persons which are not subsidiaries and (iii) all unamortized debt
discount and expense, unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, anticipated future benefit of
tax loss carry-forwards, copyrights, organization or developmental
expenses and other intangible assets.
(e) In exercising the voting rights set forth in this
paragraph (8), each share of Senior Preferred Stock shall have one vote
per share, except that when any other series of preferred stock shall
have the right to vote with the Senior Preferred Stock as a single
class on any matter, then the Senior Preferred Stock and such other
series shall have with
A-12
<PAGE>
respect to such matters one vote per $25.00 of Liquidation Value or
other liquidation preference. Except as otherwise required by
applicable law or as set forth herein, the shares of Senior Preferred
Stock shall not have any relative, participating, optional or other
special voting rights and powers and the consent of the holders thereof
shall not be required for the taking of any corporate action.
(9) REPORTS. So long as any of the Senior Preferred Stock is
outstanding, the Corporation will furnish the holders thereof with the quarterly
and annual financial reports that the Corporation is required to file with the
Securities and Exchange Commission pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 or, in the event the Corporation is not
required to file such reports, reports containing the same information as would
be required in such reports.
(10) GENERAL PROVISIONS. (a) The term "PERSON" as used herein means
any corporation, limited liability company, partnership, trust, organization,
association, other entity or individual.
(b) The term "OUTSTANDING", when used with reference to
shares of stock, shall mean issued shares, excluding shares held by the
Corporation or a subsidiary.
(c) The headings of the paragraphs, subparagraphs,
clauses and subclauses used herein are for convenience of reference
only and shall not define, limit or affect any of the provisions
hereof.
(d) Each holder of Senior Preferred Stock, by acceptance
thereof, acknowledges and agrees that payments of dividends, interest,
premium and principal on, and exchange, redemption and repurchase of,
such securities by the Corporation are subject to restrictions on the
Corporation contained in certain credit and financing agreements.
A-13
<PAGE>
EXHIBIT A
SUMMARY OF TERMS
OF INDENTURE FOR
SUBORDINATED EXCHANGE DEBENTURES
Parties: Manufacturers' Services Limited (the "CORPORATION")
and [ ], as trustee.
ISSUE: Subordinated Exchange Debentures (the "EXCHANGE
DEBENTURES") to be issued by the Corporation, at its
option, in exchange for any or all the outstanding
shares of Senior Exchangeable Preferred Stock due
2006 (the "SENIOR PREFERRED STOCK") issued on or
about November 26, 1999.
MATURITY: November 26, 2006.
INTEREST: Annual rate, payable quarterly, equal to 14% through
November 26, 2000 and 15% thereafter. After the
Accretion Date (as defined in the Certificate of
Designation of the Senior Preferred Stock of the
Corporation (the "CERTIFICATE OF DESIGNATION")),
quarterly interest will be paid by the issuance of
additional Exchange Debentures; until then interest
will be payable in cash.
RANKING: The Exchange Debentures will rank senior to all
other subordinated debt, preferred stock and
common equity of the Corporation.
OPTIONAL REDEMPTION: The Exchange Debentures will be redeemable at the
option of the Corporation, in whole but not in part,
at the same redemption prices set forth in the
Certificate of Designation.
CHANGE OF CONTROL
REPURCHASE RIGHT: In the event of a Change of Control, each holder of
the Exchange Debentures will have the right to
require the Corporation to repurchase all or
A-1
<PAGE>
any part of such holder's Exchange Debentures, upon a
date no later than 30 days following the Change of
Control, at a repurchase price calculated in
accordance with the procedures set forth in Section
5(b) of the Certificate of Designations for
calculating the redemption price of the Senior
Preferred Stock in the event of a Change of Control,
except that, in so calculating the repurchase price,
the aggregate principal amount of the Exchange
Debentures shall be substituted for "Liquidation
Value", as such term is used in such Section 5(b).
COVENANTS: The Debentures will contain covenants that are
substantially the same as the covenants contained in
the senior credit facility of the Corporation, as
amended, and will limit, among other things, the
ability of the Corporation and its subsidiaries (i)
to incur additional indebtedness, (ii) to pay
dividends and make other distributions on its capital
stock, (iii) to repurchase its capital stock or
warrants, options or other rights to acquire shares
of its capital stock or any Indebtedness subordinated
to the Exchange Debentures, (iv) to make certain
other Restricted Payments, (v) to make certain
investments or asset sales, (vi) to engage in
transactions with affiliates, (vii) to create liens,
(viii) to permit "layering" of indebtedness and (ix)
to merge or consolidate or transfer all or
substantially all of its assets.
A-2
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
MANUFACTURERS' SERVICES LIMITED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE 1 - OFFICES...............................................................................................1
1.1 Registered Offices.....................................................................1
1.2 Other offices..........................................................................1
1.3 Books..................................................................................1
ARTICLE 2 - STOCKHOLDERS..........................................................................................1
2.1 Place of Meetings......................................................................1
2.2 Annual Meeting.........................................................................1
2.3 Special Meeting........................................................................1
2.4 Notice of Meetings.....................................................................2
2.5 Voting List............................................................................2
2.6 Quorum.................................................................................2
2.7 Adjournments...........................................................................2
2.8 Voting and Proxies.....................................................................2
2.9 Proxy Representation...................................................................3
2.10 Action at Meeting......................................................................3
2.11 Nomination of Directors................................................................3
2.12 Notice of Business at Annual Meetings..................................................4
2.13 Action without Meeting.................................................................5
2.14 Organization...........................................................................5
ARTICLE 3 - DIRECTORS.............................................................................................5
3.1 General Powers.........................................................................5
3.2 Number; Election and Qualification.....................................................5
3.3 Classes of Directors...................................................................5
3.4 Terms of Office........................................................................6
3.5 Allocation of Directors Among Classes in the Event of
Increases or Decreases in the Number of Directors...................................6
3.6 Vacancies..............................................................................6
3.7 Resignation............................................................................6
3.8 Regular Meetings.......................................................................6
3.9 Special Meetings.......................................................................6
3.10 Notice of Special Meetings.............................................................7
3.11 Meetings by Telephone Conference Calls.................................................7
3.12 Quorum.................................................................................7
3.13 Action at Meeting......................................................................7
3.14 Action by Consent......................................................................7
3.15 Removal................................................................................7
3.16 Committees.............................................................................7
</TABLE>
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<TABLE>
<S> <C> <C>
3.17 Compensation of Directors..............................................................8
ARTICLE 4 - OFFICERS.............................................................................................8
4.1 Enumeration............................................................................8
4.2 Election...............................................................................8
4.3 Qualification..........................................................................8
4.4 Tenure.................................................................................8
4.5 Resignation and Removal................................................................8
4.6 Vacancies..............................................................................9
4.7 Chairman of the Board..................................................................9
4.8 Chief Executive Officer................................................................9
4.9 President..............................................................................9
4.10 Chief Financial Officer................................................................9
4.11 President of the Americas, President of Europe and President of Asia..................10
4.12 Vice Presidents.......................................................................10
4.13 Controllers...........................................................................10
4.14 Secretary.............................................................................10
4.15 Treasurer.............................................................................10
4.16 Other Officers, Assistant Officers and Agents.........................................11
4.17 Salaries..............................................................................11
ARTICLE 5 - CAPITAL STOCK........................................................................................11
5.1 Issuance of Stock.....................................................................11
5.2 Certificates of Stock.................................................................11
5.3 Transfers.............................................................................11
5.4 Lost, Stolen or Destroyed Certificates................................................12
5.5 Record Date...........................................................................12
5.6 Dividends.............................................................................12
ARTICLE 6 - GENERAL PROVISIONS..................................................................................12
6.1 Fiscal Year...........................................................................12
6.2 Corporate Seal........................................................................12
6.3 Waiver of Notice......................................................................12
6.4 Voting of Securities..................................................................13
6.5 Evidence of Authority.................................................................13
6.6 Certificate of Incorporation..........................................................13
6.7 Transactions with Interested Parties..................................................13
6.8 Severability..........................................................................14
6.9 Pronouns..............................................................................14
6.10 Contracts.............................................................................14
6.11 Loans.................................................................................14
6.12 Inspection of Books and Records.......................................................14
6.13 Section Headings......................................................................14
</TABLE>
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<TABLE>
<S> <C> <C>
6.14 Inconsistent Provisions...............................................................14
ARTICLE 7 - AMENDMENTS.........................................................................................15
7.1 By the Board of Directors.............................................................15
7.2 By the Stockholders...................................................................15
</TABLE>
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<PAGE>
ARTICLE 1 - OFFICES
1.1 REGISTERED OFFICES. The registered office of Manufacturers'
Services Limited (the "Corporation") in the State of Delaware shall be located
at 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent,
Delaware 19001. The name of the Corporation's registered agent at such address
shall be The Prentice-Hall Corporation System, Inc. The registered office and/or
registered agent of the Corporation may be changed from time to time by action
of the Board of Directors.
1.2 OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
1.3 BOOKS. The books of the Corporation may be kept within or
without of the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE 2 - STOCKHOLDERS
2.1 PLACE OF MEETINGS. All meetings of stockholders shall be held
at such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the Chief Executive Officer (or, if
there is no Chief Executive Officer, the President) or, if not so designated, at
the registered office of the corporation.
2.2 ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held at 10:00 a.m. on the second
Tuesday in November each year (unless that day be a legal holiday in the place
where the meeting is to be held in which case the meeting shall be held at the
same hour on the next succeeding day not a legal holiday) or at such other date
and time as shall be fixed by the Board of Directors or the Chief Executive
Officer (or, if there is no Chief Executive Officer, the President) and stated
in the notice of the meeting. If no annual meeting is held in accordance with
the foregoing provisions, the Board of Directors shall cause the meeting to be
held as soon thereafter as convenient. If no annual meeting is held in
accordance with the foregoing provisions, a special meeting may be held in lieu
of the annual meeting, and any action taken at that special meeting shall have
the same effect as if it had been taken at the annual meeting, and in such case
all references in these By-Laws to the annual meeting of stockholders shall be
deemed to refer to such special meeting.
2.3 SPECIAL MEETING. Special meetings of stockholders may be
called at any time by only the Chairman of the Board of Directors, the Chief
Executive Officer (or, if there is no Chief Executive Officer, the President) or
by the Board of Directors of the Corporation pursuant to a resolution adopted by
the affirmative vote of a majority of the total number of directors then in
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<PAGE>
office. Any business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
2.4 NOTICE OF MEETINGS. Except as otherwise provided by law,
written notice of each meeting of stockholders, whether annual or special, shall
be given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting. The notices of
all meetings shall state the place, date and hour of the meeting. The notice of
a special meeting shall state, in addition, the purpose or purposes for which
the meeting is called. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his or her address
as it appears on the records of the corporation.
2.5 VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, at a place within the city where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
2.6 QUORUM. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, the holders of a majority of the shares of
the capital stock of the corporation issued and outstanding and entitled to vote
at the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
2.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to
any other time and to any other place at which a meeting of stockholders may be
held under these By-Laws by a majority of the stockholders present or
represented at the meeting and entitled to vote, although less than a quorum,
or, if no stockholder is present, by any officer entitled to preside at or to
act as Secretary of such meeting. It shall not be necessary to notify any
stockholder of any adjournment of less than thirty (30) days if the time and
place of the adjourned meeting are announced at the meeting at which adjournment
is taken, unless after the adjournment a new record date is fixed for the
adjourned meeting. At the adjourned meeting, the corporation may transact any
business which might have been transacted at the original meeting.
2.8 VOTING AND PROXIES. Except as otherwise provided by the
General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-Laws, each stockholder shall have one vote for each
share of capital stock entitled to vote and held of record by such stockholder.
Each stockholder of record entitled to vote at a meeting of stockholders may
vote in person or may authorize another person or persons to vote or act for him
or her by written proxy executed by the stockholder or his or her authorized
agent and delivered to the
2
<PAGE>
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
2.9 PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him or her by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, objecting to or voting or participating at a meeting, or expressing
consent or dissent without a meeting. The delivery of a proxy on behalf of a
stockholder consistent with telephonic or electronically transmitted
instructions obtained pursuant to procedures of the corporation reasonably
designed to verify that such instructions have been authorized by such
stockholder shall constitute execution and delivery of the proxy by or on behalf
of the stockholder. No proxy shall be voted or acted upon after three years from
its date unless such proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and, if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. The authorization of a proxy may but need
not be limited to specified action, provided, however, that if a proxy limits
its authorization to a meeting or meetings of stockholders, unless otherwise
specifically provided such proxy shall entitle the holder thereof to vote at any
adjourned session but shall not be valid after the final adjournment thereof. A
proxy purporting to be authorized by or on behalf of a stockholder, if accepted
by the corporation in its discretion, shall be deemed valid unless challenged at
or prior to its exercise, and the burden of proving invalidity shall rest on the
challenger.
2.10 ACTION AT MEETING. When a quorum is present at any meeting, a
plurality of the votes properly cast for election to any office shall elect to
such office and a majority of the votes properly cast upon any question other
than an election to an office shall decide the question, except when a larger
vote is required by law, by the Certificate of Incorporation or by these Bylaws.
No ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
2.11 NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. The nomination for election to the Board of Directors of the
corporation at a meeting of stockholders may be made by the Board of Directors
or by any stockholder of the corporation entitled to vote for the election of
directors at such meeting who complies with the notice procedures set forth in
this Section 2.11. Such nominations, other than those made by or on behalf of
the Board of Directors, shall be made by notice in writing delivered or mailed
by first class United States mail, postage prepaid, to the Secretary, and
received at the principal executive offices of the corporation not less than
sixty (60) days nor more than ninety (90) days prior to the anniversary date of
the immediately preceding annual meeting of stockholders; PROVIDED, HOWEVER,
that if the annual meeting is not held within thirty (30) days before or after
such anniversary date, then such nomination shall have been delivered to or
mailed and received by the Secretary not later than the close of business on the
10th day following the date on which the notice of the meeting was mailed or
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such public disclosure was made, whichever occurs first. Such notice shall set
forth (a) as to each proposed nominee (i) the name, age, business address and,
if known, residence address of each such nominee, (ii) the principal occupation
or employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, including such person's written consent to be named as
a nominee and to serve 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 and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he or she should so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
2.12 NOTICE OF BUSINESS AT ANNUAL MEETINGS. At an annual meeting
of the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the direction of
the Board of Directors or (c) otherwise properly brought before an annual
meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, if such business relates to the election of
directors of the corporation, the procedures in Section 2.11 must be complied
with. If such business relates to any other matter, the stockholder must have
given timely notice thereof in writing to the Secretary. 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 sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; PROVIDED, HOWEVER, that
if the annual meeting is not held within thirty (30) days before or after
such anniversary date, then for the notice by the stockholder to be timely it
must be so received not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such
public disclosure was made, whichever occurs first. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the corporation which are
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these By-Laws to
the contrary, no business shall be conducted at any annual meeting except in
accordance with the
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procedures set forth in this Section 2.12, except that any stockholder proposal
which complies with Rule 14a-8 of the proxy rules, or any successor provision,
promulgated under the Securities Exchange Act of 1934, as amended, and is to be
included in the corporation's proxy statement for an annual meeting of
stockholders shall be deemed to comply with the requirements of this Section
2.12.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.12, and if he or she should
so determine, the chairman shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
2.13 ACTION WITHOUT MEETING. Stockholders may not take any action
by written consent in lieu of a meeting.
2.14 ORGANIZATION. The Chairman of the Board, or in his or her
absence the President shall call meetings of the stockholders to order, and act
as chairman of such meeting; PROVIDED, HOWEVER, that the Board of Directors may
appoint any stockholder to act as chairman of any meeting in the absence of the
Chairman of the Board. The Secretary of the corporation shall act as secretary
at all meetings of the stockholders; PROVIDED, HOWEVER, that in the absence of
the Secretary at any meeting of the stockholders, the acting chairman may
appoint any person to act as secretary of the meeting.
ARTICLE 3 - DIRECTORS
3.1 GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation except as otherwise provided by
law, the Certificate of Incorporation or these By-Laws. In the event of a
vacancy in the Board of Directors, the remaining directors, except as otherwise
provided by law, may exercise the powers of the full Board of Directors until
the vacancy is filled.
3.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors
which shall constitute the whole Board of Directors shall be determined by
resolution of the Board of Directors, but in no event shall be less than three.
The directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. The directors need not
be stockholders of the corporation.
3.3 CLASSES OF DIRECTORS. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class III, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class III and
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one of the extra directors shall be a member of Class II, unless otherwise
provided from time to time by resolution adopted by the Board of Directors.
3.4 TERMS OF OFFICE. Except as otherwise provided in the
Certificate of Incorporation or these By-Laws, each director shall serve for a
term ending on the date of the third annual meeting following the annual meeting
at which such director was elected; PROVIDED, HOWEVER, that each initial
director in Class I shall serve for a term ending on the date of the annual
meeting of stockholders in 2001; each initial director in Class II shall serve
for a term ending on the date of the annual meeting of stockholders in 2002; and
each initial director in Class III shall serve for a term ending on the date of
the annual meeting of stockholders in 2003; and PROVIDED, FURTHER, that the term
of each director shall be subject to the election and qualification of his or
her successor and to his or her earlier death, resignation or removal.
3.5 ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF
INCREASES OR DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of which
he or she is a member and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation, and any newly eliminated directorships shall be
subtracted from those classes whose terms of offices are to expire at the
earliest dates following such allocation, unless otherwise provided from time to
time by resolution adopted by the Board of Directors.
3.6 VACANCIES. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board of
Directors, shall be filled only by vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. A director
elected to fill a vacancy shall be elected for the unexpired term of his or her
predecessor in office, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next election
of the class for which such director shall have been chosen, subject to the
election and qualification of his or her successor and to his or her earlier
death, resignation or removal.
3.7 RESIGNATION. Any director may resign by delivering his or her
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
3.8 REGULAR MEETINGS. The regular meetings of the Board of
Directors may be held without notice at such time and place, either within or
without the State of Delaware, as shall be determined from time to time by the
Board of Directors; PROVIDED, that any director who is absent when such a
determination is made shall be given notice of the determination. A regular
meeting
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of the Board of Directors may be held without notice immediately after and at
the same place as the annual meeting of stockholders.
3.9 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board of Directors, the Chief
Executive Officer (or if there is no Chief Executive Officer, the President),
two or more directors or by one director in the event that there is only a
single director in office.
3.10 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
the Board of Directors shall be given to each director by the Secretary or by
the officer or one of the directors calling the meeting. The notice shall be
duly given to each director (i) by giving notice to such director in person or
by telephone at least twenty four (24) hours in advance of the meeting, (ii) by
sending a telegram, telecopy, or telex, or delivering written notice by hand, to
his or her last known business or home address at least twenty four (24) hours
in advance of the meeting, or (iii) by mailing written notice to his or her last
known business or home address at least seventy two (72) hours in advance of the
meeting. A notice or waiver of notice of a special meeting of the Board of
Directors need not specify the purposes of the meeting.
3.11 MEETINGS BY TELEPHONE CONFERENCE CALLS. The Board of Directors
or any members of any committee of the Board of Directors designated by the
directors may participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at such meeting.
3.12 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; PROVIDED, HOWEVER, that in no case shall less than one-third
(1/3) of the number of directors so fixed constitute a quorum. In the absence of
a quorum at any such meeting, a majority of the directors present may adjourn
the meeting from time to time without further notice, other than announcement at
the meeting, until a quorum shall be present.
3.13 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
3.14 ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee of the Board
of Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board of Directors or
committee of the Board of Directors, as applicable.
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3.15 REMOVAL. The directors of the corporation may not be removed
without cause and may be removed for cause only by the affirmative vote of the
holders of seventy-five percent (75%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote generally in the
election of directors cast at a meeting of the stockholders called for that
purpose.
3.16 COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-Laws for the Board of Directors.
3.17 COMPENSATION OF DIRECTORS. The directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 4 - OFFICERS
4.1 ENUMERATION. The officers of the corporation shall consist of
a Chief Executive Officer, a President, a Chief Financial Officer, a Secretary
and a Treasurer. The Board of Directors may appoint other officers with such
titles and powers as it may deem appropriate, including, without limitation, a
President of the Americas, a President of Europe, a President of Asia, one or
more Vice Presidents and one or more Controllers.
4.2 ELECTION. The Chief Executive Officer, President, Chief
Financial Officer, Secretary and Treasurer shall be elected annually by the
Board of Directors at its first meeting following the annual meeting of
stockholders. Other officers may be appointed by the Board of Directors at such
meeting or at any other meeting.
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4.3 QUALIFICATION. No officer need be a stockholder of the
corporation. Any two or more offices may be held by the same person.
4.4 TENURE. Except as otherwise provided by law, by the
Certificate of Incorporation or by these By-Laws, each officer shall hold office
until his or her successor is elected and qualified, unless a different term is
specified in the vote choosing or appointing him or her, or until his or her
earlier death, resignation or removal.
4.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering
his or her written resignation to the corporation at its principal office or to
the Chief Executive Officer or Secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event. Any officer may be removed at any time, with
or without cause, by vote of a majority of the entire number of directors then
in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his or her resignation or removal, or any right to
damages on account of such removal, whether his of her compensation be by the
month or by the year or otherwise, unless such compensation is expressly
provided in a duly authorized written agreement with the corporation.
4.6 VACANCIES. The Board of Directors may fill any vacancy
occurring in any office for any reason and may, in its discretion, leave
unfilled for such period as it may determine any offices other than those of
Chief Executive Officer, President, Secretary and Treasurer. Each such successor
shall hold office for the unexpired term of his or her predecessor and until his
or her successor is elected and qualified, or until his or her earlier death,
resignation or removal.
4.7 CHAIRMAN OF THE BOARD. The Board of Directors may appoint a
Chairman of the Board. If the Board of Directors appoints a Chairman of the
Board, he or she shall perform such duties and possess such powers as are
assigned to him or her by the Board of Directors.
4.8 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall,
subject to the direction of the Board of Directors, have general charge and
supervision of the business of the corporation. Unless otherwise provided by the
Board of Directors, he or she shall preside at all meetings of the stockholders
and, if he or she is a director, at all meetings of the Board of Directors. The
Chief Executive Officer shall perform such other duties and possess such other
powers as the Board of Directors may from time to time prescribe.
4.9 PRESIDENT. The President shall perform such duties and possess
such powers as the Board of Directors or the Chief Executive Officer may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Chief Executive Officer, the President shall perform the duties of the
Chief Executive Officer and when so performing shall have all the powers of and
be subject to all the restrictions upon the office of Chief Executive Officer.
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4.10 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
perform such duties and possess such powers as the Board of Directors or the
Chief Executive Officer may from time to time prescribe. The Chief Financial
Officer shall have the custody of the corporate funds and securities; shall keep
full and accurate all books and accounts of the Corporation as shall be
necessary or desirable in accordance with applicable law or generally accepted
accounting principles; shall deposit all monies and other valuable effects in
the name and to the credit of the Corporation as may be ordered by the Chairman
of the Board or the Board of Directors; shall cause the funds of the Corporation
to be disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements; and shall render to the Board of Directors, at
its regular meeting or when the Board of Directors so requires, an account of
the Corporation.
4.11 PRESIDENT OF THE AMERICAS, PRESIDENT OF EUROPE AND PRESIDENT
OF ASIA. The President of the Americas, President of Europe and President of
Asia shall perform such duties and possess such powers as the Board of
Directors, the Chief Executive Officer or the President may from time to time
prescribe.
4.12 VICE PRESIDENTS. Any Vice President shall perform such duties
and possess such powers as the Board of Directors, the Chief Executive Officer
or the President may from time to time prescribe. The Board of Directors may
assign to any Vice President the title of Executive Vice President, Senior Vice
President or any other such title.
4.13 CONTROLLERS. Any Controller shall perform such duties and
possess such powers as the Board of Directors, the Chief Executive Officer or
any Vice President may from time to time prescribe.
4.14 SECRETARY. The Secretary shall perform such duties and possess
such powers as the Board of Directors or the Chief Executive Officer may from
time to time prescribe. In addition, the Secretary shall perform such duties and
have such powers as are incident to the office of the Secretary, including
without limitation the duty and power to give notices of all meetings of
stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
In the event of the absence, inability or refusal to act of the
Secretary at any meeting of stockholders or directors, the person presiding at
the meeting shall designate a temporary secretary to keep a record of the
meeting.
4.15 TREASURER. The Treasurer shall perform such duties and possess
such powers as the Board of Directors, the Chief Executive Officer or the Chief
Financial Officer may from time to time prescribe. In addition, the Treasurer
shall perform such duties and have such powers as are incident to the office of
Treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories
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selected in accordance with these By-Laws, to disburse such funds as ordered by
the Board of Directors, to make proper accounts of such funds, and to render as
required by the Board of Directors statements of all such transactions and of
the financial condition of the corporation. Unless the Board of Directors has
designated another officer as Chief Financial Officer, the Treasurer shall be
the Chief Financial Officer of the corporation.
In the event of the absence, inability or refusal to act of the
Treasurer, the Board of Directors shall appoint a temporary treasurer, who shall
perform the duties and exercise the powers of the Treasurer.
4.16 OTHER OFFICERS, ASSISTANT OFFICERS AND AGENTS. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.
4.17 SALARIES. Officers of the corporation shall be entitled to
such salaries, compensation or reimbursement as shall be fixed or allowed from
time to time by the Board of Directors.
ARTICLE 5 - CAPITAL STOCK
5.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders
and subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
corporation or the whole or any part of any unissued balance of the authorized
capital stock of the corporation held in its treasury may be issued, sold,
transferred or otherwise disposed of by vote of the Board of Directors in such
manner, for such consideration and on such terms as the Board of Directors may
determine.
5.2 CERTIFICATES OF STOCK. Every holder of stock of the
corporation shall be entitled to have a certificate, in such form as may be
prescribed by law and by the Board of Directors, certifying the number and class
of shares owned by him or her in the corporation. Each such certificate shall be
signed by, or in the name of the corporation by, the Chairman of the Board of
Directors, the Chief Executive Officer or the President, and the Treasurer or
the Secretary of the corporation. Any or all of the signatures on the
certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
5.3 TRANSFERS. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the certificate
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representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-Laws.
5.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may
issue a new certificate of stock in place of any previously issued certificate
alleged to have been lost, stolen, or destroyed, upon such terms and conditions
as the Board of Directors may prescribe, including the presentation of
reasonable evidence of such loss, theft or destruction and the giving of such
indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
5.5 RECORD DATE. The Board of Directors may fix in advance a date
as a record date for the determination of the stockholders entitled to notice of
or to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than sixty (60) nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.
5.6 DIVIDENDS. Subject to limitations contained in the General
Corporation Law of the State of Delaware, the Certificate of Incorporation and
these By-laws, the Board of Directors may declare and pay dividends upon the
shares of capital stock of the Corporation, which dividends may be paid either
in cash, in property or in shares of the capital stock of the Corporation.
ARTICLE 6 - GENERAL PROVISIONS
6.1 FISCAL YEAR. Except as from time to time otherwise designated
by the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
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6.2 CORPORATE SEAL. The corporate seal shall be in such form as
shall be approved by the Board of Directors.
6.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required
to be given by law, by the Certificate of Incorporation or by these By-Laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or any
other available method, whether before, at or after the time stated in such
waiver, or by the appearance of such person at such meeting in person or by
proxy, shall be deemed equivalent to such notice. Any member of the Board of
Directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
6.4 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the Chief Executive Officer or Treasurer may waive notice of, and act
as, or appoint any person or persons to act as, proxy or attorney-in-fact for
this corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
6.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or a
temporary secretary, as to any action taken by the stockholders, directors, a
committee or any officer or representative of the corporation shall, as to all
persons who rely on the certificate in good faith, be conclusive evidence of
such action.
6.6 CERTIFICATE OF INCORPORATION. All references in these By-Laws
to the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the corporation, as amended or restated and in effect from
time to time.
6.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or transaction
or solely because his, her or their votes are counted for such purpose, if:
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(1) The material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee of the Board of Directors in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
(2) The material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or
(3) The contract or transaction is fair as to
the corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.8 SEVERABILITY. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these By-Laws.
6.9 PRONOUNS. All pronouns used in these By-Laws shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
6.10 CONTRACTS. In addition to the powers otherwise granted to
officers pursuant to Article 4 hereof, the Board of Directors may authorize any
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
6.11 LOANS. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
Director of the Corporation or its subsidiaries, whenever, in the judgment of
the Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
6.12 INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall
have power from time to time to determine to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the
14
<PAGE>
inspection of the stockholders; and no stockholder shall have any right to
inspect any account or book or document of the Corporation, except as conferred
by the laws of the State of Delaware, unless and until authorized so to do by
resolution of the Board of Directors or of the stockholders of the Corporation.
6.13 SECTION HEADINGS. Section headings in these By-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
6.14 INCONSISTENT PROVISIONS. In the event that any provision of
these By-laws is or becomes inconsistent with any provision of the Restated
Certificate of Incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE 7 - AMENDMENTS
7.1 BY THE BOARD OF DIRECTORS. These By-Laws may be altered,
amended or repealed or new By-Laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present.
7.2 BY THE STOCKHOLDERS. Notwithstanding any other provision of
law, the Certificate of Incorporation or these By-Laws, and notwithstanding the
fact that a lesser percentage may be specified by law, the affirmative vote of
the holders of at least seventy-five percent (75%) of the shares of the capital
stock of the corporation issued and outstanding and entitled to vote shall be
required to alter, amend or repeal any provision of these By-Laws or to adopt
new By-Laws.
15
Exhibit 3.3
Temporary Certificate-Exchangeable for definitive Engraved Certificate when
available for delivery
[GRAPHIC OMITTED]
MSL
Manufacturers' Services Limited
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA OR NEW YORK, NY
NUMBER SHARES
MSL
SEE REVERSE FOR
COMMON STOCK CERTAIN DEFINITIONS
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT CUSIP 565005 10 5
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
Manufacturers' Services Limited (the "Corporation") transferable on the books of
the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate properly endorsed. The shares represented by
this certificate are subject to the provisions of the Certificate of
Incorporation and By-Laws of the Corporation as from time to time amended or
restated. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ [ILLEGIBLE] [SEAL] /s/ [ILLEGIBLE]
TREASURER CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED
EquiServe Trust Company, N.A.
By /s/ [ILLEGIBLE] TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE>
Manufacturers' Services Limited
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TENANT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - _____________Custodian_____________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ____________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated ______________
____________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:________________________________________________________
The signature(s) should be guaranteed by an eligible
guarantor institution (Banks, Stockbrokers, Savings and
Loan Associations and Credit Unions with membership in
an approved signature guarantee Medallion Program),
pursuant to S.E.C. Rule 17Ad-15.
<PAGE>
Exhibit 4.6
THIRD AMENDMENT TO CREDIT AGREEMENT
AND CONSENT
This THIRD AMENDMENT TO CREDIT AGREEMENT AND CONSENT (this
"Amendment") is dated as of February 10, 2000 and entered into by and among
Manufacturers' Services Limited, a Delaware corporation ("Company"), MSL
Overseas Finance B.V., a Netherlands private company with limited liability
("MSL Overseas"), the financial institutions listed on the signature pages
hereof, Bank of America, N.A. (successor to Bank of America National Trust and
Savings Association), as administrative agent, as collateral agent, and as
issuing lender, DLJ Capital Funding, Inc; as syndication agent, and Bank of
America International Limited as sub-agent, and is made with reference to that
certain Credit Agreement dated as of August 21, 1998, as amended pursuant to a
First Amendment to Credit Agreement and Limited Waiver, dated as of February 26,
1999 and a Second Amendment to Credit Agreement and Consent, dated as of
November 23, 1999 (as so amended, the "Credit Agreement"), by and among Company,
MSL Overseas, Lenders, Sub-Agent, DLJ Capital Funding, Inc., as Syndication
Agent, and Bank of America, N.A. (successor to Bank of America National Trust
and Savings Association), as Administrative Agent, as Collateral Agent and as
Issuing Lender. Capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, in order to increase its working capital availability,
Company desires to borrow $25,000,000 pursuant to term loans maturing July 31,
2004, which will be equally and ratably secured with the Term Loans and
Revolving Loans under the Credit Agreement;
WHEREAS, the proceeds of such term loans will be used to repay
Revolving Loans outstanding under the Credit Agreement;
WHEREAS, such term loans shall be obligations solely of Company and
not of MSL Overseas;
WHEREAS, Company has requested and Lenders have agreed (1) to amend
the Credit Agreement to provide for such new term loans and (2) to consent to
the incurrence of such new term loans; and
WHEREAS, Company and Lenders have agreed to amend the Credit
Agreement in certain other respects relating to such term loans.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows;
<PAGE>
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendment to Subsection 1.1: Definitions.
A. Subsection 1.1 of the Credit Agreement is hereby amended by adding the
following definitions:
"Third Amendment" means the Third Amendment to Credit Agreement and
Consent.
"Third Amendment Closing Date" means February 11, 2000, the date of
the funding of the Tranche B Term Loans.
"Tranche B Term Loan Commencement" means the commitment of a Lender
to make Tranche B Term Loans to Company pursuant to subsection 2.1A(v), and
"Tranche B Term Loan Commitments" means such commitments of all Lenders in the
aggregate.
"Tranche B Term Loan Exposure" means, with respect to any Tranche B
Term Loan Lender as of any date of determination (i) prior to the funding of the
Tranche B Term Loans, that Lender's Tranche B Term Loan Commitment and (ii)
after the funding of the Tranche B Term Loans, the outstanding principal amount
of the Tranche B Term Loan of that Lender.
"Tranche B Term Loan Lender" means any Lender who holds a Tranche B
Term Loan Commitment, or who has made a Tranche B Term Loan hereunder and any
assignee of such Lender pursuant to subsection 12.1B.
"Tranche B Term Loans" means the Tranche B Term Loans made by
Tranche B Term Loan Lenders to Company pursuant to subsection 2.1A(v).
"Tranche B Term Notes" means (i) the promissory notes of Company
issued pursuant to subsection 2.1D(iii) on the Third Amendment Closing date and
(ii) any promissory notes issued by Company pursuant to the last sentence of
subsection 12.1B(i) in connection with assignments of the Tranche B Term Loan
Commitments or Tranche B Term Loans of any Tranche B Term Loan Lenders, in each
case substantially in the form of Exhibit IV-A annexed hereto, as they may be
amended, supplemented or otherwise modified from time to time.
B. Subsection 1.1 of the Credit Agreement is hereby further amended by
deleting the definitions of the terms listed below and inserting the following
in lieu thereof:
"Company Borrowing Base" means, as at any date of determination, the
lesser of (i) the difference between (a) the sum of (1) 90% of all Eligible
Accounts Receivable of Company and its Domestic Subsidiaries due from IBM that
are unpaid for 30 days or less from the date of the original invoice therefor,
(2) 80% of all Eligible Accounts Receivable of Company and its Domestic
Subsidiaries other than those specified in clause (1) above and (3)(i) until
December 31, 1999, 45% of all Eligible Inventory of Company and its Domestic
Subsidiaries (less such amount of Eligible Inventory to assure that Eligible
Inventory at any time
2
<PAGE>
does not exceed 60% of the Company Borrowing Base) and (ii) after December 31,
1999, 35% of all Eligible Inventory of Company and its Domestic Subsidiaries
(less such amount of Eligible Inventory to assure that Eligible Inventory at any
time does not exceed 50% of the Company Borrowing Base) and (b) the Term Loans
and Tranche B Term Loans advanced to Company and (ii) $75,000,000 minus the
Total Utilization of Revolving Loan Commitments attributable to MSL Overseas.
"Lender" and "Lenders" means the persons identified as "Lender" and
"Tranche B Term Loan Lender" and listed on the signature pages to the Third
Amendment, together with their successors and permitted assigns pursuant to
subsection 12.1.
"Loan" or "Loans" means one or more of the Term Loans, Tranche B
Term Loans or Revolving Loans or any combination thereof.
"Notes" means one or more of the Term Notes, Tranche B Term Notes or
Revolving Notes or any combination thereof.
"Pro Rata Share" means the percentage equivalent (expressed as a
decimal rounded to the ninth decimal place) (i) with respect to all payments,
computations and other matters relating to the Term Loan Commitment or the Term
Loan Exposure of any Lender, the percentage obtained by dividing (x) the Term
Loan Exposure of that Lender by (y) the aggregate Term Loan Exposure of all
Lenders, (ii) with respect to all payments, computations and other matters
relating to the Tranche B Term Loan Commitments or the Tranche B Term Loan
Exposure of any Lender, the percentage obtained by dividing (x) the Tranche B
Term Loan Exposure of that Lender by (y) the aggregate Tranche B Term Loan
Exposure of all Lenders, (iii) with respect to all payments, computations and
other matters relating to the Revolving Loan Commitment or the Revolving Loans
of any Revolving Lender or any Letters of Credit issued or participations
therein purchased (including any Offshore Participations pursuant to subsection
2.1A(iii)(b)) by any Revolving Lender, the percentage obtained by dividing (x)
the Revolving Loan Exposure of that Lender by (y) the aggregate Revolving Loan
Exposure of all Lenders, and (iv) for all other purposes with respect to each
Lender, the percentage obtained by dividing (x) the sum of the Term Loan
Exposure of that Lender plus the Tranche B Term Loan Exposure of that Lender
plus the Revolving Loan Exposure of that Lender by (y) the sum of the aggregate
Term Loan Exposure of all Lenders plus the aggregate Tranche B Term Loan
Exposure of all Lenders plus the aggregate Revolving Loan Exposure of all
Lenders, in any such case as the applicable percentage may be adjusted by
assignments permitted pursuant to subsection 12.1. The Pro Rata Share of each
Lender, after giving effect to the Third Amendment, for purposes of each of
clauses (i), (ii) and (iii) of the preceding sentence is set forth opposite the
name of that Lender in Schedule 2.1 annexed hereto.
"Requisite Lenders" means Lenders having or holding 51% or more of
the sum of (i) the aggregate Term Loan Exposure of all Lenders plus (ii) the
aggregate Tranche B Term Loan Exposure of all Lenders plus (iii) the aggregate
Revolving Loan Exposure of all Lenders.
3
<PAGE>
1.2 Amendment to Subsection 2.1: Commitments; Making of Loans; Notes.
A. Subsection 2.lA of the Credit Agreement is hereby amended by deleting
the first paragraph thereof and inserting the following:
"Commitments. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Borrowers
herein set forth, each Term Loan Lender hereby severally agrees to make
the Term Loans described in subsection 2.lA(i), each Revolving Lender
hereby severally agrees to make the Revolving Loans described in
subsection 2.1A(ii), each Offshore Lender hereby severally agrees to make
the Offshore Revolving Loans described in subsection 2.lA(iii), and each
Tranche B Term Loan Lender hereby severally agrees to make the Tranche B
Term Loans described in subsection 2.1A(v)."
B. Subsection 2.1A of the Credit Agreement is hereby further amended by
inserting the following at the end thereof:
"(v) Tranche B Term Loans. Each Tranche B Term Loan Lender severally
agrees to lend Company on the Third Amendment Closing Date an amount not
exceeding its Pro Rata Share of the aggregate amount of the Tranche B Term
Loan Commitments to be used for the purposes identified in subsection
2.5A. The amount of each Tranche B Term Loan Lender's Tranche B Term Loan
Commitment is set forth opposite its name on Schedule 2.1 annexed hereto
and the aggregate amount of the Tranche B Term Loan Commitments is
$25,000,000; provided that the Tranche B Term Loan Commitments of the
Tranche B Term Loan Lenders shall be adjusted to give effect to any
assignments of the Tranche B Term Loan Commitments pursuant to subsection
12.1B. Each Tranche B Term Loan Lender's Tranche B Term Loan Commitment
shall expire immediately and without further action on February 11, 2000,
if the Tranche B Term Loans are not made on or before that date. Company
may make only one borrowing under the Tranche B Term Loan Commitments.
Amounts borrowed under this subsection 2.1A(v) and subsequently repaid or
prepaid may not be reborrowed. Tranche B Term Loans shall be available
only in Dollars."
C. Subsection 2.1B and subsection 2.1C of the Credit Agreement are hereby
amended by inserting the phrase ", Tranche B Term Loans" after the phrase "Term
Loans" wherever the phase "Term Loans" appears in subsection 2.1B and subsection
2.1C, by inserting the phrase ", Tranche B Term Loan Lender" after the phrase
"Term Lender" wherever the phrase "Term Lender" appears in subsection 2.1C and
by replacing the phrase "Term Lender" with the phrase "Term Loan Lender"
wherever the phrase Term Lender appears in subsection 2.1C.
D. Subsection 2.1D of the Credit Agreement is hereby amended by adding the
following at the end of the first paragraph thereof: "and (iii) to each Tranche
B Term Loan Lender (or to Administrative Agent for that Lender) a Tranche B Term
Note substantially in the form of Exhibit IV-A annexed hereto to evidence that
Lender's Tranche B Term Loan, in the principal amount of that Lender's Tranche B
Term Loan and with other appropriate insertions."
4
<PAGE>
1.3 Amendment to Subsection 2.2: Interest an the Loans.
A. Subsection 2.2A of the Credit Agreement is hereby amended by inserting
the phrase ", Tranche B Term Loan" after the phrase "Term Loan" wherever the
phrase "Term Loan" appears in the first paragraph of subsection 2.2A.
B. Subsection 2.2A of the Credit Agreement is hereby further amended by
inserting the following at the end thereof:
"(c) Subject to the provisions of subsections 2.2E and 2.8, the
Tranche B Term Loans shall bear interest through maturity as follows:
(I) if a Base Rate Loan, then at the sum of the Base Rate plus
2.75% per annum; or
(II) if a LIBOR Loan, then at the sum of Adjusted LIBOR plus
3.75% per annum."
C. Subsection 2.2B of the Credit Agreement is hereby amended by deleting
clauses (v) and (vi) thereof and inserting the following in lieu thereof:
"(v) no Interest Period with respect to any portion of the Term
Loans or the Tranche B Term Loans shall extend beyond July 31, 2004 and no
Interest Period with respect to any portion of the Revolving Loans shall
extend beyond the Revolving Loan Commitment Termination Date;
(vi) no Interest Period with respect to any portion of the Term
Loans or the Tranche B Term Loans shall extend beyond a date in which
Borrowers are required to make a scheduled payment of principal of the
Term Loans or the Tranche B Term Loans, as the case may be, unless the sum
of (a) the aggregate principal amount of the Term Loans or the Tranche B
Term Loans, as the case may be, that are Base Rate Loans plus (b) the
aggregate principal amount of such Loans that are LIBOR Loans with
Interest Periods expiring on or before such date equals or exceeds the
principal amount required to be paid on such Loans on such date;".
D. Subsection 2.2D of the Credit Agreement is hereby amended by inserting
the phrase ",Tranche B Term Loans" after the phrase "Term Loans" in the third
line of the first paragraph thereof.
1.4 Amendment to Subsection 2.4: Repayments, Prepayments and Reductions in
Revolving Loan Commitments; General Provisions Regarding Payments.
A. Subsection 2.4A of the Credit Agreement is hereby amended by inserting
the following at the end thereof:
5
<PAGE>
"Company shall make principal payments on the Tranche B Term Loans
in installments on the dates and in the amounts set forth below:
Scheduled Repayment
Date of Tranche B Term Loans
---- -----------------------
April 30, 2000 $ 62,500
July 31, 2000 62,500
October 31, 2000 62,500
January 31, 2001 62,500
April 30, 2001 62,500
July 31, 2001 62,500
October 31, 2001 62,500
January 31, 2002 62,500
April 30, 2002 62,500
July 31, 2002 62,500
October 31, 2002 62,500
January 31, 2003 62,500
April 30, 2003 62,500
July 31, 2003 62,500
October 31, 2003 62,500
January 31, 2004 62,500
April 30, 2004 62,500
July 31, 2004 23,937,500
----------
Total $25,000,000
; provided that the scheduled installments of principal of the Tranche B
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Tranche B Term Loans in
accordance with subsection 2.4B(iv); and provided, further that the
Tranche B Term Loans and all other amounts owed hereunder with respect to
the Tranche B Term Loans shall be paid in full no later than July 31,
2004, and the final installment payable by Company in respect of the
Tranche B Term Loans on such date shall be in an amount, if such amount is
different from that specified above, sufficient to repay all amounts owing
by Company under this Agreement with respect to the Tranche B Term Loans."
B. Subsection 2.4B(i) of the Credit Agreement is hereby amended by
deleting the phrase "any Term Loans or Revolving Loans" in the ninth line
thereof and inserting the phrase "any Loans" in lieu thereof.
C. Subsection 2.4B(iv) is hereby amended by deleting it in its entirety
and substituting therefor the following:
6
<PAGE>
"(iv) Application of Prepayments.
(a) Application of Voluntary Prepayments by Type of Loans and Order
of Maturity. Any voluntary prepayments pursuant to subsection 2.4B(i)
shall be applied as specified by Company in the applicable notice of
prepayment; provided that in the event Company fails to specify the Loans
to which any such prepayment shall be applied, such prepayment shall be
applied first to repay outstanding Term Loans and outstanding Tranche B
Term Loans on a pro rata basis, second to repay outstanding Revolving
Loans of MSL Overseas to the full extent thereof and third to pay
outstanding Revolving Loans of Company to the full extent thereof;
provided that prepayments by MSL Overseas shall be applied only to Loans
of MSL Overseas and that prepayments of Term Loans shall be applied first
to outstanding Term Loans of MSL Overseas to the full extent thereof and
second to outstanding Term Loans of Company to the full extent thereof.
Any voluntary prepayments of the Term Loans and Tranche B Term Loans
(whether the application thereof is specified by Company or not) shall be
applied to reduce the scheduled installments of principal thereof set
forth in subsection 2.4A on a pro rata basis.
(b) Application of Mandatory Prepayments by Type of Loans. Any
amount (the "Applied Amount") required to be applied as a mandatory
prepayment of the Loans and/or a reduction of the Revolving Loan
Commitments pursuant to subsections 2.4B(iii)(a)-(g) shall be applied
first to prepay the Term Loans and Tranche B Term Loans on a pro rata
basis to the full extent thereof and to reduce scheduled installments of
principal thereof on a pro rata basis, second, to the extent of any
remaining portion of the Applied Amount, to permanently reduce the
Revolving Loan Commitments by the amount of such prepayment, third, to the
extent of any remaining portion of the Applied Amount, to prepay the
Revolving Loans to the full extent thereof and to further permanently
reduce the Revolving Loan Commitments by the amount of such prepayment,
fourth, to the extent of any remaining portion of the Applied Amount, to
provide cash collateral for any outstanding Letters of Credit to the full
extent of the outstanding stated amounts thereof and to further
permanently reduce the Revolving Loan Commitments by the amount of such
cash collateral and, fifth, to the extent of any remaining portion of the
Applied Amount, to further permanently reduce the Revolving Loan
Commitments to the full extent thereof. Any payment of Term Loans,
Revolving Loans and/or reduction in Revolving Loan Commitments shall be
applied first to Term Loans, Revolving Loans and/or Revolving Loan
Commitments of MSL Overseas and then to Term Loans, Revolving Loans and/or
Revolving Commitments of Company. Prepayments made by MSL Overseas and the
application of any Applied Amount derived from a Foreign Subsidiary shall
be applied only to Loans of MSL Overseas.
(c) Application of Prepayments to Base Rate Loans and LIBOR Loans.
Considering Term Loans, Tranche B Term Loans and Revolving Loans being
prepaid separately, any prepayment thereof shall be applied first to Base
Rate Loans to the full extent thereof before application to LIBOR Loans,
in each case in a manner which minimizes the amount of any payments
required to be made by a Borrower pursuant to subsection 2.6D.
7
<PAGE>
(d) Application of Mandatory Prepayments of Term Loans and Tranche B
Term Loans. In the case of any mandatory prepayment of the Term Loans and
Tranche B Term Loans, any Term Loan Lender or Lenders or Tranche B Term
Loan Lender or Lenders may waive the right to receive the amount of such
mandatory prepayment of the Term Loans and Tranche B Term Loans. If any
such Lender or Lenders elect to waive the right to receive the amount of
such mandatory prepayment, 100% of the amount that otherwise would have
been applied to mandatorily prepay the Term Loans or Tranche B Term Loans
of such Lender or Lenders shall be applied instead to the prepayment of
the Revolving Loans to the extent any are then outstanding and the
remaining amount shall be applied to reduce the Revolving Loan
Commitments; provided that in no event shall the Revolving Loan
Commitments be reduced to an amount below $35,000,000 as a result of this
section 2.4B(iv)(d)."
D. Subsection 2.4C(iii) of the Credit Agreement is hereby amended by
inserting the phrase ",Tranche B Term Loans," after the phrase "Term Loans" in
the second line thereof.
1.5 Amendment to Subsection 2.5; Use of Proceeds.
Subsection 2.5 of the Credit Agreement is hereby amended by adding
the following thereto as a new subsection D;
D. "Tranche B Term Loans. The proceeds of the Tranche B Term Loans,
together with other funds available to Borrowers, shall be applied by
Company to pay amounts owed by Company under the Revolving Loans and for
working capital purposes."
1.6 Amendment to Subsection 12.1; Assignments and Participations in Loans and
Letters of Credit.
A. Subsection 12.1B(i) of the Credit Agreement is hereby amended by
inserting the phrase ", Tranche B Term Loans, Tranche B Term Loan Commitments"
after the phrase "Term Loan Commitments" in the eighth line thereof.
B. Subsection 12.B(i) of the Credit Agreement is further amended by
deleting the last sentence thereof and inserting the following in lieu thereof:
"The Commitments hereunder shall be modified to reflect the
Commitment of such assignee and any remaining Commitment of such assigning
Lender and, if any such assignment occurs after the issuance of the Notes
hereunder, the assigning Leader shall, upon the effectiveness of such
assignment or as promptly thereafter as practicable, surrender its
applicable Notes to Administrative Agent for cancellation, and thereupon
new Notes shall be issued to the assignee and to the assigning Lender,
substantially in the form of Exhibit IV, Exhibit IV-A or Exhibit V annexed
hereto, as the case may be, with appropriate insertions, to reflect the
new Commitments and/or outstanding Term Loans and/or outstanding Tranche B
Term Loans, as the case may be, of the assignee and the assigning Lender."
8
<PAGE>
1.7 Amendment to Subsection 12.6: Amendments and Waivers. Subsection 12.6 of the
Credit Agreement is hereby amended by inserting the following at the end of the
second proviso to the first sentence thereof:
"and if any matter described in the foregoing proviso relates only to a
Tranche B Term Loan, the approval of all Tranche B Term Loan Lenders shall
be sufficient."
1.8 Amendment to Exhibits and Schedules.
Exhibit IV to the Credit Agreement is hereby amended by adding
Exhibit IV-A hereto as Exhibit IV-A thereto.
Schedule 2.1 to the Credit Agreement is hereby amended by deleting
it in its entirety and inserting Schedule 2.1 hereto in lieu thereof.
Section 2. CONSENT
Subject to the terms and conditions set forth herein and in reliance
on the representations and warranties of Borrowers herein contained, Lenders
hereby (a) consent to the incurrence of the Tranche B Term Loans by Company and
(b) agree that (i) the Tranche B Term Loans are not debt Securities for purposes
of subsection 2.4B(iii)(e) of the Credit Agreement and (ii) Company's and its
Subsidiaries' ability to incur Indebtedness and create Liens after the Third
Amendment Effective Date pursuant to the terms of the Credit Agreement shall not
be affected by this Consent or the incurrence of the Tranche B Term Loans.
Section 3. LIMITATION OF CONSENT
Without limiting the generality of the provisions of subsection 12.6
of the Credit Agreement, the consent set forth in Section 2 shall be limited
precisely as written and is provided solely with respect to the incurrence of
the Tranche B Term Loans in the manner and to the extent described above, and
nothing in this Amendment shall be deemed to constitute a waiver of compliance
by Borrowers with respect to (i) Subsection 7.1, 7.2 or 7.4 of the Credit
Agreement in any other instance or (ii) any other term, provision or condition
of the Credit Agreement or any other instrument or agreement referred to
therein.
Except as expressly set forth herein, the terms, provisions and
conditions of the Credit Agreement and the other Loan Documents shall remain in
full force and effect and in all other respects are hereby ratified and
confirmed.
Section 4. CONDITIONS TO EFFECTIVENESS
Section 1 and Section 2 of this Amendment shall become effective
only upon the effectiveness of this Amendment as provided in Section 6 and upon
satisfaction of the following conditions precedent (the date of satisfaction of
such conditions being referred to herein as the "Third Amendment Effective
Date"). Company shall deliver to Administrative Agent the following:
9
<PAGE>
1. Resolutions of the Board of Directors of (a) Company, approving and
authorizing the execution, delivery, and performance of this Amendment,
certified as of the Third Amendment Effective Date by its corporate secretary or
an assistant secretary as being in full force and effect without modification or
amendment and (b) MSL Overseas, approving and authorizing the execution,
delivery and performance of the Amendment, certified as of the Third Amendment
Effective Date by its managing director, in each case as being in full force and
effect without modification or amendment;
2. Signature and incumbency certificates of the officers, managing
director or proxyholder, as the case may be, of each Borrower executing this
Amendment;
3. A Notice of Borrowing with respect to the Tranche B Term Loans; and
4. Opinions of counsel to Company in form and substance satisfactory to
the Agents and their counsel.
Section 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
In order to induce Lenders to enter into this Amendment, each
Borrower hereby represents, warrants and agrees that after giving effect to this
Amendment:
(a) as of the date hereof, there exists no Event of Default or
Potential Event of Default under the Credit Agreement;
(b) all representations and warranties contained in the Credit
Agreement and the other Loan Documents are true, correct and
complete in all material respects on and as of the date hereof
except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of
such earlier date;
(c) as of the date hereof, each Borrower has performed all
agreements to be performed on its part as set forth in the Credit
Agreement, unless performance of any such agreements has been
previously waived; and
(d) as of the date hereof, there is no pending or, to the
knowledge of Company, threatened action, suit, proceeding,
governmental investigation or arbitration against or affecting
Company or any of its Subsidiaries or any property of Company or any
of its Subsidiaries that has not been disclosed by Company in
writing pursuant to subsection 5.6 or 6.1(x) of the Credit Agreement
prior to the making of the last proceeding Loans; and
(e) soon as practicable after the execution of this Amendment,
Company will take all necessary action to (i) ensure that the Liens
securing the Obligations under the Credit Agreement remain First
Priority Liens, (ii) comply with the provisions of subsection 6.9 of
the Credit Agreement and (iii) provide an
10
<PAGE>
opinion of counsel to MSL Overseas in form and substance
satisfactory to Agents and their counsel.
Section 6. COUNTERPARTS; EFFECTIVENESS
This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Amendment, subject to the provisions of Section 4 hereof shall
become effective upon the execution of counterparts hereof by Company, MSL
Overseas, Administrative Agent, Collateral Agent, Syndication Agent, Sub-Agent
and by each Lender (including each Tranche B Term Loan Lender) and, in each
case, receipt by Company, MSL Overseas, Administrative Agent, Collateral Agent,
Syndication Agent and Sub-Agent of written notification of such execution and
authorization of delivery thereof.
Section 7. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND OTHER LOAN
DOCUMENTS
On and after the Third Amendment Effective Date:
(a) each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import
referring to the Credit Agreement, and each reference in the other
Loan Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean
and be a reference to the Credit Agreement as amended hereby;
(b) except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Documents shall remain in full
force and effect and are hereby ratified and confirmed; and
(c) the execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver
of any provision of, or operate as a waiver of any right, power or
remedy of Collateral Agent, Administrative Agent, or any of the
Lenders under the Credit Agreement or any of the other Loan
Documents.
Section 8. GOVERNING LAW
THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE
11
<PAGE>
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES.
Section 9. TRANCHE B TERM LOAN LENDERS
Upon their execution and delivery of this Third Amendment and the
effectiveness of this Third Amendment pursuant to its terms, the financial
institutions identified on the signature pages hereto as Tranche B Term Loan
Lenders shall become parties to the Credit Agreement and Lenders for all
purposes under this Credit Agreement.
SECTION 10. ACKNOWLEDGEMENT AND CONSENT BY GUARANTORS
Each guarantor listed on the signature pages hereof ("Guarantors")
hereby acknowledges that it has read this Amendment and consents to the terms
thereof (including, without limitation, the incurrence of the Tranche B Term
Loans by Company, which increases the obligations guarantied by Guarantors) and
further hereby confirms and agrees that, notwithstanding the effectiveness of
this Amendment, the obligations of each Guarantor under its applicable Guaranty
shall not be impaired or affected and the applicable Guaranty is, and shall
continue to be, in full force and effect and is hereby confirmed and ratified in
all respects.
[the remainder of this page intentionally left blank]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY:
MANUFACTURERS' SERVICES LIMITED
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: VP & Treasurer
--------------------------------------
MSL OVERSEAS:
MSL OVERSEAS FINANCE B.V.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: DIRECTOR
--------------------------------------
BANK OF AMERICA, N.A.
(successor to Bank of America NT&SA), as
Administrative Agent and as Collateral Agent
By:
-----------------------------------------
Title:
--------------------------------------
BANK OF AMERICA INTERNATIONAL
LIMITED, as Sub-Agent
By:
-----------------------------------------
Title:
--------------------------------------
S-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY:
MANUFACTURERS' SERVICES LIMITED
By:
-----------------------------------------
Title:
--------------------------------------
MSL OVERSEAS:
MSL OVERSEAS FINANCE B.V.
By:
-----------------------------------------
Title:
--------------------------------------
BANK OF AMERICA, N.A.
(successor to Bank of America NT&SA), as
Administrative Agent and as Collateral Agent
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title:
--------------------------------------
BANK OF AMERICA INTERNATIONAL
LIMITED, as Sub-Agent
By:
-----------------------------------------
Title:
--------------------------------------
S-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY:
MANUFACTURERS' SERVICES LIMITED
By:
-----------------------------------------
Title:
--------------------------------------
MSL OVERSEAS:
MSL OVERSEAS FINANCE B.V.
By:
-----------------------------------------
Title:
--------------------------------------
BANK OF AMERICA, N.A.
(successor to Bank of America NT&SA), as
Administrative Agent and as Collateral Agent
By:
-----------------------------------------
Title:
--------------------------------------
BANK OF AMERICA INTERNATIONAL
LIMITED, as Sub-Agent
By: /s/ Julie A. Chadney
-----------------------------------------
Title: Julie A. Chadney
--------------------------------------
Vice President
S-1
<PAGE>
LENDERS:
BANK OF AMERICA, N.A.
(successor to Bank of America NT&SA),
individually and as Issuing Lender
By: /s/ Robert W. Kosche
-----------------------------------------
Title: ROBERT W. KOSCHE
--------------------------------------
VICE PRESIDENT
DLJ CAPITAL FUNDING, INC.,
individually and as Syndication Agent
By:
-----------------------------------------
Title:
--------------------------------------
FLEET NATIONAL BANK
By:
-----------------------------------------
Title:
--------------------------------------
ERSTE BANK
By:
-----------------------------------------
Title:
--------------------------------------
S-2
<PAGE>
LENDERS:
BANK OF AMERICA, N.A.
(successor to Bank of America NT&SA),
individually and as Issuing Lender
By:
-----------------------------------------
Title:
--------------------------------------
DLJ CAPITAL FUNDING, INC.,
individually and as Syndication Agent
By: /s/ Eric Swanson
-----------------------------------------
Eric Swanson
Title: Managing Director
--------------------------------------
FLEET NATIONAL BANK
By:
-----------------------------------------
Title:
--------------------------------------
ERSTE BANK
By:
-----------------------------------------
Title:
--------------------------------------
S-2
<PAGE>
LENDERS:
BANK OF AMERICA, N.A.
(successor to Bank of America NT&SA),
individually and as Issuing Lender
By:
-----------------------------------------
Title:
--------------------------------------
DLJ CAPITAL FUNDING, INC.,
individually and as Syndication Agent
By:
-----------------------------------------
Title:
--------------------------------------
FLEET NATIONAL BANK
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: Vice President
--------------------------------------
ERSTE BANK
By:
-----------------------------------------
Title:
--------------------------------------
S-2
<PAGE>
LENDERS:
BANK OF AMERICA, N.A.
(successor to Bank of America NT&SA),
individually and as Issuing Lender
By:
-----------------------------------------
Title:
--------------------------------------
DLJ CAPITAL FUNDING, INC.,
individually and as Syndication Agent
By:
-----------------------------------------
Title:
--------------------------------------
FLEET NATIONAL BANK
By:
-----------------------------------------
Title:
--------------------------------------
ERSTE BANK
By: /s/ Anca Trifan
-----------------------------------------
ANCA TRIFAN
Title: VICE PRESIDENT
--------------------------------------
/s/ John S. Runnion
JOHN S. RUNNION
FIRST VICE PRESIDENT
S-2
<PAGE>
BLACK DIAMOND CLO 1998-1 LTD.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: [ILLEGIBLE]
--------------------------------------
DIRECTOR
BLACK DIAMOND INTERNATIONAL
FUNDING, LTD
By: /s/ Dorrie Boggess
-----------------------------------------
Title: Dorrie Boggess
--------------------------------------
Director
CANADIAN IMPERIAL BANK OF
COMMERCE
By:
-----------------------------------------
Title:
--------------------------------------
PAM CAPITAL FUNDING, LP
By: Highland Capital Management, L.P.,
as Collateral Manager
By:
-----------------------------------------
Title:
--------------------------------------
S-3
<PAGE>
BLACK DIAMOND CLO 1998-1 LTD.
By:
-----------------------------------------
Title:
--------------------------------------
BLACK DIAMOND INTERNATIONAL
FUNDING, LTD
By:
-----------------------------------------
Title:
--------------------------------------
CANADIAN IMPERIAL BANK OF
COMMERCE
By: /s/ William M. Swenson
-----------------------------------------
Title: WILLIAM M. SWENSON
--------------------------------------
AUTHORIZED SIGNATORY
PAM CAPITAL FUNDING, LP
By: Highland Capital Management, L.P.,
as Collateral Manager
By:
-----------------------------------------
Title:
--------------------------------------
S-3
<PAGE>
BLACK DIAMOND CLO 1998-1 LTD.
By:
-----------------------------------------
Title:
--------------------------------------
BLACK DIAMOND INTERNATIONAL
FUNDING, LTD
By:
-----------------------------------------
Title:
--------------------------------------
CANADIAN IMPERIAL BANK OF
COMMERCE
By:
-----------------------------------------
Title:
--------------------------------------
PAM CAPITAL FUNDING, LP
By: Highland Capital Management, L.P.,
as Collateral Manager
By: /s/ Mark K. Okada
-----------------------------------------
Mark K. Okada CFA
Title: Executive Vice President
--------------------------------------
Highland Capital Management L.P.
S-3
<PAGE>
SRV-HIGHLAND INC.
By: /s/ Kelly C. Walker
-----------------------------------------
Title: KELLY C. WALKER
--------------------------------------
VICE PRESIDENT
HIGHLAND LEGACY LIMITED
By: Highland Capital Management, L.P.,
as Collateral Manager
By:
-----------------------------------------
Title:
--------------------------------------
ABN AMRO BANK N.V.
By:
-----------------------------------------
Title:
--------------------------------------
THE PROVIDENT BANK
By:
-----------------------------------------
Title:
--------------------------------------
TRANCHE B TERM LOAN LENDER:
DLJ CAPITAL FUNDING, INC.
By:
-----------------------------------------
Title:
--------------------------------------
S-4
<PAGE>
SRV-HIGHLAND INC.
By:
-----------------------------------------
Title:
--------------------------------------
HIGHLAND LEGACY LIMITED
By: Highland Capital Management, L.P.,
as Collateral Manager
By: /s/ Mark K. Okada CFA
-----------------------------------------
Mark K. Okada CFA
Title: Executive Vice President
--------------------------------------
Highland Capital Management L.P.
ABN AMRO BANK N.V.
By:
-----------------------------------------
Title:
--------------------------------------
THE PROVIDENT BANK
By:
-----------------------------------------
Title:
--------------------------------------
TRANCHE B TERM LOAN LENDER:
DLJ CAPITAL FUNDING, INC.
By:
-----------------------------------------
Title:
--------------------------------------
S-4
<PAGE>
SRV-HIGHLAND INC.
By:
-----------------------------------------
Title:
--------------------------------------
HIGHLAND LEGACY LIMITED
By: Highland Capital Management, L.P.,
as Collateral Manager
By:
-----------------------------------------
Title:
--------------------------------------
ABN AMRO BANK N.V. ABN AMRO BANK N.V.
By: /s/ Kevin F. Malone By: /s/ Bruce W. Swords
------------------------------ -----------------------------------------
Kevin F. Malone Bruce W. Swords
Title: Group Vice President Title: Vice President
--------------------------- --------------------------------------
THE PROVIDENT BANK
By:
-----------------------------------------
Title:
--------------------------------------
TRANCHE B TERM LOAN LENDER:
DLJ CAPITAL FUNDING, INC.
By:
-----------------------------------------
Title:
--------------------------------------
S-4
<PAGE>
SRV-HIGHLAND INC.
By:
-----------------------------------------
Title:
--------------------------------------
HIGHLAND LEGACY LIMITED
By: Highland Capital Management, L.P.,
as Collateral Manager
By:
-----------------------------------------
Title:
--------------------------------------
ABN AMRO BANK N.V.
By:
-----------------------------------------
Title:
--------------------------------------
THE PROVIDENT BANK
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: Vice President
--------------------------------------
TRANCHE B TERM LOAN LENDER:
DLJ CAPITAL FUNDING, INC.
By:
-----------------------------------------
Title:
--------------------------------------
S-4
<PAGE>
SRV-HIGHLAND INC.
By:
-----------------------------------------
Title:
--------------------------------------
HIGHLAND LEGACY LIMITED
By: Highland Capital Management, L.P.,
as Collateral Manager
By:
-----------------------------------------
Title:
--------------------------------------
ABN AMRO BANK N.V.
By:
-----------------------------------------
Title:
--------------------------------------
THE PROVIDENT BANK
By:
-----------------------------------------
Title:
--------------------------------------
TRANCHE B TERM LOAN LENDER:
DLJ CAPITAL FUNDING, INC.
By: /s/ Eric Swanson
-----------------------------------------
Eric Swanson
Title: Managing Director
--------------------------------------
S-4
<PAGE>
GUARANTORS:
MANUFACTURERS' SERVICES LIMITED
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: VP & TREASURER
--------------------------------------
MANUFACTURERS' SERVICES CENTRAL
U.S. OPERATIONS, INC.
By: /s/ Dale Johnson
-----------------------------------------
Title: EXEC. V.P.
--------------------------------------
MANUFACTURERS' SERVICES WESTERN
U.S. OPERATIONS, INC.
By: /s/ Dale Johnson
-----------------------------------------
Title: EXEC. V.P.
--------------------------------------
MANUFACTURERS' SERVICES ATHLONE
LIMITED
By: /s/ Dale Johnson
-----------------------------------------
Title: DIRECTOR
--------------------------------------
MSL OVERSEAS FINANCE BV
By: /s/ Dale Johnson
-----------------------------------------
Title: DIRECTOR
--------------------------------------
S-5
<PAGE>
MANUFACTURERS' SERVICES
SINGAPORE PTE LTD
By: /s/ Dale Johnson
-----------------------------------------
Title: DIRECTOR
--------------------------------------
GLOBAL MANUFACTURERS' SERVICES
VALENCIA, S.A.
By: /s/ Dale Johnson
-----------------------------------------
Title: SOLE ADMINISTRATOR
--------------------------------------
S-6
<PAGE>
Exhibit 5.1
April 28, 2000
Manufacturers' Services Limited
300 Baker Avenue
Suite 106
Concord, Massachusetts 01742
Re: MANUFACTURERS' SERVICES LIMITED
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-1 (the "Registration Statement"), filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, for the registration of 12,650,000 shares of Common Stock, $.001 par
value (the "Shares"), of Manufacturers' Services Limited, a Delaware
corporation (the "Company"). The Shares are to be sold pursuant to an
underwriting agreement (the "Underwriting Agreement") to be entered into
among the Company and Donaldson, Lufkin & Jenrette Securities Corporation,
Banc of America Securities LLC, FleetBoston Robertson Stephens Inc., Thomas
Weisel Partners LLC and DLJdirect Inc., as representatives of the
underwriters named therein.
We have acted as counsel for the Company in connection with its
proposed issuance and sale of the Shares. For purposes of this opinion, we have
examined and relied upon such documents, records, certificates and other
instruments as we have deemed necessary.
We express no opinion as to the applicability of compliance with or
effect of federal law or the law of any jurisdiction other than the Commonwealth
of Massachusetts and the corporate laws of the State of Delaware.
<PAGE>
Manufacturers' Services Limited -2- April 28, 2000
Based on the foregoing, we are of the opinion that the shares have been
duly authorized and, when the Shares have been issued and sold and the Company
has received the consideration in accordance with the terms of the Underwriting
Agreement, the Shares will be validly issued, fully paid and non-assessable.
We hereby consent to your filing this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Legal Matters".
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
Exhibit 10.8
MANUFACTURERS' SERVICES LIMITED
2000 EQUITY INCENTIVE PLAN
1. DEFINED TERMS
Exhibit A, which is incorporated by reference, defines the terms used
in the Plan and sets forth certain operational rules related to those terms.
2. GENERAL
The Plan has been established to advance the interests of the Company
by giving Stock-based and other incentives to selected Employees, directors and
other persons (including both individuals and entities) who provide services to
the Company or its Affiliates.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the
express provisions of the Plan, to interpret the Plan; determine eligibility for
and grant Awards; determine, modify or waive the terms and conditions of any
Award; prescribe forms, rules and procedures (which it may modify or waive); and
otherwise do all things necessary to carry out the purposes of the Plan. Once an
Award has been communicated in writing to a Participant, the Administrator may
not, without the Participant's consent, alter the terms of the Award so as to
affect adversely the Participant's rights under the Award, unless the
Administrator expressly reserved the right to do so. In the case of any Award
intended to be eligible for the performance-based compensation exception under
Section 162(m), the Administrator shall exercise its discretion consistent with
qualifying the Award for such exception.
4. LIMITS ON AWARD UNDER THE PLAN
1. NUMBER OF SHARES. A maximum of (1) [_____________] shares of
Stock, plus (2) any shares of Stock available under the
Company's Existing Plan as a result of termination of options
under the Existing Plan, plus (3) an annual increase to be
added on the date of each annual meeting of the stockholders
of the Company, beginning with the 2000 annual meeting of the
stockholders, equal to one percent (1.0%) of the outstanding
shares of Stock on such date or such lesser amount determined
by the Board, may be delivered in satisfaction of Awards under
the Plan. The shares of Stock may be authorized, but unissued,
or reacquired shares of Stock. For purposes of the preceding
sentence, the following shares shall not be considered to have
been delivered under the Plan: (i) shares remaining under an
Award that terminates without having been exercised in full;
(ii) shares subject to an Award, where cash is delivered to a
Participant in lieu of such shares; (iii) shares of Restricted
Stock that have been
<PAGE>
forfeited in accordance with the terms of the applicable
Award; and (iv) shares held back, in satisfaction of the
exercise price or tax withholding requirements, from shares
that would otherwise have been delivered pursuant to an Award.
The number of shares of Stock delivered under an Award shall
be determined net of any previously acquired Shares tendered
by the Participant in payment of the exercise price or of
withholding taxes. A maximum of [_________] shares of Stock
may be issued as ISO Awards under the Plan.
2. TYPE OF SHARES. Stock delivered by the Company under the Plan
may be authorized but unissued Stock or previously issued
Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
3. OPTION & SAR LIMITS. The maximum number of shares of Stock for
which Stock Options may be granted to any person in any
calendar year, the maximum number of shares of Stock subject
to SARs granted to any person in any calendar year and the
aggregate maximum number of shares of Stock subject to other
Awards that may be delivered to any person in any calendar
year shall each be 1,000,000. For purposes of the preceding
sentence, the repricing of a Stock Option or SAR shall be
treated as a new grant to the extent required under Section
162(m). Subject to these limitations, each person eligible to
participate in the Plan shall be eligible in any year to
receive Awards covering up to the full number of shares of
Stock then available for Awards under the Plan.
4. OTHER AWARD LIMITS. No more than $1,000,000 may be paid to any
individual with respect to any Cash Performance Award. In
applying the limitation of the preceding sentence: (A)
multiple Cash Performance Awards to the same individual that
are determined by reference to performance periods of one year
or less ending with or within the same fiscal year of the
Company shall be subject in the aggregate to one limit of such
amount, and (B) multiple Cash Performance Awards to the same
individual that are determined by reference to one or more
multi-year performance periods ending in the same fiscal year
of the Company shall be subject in the aggregate to a separate
limit of such amount. With respect to any Performance Award
other than a Cash Performance Award or a Stock Option or SAR,
the maximum Award opportunity shall be 1,000,000 shares of
Stock or their equivalent value in cash, subject to the
limitations of Section 4.c.
5. ELIGIBILITY AND PARTICIPATION
2
<PAGE>
The Administrator will select Participants from among those key
Employees, directors and other individuals or entities providing services to the
Company or its Affiliates who, in the opinion of the Administrator, are in a
position to make a significant contribution to the success of the Company and
its Affiliates. Eligibility for ISOs is further limited to those individuals
whose employment status would qualify them for the tax treatment described in
Sections 421 and 422 of the Code.
6. RULES APPLICABLE TO AWARDS
1. ALL AWARDS
(1) TERMS OF AWARDS. The Administrator shall determine
the terms of all Awards subject to the limitations provided herein. In the case
of an ISO, the term shall be ten (10) years from the date of grant or such
shorter term as may be provided in the Award. Moreover, in the case of an ISO
granted to a Participant who, at the time the ISO is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of capital stock of the Company or any Parent or Subsidiary, the
term of the ISO shall be five (5) years from the date of grant or such shorter
term as may be provided in the Award.
(2) PERFORMANCE CRITERIA. Where rights under an Award
depend in whole or in part on satisfaction of Performance Criteria, actions by
the Company that have an effect, however material, on such Performance Criteria
or on the likelihood that they will be satisfied will not be deemed an amendment
or alteration of the Award.
(3) ALTERNATIVE SETTLEMENT. The Company may at any time
extinguish rights under an Award in exchange for payment in cash, Stock (subject
to the limitations of Section 4) or other property on such terms as the
Administrator determines, provided the holder of the Award consents to such
exchange.
(4) TRANSFERABILITY OF AWARDS. Except as the
Administrator otherwise expressly provides, Awards may not be transferred other
than by will or by the laws of descent and distribution, and during a
Participant's lifetime an Award requiring exercise may be exercised only by the
Participant (or in the event of the Participant's incapacity, the person or
persons legally appointed to act on the Participant's behalf).
(5) VESTING, ETC. Without limiting the generality of
Section 3, the Administrator may determine the time or times at which an Award
will vest (I.E., become free of forfeiture restrictions) or become exercisable
and the terms on which an Award requiring exercise will remain exercisable.
Unless the Administrator expressly provides otherwise, immediately upon the
cessation of the Participant's employment or other service relationship with the
Company and its Affiliates an Award requiring exercise will cease to be
exercisable and all Awards to the extent not already fully vested will be
forfeited, except that:
3
<PAGE>
(A) all Stock Options and SARs held by a Participant immediately
prior to his or her death, to the extent then exercisable,
will remain exercisable by such Participant's executor or
administrator or the person or persons to whom the Stock
Option or SAR is transferred by will or the applicable laws of
descent and distribution, for the lesser of (i) a one year
period ending with the first anniversary of the Participant's
death or (ii) the period ending on the latest date on which
such Stock Option or SAR could have been exercised without
regard to this Section 6.a.(5) and shall thereupon terminate;
(B) all Stock Options and SARs held by the Participant immediately
prior to the cessation of the Participant's employment or
other service relationship for reasons other than death and
except as provided in (C) below, to the extent then
exercisable, will remain exercisable for the lesser of (i) a
period of three months or (ii) the period ending on the latest
date on which such Stock Option or SAR could have been
exercised without regard to this Section 6.a.(5), and shall
thereupon terminate; and
(C) all Stock Options and SARs held by the Participant whose
cessation of employment or other service relationship is
determined by the Administrator in its sole discretion to
result for reasons which cast such discredit on the
Participant as to justify immediate termination of the Award
shall immediately terminate upon such cessation.
Unless the Administrator expressly provides otherwise, a Participant's
"employment or other service relationship with the Company and its
Affiliates" will be deemed to have ceased, in the case of an employee
Participant, upon termination of the Participant's employment with the
Company and its Affiliates (whether or not the Participant continues in
the service of the Company or its Affiliates in some capacity other
than that of an employee of the Company or its Affiliates), and in the
case of any other Participant, when the service relationship in respect
of which the Award was granted terminates (whether or not the
Participant continues in the service of the Company or its Affiliates
in some other capacity).
(6) TAXES. The Administrator will make such provision for
the withholding of taxes as it deems necessary. The Administrator may, but need
not, hold back shares of Stock from an Award or permit a Participant to tender
previously owned shares of Stock in satisfaction of tax withholding
requirements, but not in excess of the minimum tax withholding rates applicable
to the employee.
(7) DIVIDEND EQUIVALENTS, ETC. The Administrator may
provide for the payment of amounts in lieu of cash dividends or other cash
distributions with respect to Stock subject to an Award.
4
<PAGE>
(8) RIGHTS LIMITED. Nothing in the Plan shall be
construed as giving any person the right to continued employment or service with
the Company or its Affiliates, or any rights as a shareholder except as to
shares of Stock actually issued under the Plan. The loss of existing or
potential profit in Awards will not constitute an element of damages in the
event of termination of employment or service for any reason, even if the
termination is in violation of an obligation of the Company or Affiliate to the
Participant.
(9) SECTION 162(m). In the case of an Award intended to
be eligible for the performance-based compensation exception under Section
162(m), the Plan and such Award shall be construed to the maximum extent
permitted by law in a manner consistent with qualifying the Award for such
exception.
2. AWARDS REQUIRING EXERCISE
(1) TIME AND MANNER OF EXERCISE. Unless the Administrator
expressly provides otherwise, (a) an Award requiring exercise by the holder will
not be deemed to have been exercised until the Administrator receives a written
notice of exercise (in form acceptable to the Administrator) signed by the
appropriate person and accompanied by any payment required under the Award; and
(b) if the Award is exercised by any person other than the Participant, the
Administrator may require satisfactory evidence that the person exercising the
Award has the right to do so.
(2) EXERCISE PRICE. The Administrator shall determine the
exercise price of each Stock Option provided that each Stock Option intended to
qualify for the performance-based exception under Section 162(m) of the Code and
each ISO must have an exercise price that is not less than the fair market value
of the Stock subject to the Stock Option, determined as of the date of grant. An
ISO granted to an Employee described in Section 422(b)(6) of the Code must have
an exercise price that is not less than 110% of such fair market value.
(3) PAYMENT OF EXERCISE PRICE, IF ANY. Where the exercise
of an Award is to be accompanied by payment: (a) all payments will be by cash or
check acceptable to the Administrator, or, if so permitted by the Administrator
(with the consent of the optionee of an ISO if permitted after the grant), (i)
through the delivery of shares of Stock which have been outstanding for at least
six months (unless the Administrator approves a shorter period) and which have a
fair market value equal to the exercise price, (ii) by delivery of a promissory
note of the person exercising the Award to the Company, payable on such terms as
are specified by the Administrator, (iii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price, or (iv) by any combination of the
foregoing permissible forms of payment; and (b) where shares of Stock issued
under an Award are part of an original issue of shares, the Award shall require
an exercise price equal to at least the par value of such shares.
(4) ISOs. No ISO may be granted under the Plan after
[____],
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2010, but ISOs previously granted may extend beyond that date.
3. AWARDS NOT REQUIRING EXERCISE
Awards of Restricted Stock and Unrestricted Stock may be made in return
for either (i) services determined by the Administrator to have a value not less
than the par value of the Awarded shares of Stock, or (ii) cash or other
property having a value not less than the par value of the Awarded shares of
Stock payable in such combination and type of cash, other property (of any kind)
or services as the Administrator may determine.
7. EFFECT OF CERTAIN TRANSACTIONS
1. MERGERS, ETC.
In the event of a Covered Transaction, all outstanding Awards shall
vest and if relevant become exercisable and all deferrals, other than deferrals
of amounts that are neither measured by reference to nor payable in shares of
Stock, shall be accelerated, immediately prior to the Covered Transaction and
upon consummation of such Covered Transaction all Awards then outstanding and
requiring exercise shall be forfeited unless assumed by an acquiring or
surviving entity or its affiliate as provided in the following sentence. In
connection with any Covered Transaction in which there is an acquiring or
surviving entity, the Administrator may provide for substitute or replacement
Awards from, or the assumption of Awards by, the acquiring or surviving entity
or its affiliates, any such substitution, replacement or assumption to be on
such terms as the Administrator determines.
2. CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE
STOCK
(1) BASIC ADJUSTMENT PROVISIONS. In the event of a stock
dividend, stock split or combination of shares, recapitalization or other change
in the Company's capital structure, the Administrator will make appropriate
adjustments to the maximum number of shares that may be delivered under the Plan
under Section 4.a., and will also make appropriate adjustments to the number and
kind of shares of stock or securities subject to Awards then outstanding or
subsequently granted, any exercise prices relating to Awards and any other
provision of Awards affected by such change.
(2) CERTAIN OTHER ADJUSTMENTS. The Administrator may also
make adjustments of the type described in paragraph (1) above to take into
account distributions to common stockholders other than those provided for in
Section 7.a. and 7.b.(1), or any other event, if the Administrator determines
that adjustments are appropriate to avoid distortion in the operation of the
Plan and to preserve the value of Awards made hereunder; PROVIDED, that no such
adjustment shall be made to the maximum share limits described in Section 4.c.
or
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4.d., or otherwise to an Award intended to be eligible for the performance-based
exception under Section 162(m), except to the extent consistent with that
exception, nor shall any change be made to ISOs except to the extent consistent
with their continued qualification under Section 422 of the Code.
(3) CONTINUING APPLICATION OF PLAN TERMS. References in
the Plan to shares of Stock shall be construed to include any stock or
securities resulting from an adjustment pursuant to Section 7.b.(1) or 7.b.(2)
above.
8. LEGAL CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove any restriction from shares of Stock
previously delivered under the Plan until the Company's counsel has approved all
legal matters in connection with the issuance and delivery of such shares; if
the outstanding Stock is at the time of delivery listed on any stock exchange or
national market system, the shares to be delivered have been listed or
authorized to be listed on such exchange or system upon official notice of
issuance; and all conditions of the Award have been satisfied or waived. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act. The Company may require that
certificates evidencing Stock issued under the Plan bear an appropriate legend
reflecting any restriction on transfer applicable to such Stock.
9. AMENDMENT AND TERMINATION
Subject to the last sentence of Section 3, the Administrator may at any
time or times amend the Plan or any outstanding Award for any purpose which may
at the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Awards; PROVIDED, that (except to the extent expressly
required or permitted by the Plan) no such amendment will, without the approval
of the stockholders of the Company, effectuate a change for which stockholder
approval is required in order for the Plan to continue to qualify under Section
422 of the Code and for Awards to be eligible for the performance-based
exception under Section 162(m).
10. NON-LIMITATION OF THE COMPANY'S RIGHTS
The existence of the Plan or the grant of any Award shall not in any
way affect the Company's right to Award a person bonuses or other compensation
in addition to Awards under the Plan.
11. GOVERNING LAW
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The Plan shall be construed in accordance with the laws of the
Commonwealth of Massachusetts.
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EXHIBIT A
DEFINITION OF TERMS
The following terms, when used in the Plan, shall have the meanings and
be subject to the provisions set forth below:
"ADMINISTRATOR": The Board or, if one or more has been appointed, the
Committee.
"AFFILIATE": Any corporation or other entity owning, directly or
indirectly, 50% or more of the outstanding Stock of the Company, or in which the
Company or any such corporation or other entity owns, directly or indirectly,
50% of the outstanding capital stock (determined by aggregate voting rights) or
other voting interests.
"AWARD": Any or a combination of the following:
(i) Stock Options.
(ii) SARs.
(iii) Restricted Stock.
(iv) Unrestricted Stock.
(v) Deferred Stock.
(vi) Securities (other than Stock Options) that are
convertible into or exchangeable for Stock on such terms and conditions
as the Administrator determines.
(vii) Cash Performance Awards.
(viii) Performance Awards.
(ix) Grants of cash, or loans, made in connection with other
Awards in order to help defray in whole or in part the economic cost
(including tax cost) of the Award to the Participant.
"BOARD": The Board of Directors of the Company.
"CASH PERFORMANCE AWARD": A Performance Award payable in cash. The
right of the Company under Section 6.a.(3) to extinguish an Award in exchange
for cash or the exercise by the Company of such right shall not make an Award
otherwise not payable in cash a Cash Performance Award.
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"CODE": The U.S. Internal Revenue Code of 1986 as from time to time
amended and in effect, or any successor statute as from time to time in effect.
"COMMITTEE": One or more committees of the Board which in the case of
Awards granted to officers of the Company shall be comprised solely of two or
more outside directors within the meaning of Section 162(m). Any Committee may
delegate ministerial tasks to such persons (including Employees) as it deems
appropriate.
"COMPANY": Manufacturers' Services Limited.
"COVERED TRANSACTION": Any of (i) a consolidation or merger in which
the Company is not the surviving corporation or which results in the acquisition
of all or substantially all of the Company's then outstanding common stock by a
single person or entity or by a group of persons and/or entities acting in
concert, (ii) a sale or transfer of all or substantially all the Company's
assets, or (iii) a dissolution or liquidation of the Company.
"DEFERRED STOCK": A promise to deliver Stock or other securities in the
future on specified terms.
"EMPLOYEE": Any person who is employed by the Company or an Affiliate.
"EXISTING PLAN": The Company's Second Amended and Restated
Non-Qualified Stock Option Plan.
"ISO": A Stock Option intended to be an "incentive stock option" within
the meaning of Section 422 of the Code. No Stock Option Awarded under the Plan
will be an ISO unless the Administrator expressly provides for ISO treatment.
"PARENT": A "parent corporation," whether now or hereafter existing, as
defined in Section 424(e) of the Code.
"PARTICIPANT": An Employee, director or other person providing services
to the Company or its Affiliates who is granted an Award under the Plan.
"PERFORMANCE AWARD": An Award subject to Performance Criteria. The
Committee in its discretion may grant Performance Awards that are intended to
qualify for the performance-based compensation exception under Section 162(m)
and Performance Awards that are not intended so to qualify.
"PERFORMANCE CRITERIA": Specified criteria the satisfaction of which is
a condition for the exercisability, vesting or full enjoyment of an Award. For
purposes of Performance Awards that are intended to qualify for the
performance-based compensation exception under Section 162(m), a Performance
Criterion shall mean an objectively determinable measure of
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performance relating to any of the following (determined either on a
consolidated basis or, as the context permits, on a divisional, subsidiary, line
of business, project or geographical basis or in combinations thereof): (i)
sales; revenues; assets; expenses; earnings before or after deduction for all or
any portion of interest, taxes, depreciation, amortization or other items,
whether or not on a continuing operations or an aggregate or per share basis;
return on equity, investment, capital or assets; one or more operating ratios;
borrowing levels, leverage ratios or credit rating; market share; capital
expenditures; cash flow; stock price; stockholder return; network deployment;
sales of particular products or services; customer acquisition, expansion and
retention; or any combination of the foregoing; or (ii) acquisitions and
divestitures (in whole or in part); joint ventures and strategic alliances;
spin-offs, split-ups and the like; reorganizations; recapitalizations,
restructurings, financings (issuance of debt or equity) and refinancings;
transactions that would constitute a change of control; or any combination of
the foregoing. A Performance Criterion measure and targets with respect thereto
determined by the Administrator need not be based upon an increase, a positive
or improved result or avoidance of loss.
"PLAN": The Manufacturers' Services Limited 2000 Equity Incentive Plan
as from time to time amended and in effect.
"RESTRICTED STOCK": An Award of Stock subject to restrictions requiring
that such Stock be redelivered to the Company if specified conditions are not
satisfied.
"SECTION 162(M)": Section 162(m) of the Code.
"SARS": Rights entitling the holder upon exercise to receive cash or
Stock, as the Administrator determines, equal to a function (determined by the
Administrator using such factors as it deems appropriate) of the amount by which
the Stock has appreciated in value since the date of the Award.
"STOCK": Common Stock of the Company, par value $ .001 per share.
"STOCK OPTIONS": Options entitling the recipient to acquire shares of
Stock upon payment of the exercise price.
"SUBSIDIARY": A "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Code.
"UNRESTRICTED STOCK": An Award of Stock not subject to any restrictions
under the Plan.
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Exhibit 10.9
MANUFACTURERS' SERVICES LIMITED
2000 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF PLAN
The Manufacturers' Services Limited 2000 Employee Stock Purchase Plan
(the "Plan") is intended to provide a method by which eligible employees of
Manufacturers' Services Limited, a Delaware corporation ("MSL"), and such of its
Subsidiaries as the Board of Directors of MSL (the "Board of Directors") may
from time to time designate (MSL and such Subsidiaries being hereinafter
referred to as the "Company") may use voluntary, systematic payroll deductions
to purchase shares of common stock, $.001 par value of MSL (such common stock
being hereafter referred to as "Stock") and thereby acquire an interest in the
future of MSL. For purposes of the Plan, a "Subsidiary" is any corporation that
would be treated as a subsidiary of MSL under Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Plan is intended to qualify
under Section 423 of the Code and shall be construed accordingly.
SECTION 2. OPTIONS TO PURCHASE STOCK
Under the Plan, there is available an aggregate of not more than
[_________] shares of Stock (subject to adjustment as provided in Section 15)
for sale pursuant to the exercise of options ("Options") granted under the Plan
to employees of the Company ("Employees") who meet the eligibility requirements
set forth in Section 3 hereof ("Eligible Employees"). The Stock to be delivered
upon exercise of Options under the Plan may be either shares of authorized but
unissued Stock or shares of reacquired Stock, as the Board of Directors may
determine.
SECTION 3. ELIGIBLE EMPLOYEES
Except as otherwise provided below, each Employee who has completed
[six] months of employment for the Company will be eligible to participate in
the Plan; provided, however, that the Board of Directors may grant "prior
service credit" or otherwise waive all or any part of the waiting period imposed
by this sentence in its sole discretion.
(a) Any Employee who immediately after the grant of an Option would own
(or pursuant to Section 423(b)(3) of the Code would be deemed to own) stock
possessing 5% or more of the total combined voting power or value of all classes
of stock of the employer corporation or of its parent or subsidiary
corporations, as defined in Section 424 of the Code, will not be eligible to
receive an Option to purchase Stock pursuant to the Plan.
(b) No Employee will be granted an Option under the Plan that would
permit his or
<PAGE>
her rights to purchase shares of stock under all employee stock purchase plans
of the employer corporation and parent and subsidiary corporations, as defined
in Section 424 of the Code, to accrue at a rate which exceeds $25,000 in fair
market value of such stock (determined at the time the Option is granted) for
each calendar year during which any such Option granted to such Employee is
outstanding at any time, as provided in Section 423 of the Code.
(c) The following categories of Employees shall not be eligible to
participate in the Plan: (i) Employees whose customary employment for the
Company is twenty (20) hours or less per week, (ii) Employees whose customary
employment for the Company is for not more than five (5) months in any calendar
year, or (iii) Employees who are both (A) an officer of MSL within the meaning
of Rule 16a-1(f) (or any successor rule) promulgated under the Securities
Exchange Act of 1934, as amended, and (B) "highly compensated employees" within
the meaning of Section 414(q) of the Code. For purposes of determining an
Employee's eligibility to participate in the Plan under this Section 3, an
Employee's service with (i) a Subsidiary, prior to the acquisition of the
Subsidiary by the Company, or (ii) a trade or business, prior to the acquisition
of such trade or business by the Company, shall be included as service in the
employ of the Company.
SECTION 4. METHOD OF PARTICIPATION
The periods January 1 to June 30 and July 1 to December 31 of each year
will be termed "Option Periods." Each person who will be an Eligible Employee on
the first day of any Option Period may elect to participate in the Plan by
executing and delivering, at least 15 days prior to such day, a payroll
deduction authorization in accordance with Section 5. Such Employee will thereby
become a participant ("Participant") on the first day of such Option Period and
will remain a Participant until his or her participation is terminated as
provided in the Plan.
SECTION 5. PAYROLL DEDUCTION
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The payroll deduction authorization will request withholding at a rate
(in whole percentages) of not less than 1% nor more than 10% from the
Participant's Compensation by means of substantially equal payroll deductions
over the Option Period from payroll periods ending in the Option Period. For
purposes of the Plan, "Compensation" means all compensation paid to the
Participant by the Company and currently includible in his or her income;
including bonuses, commissions and other amounts includible in the definition of
compensation provided in the Treasury Regulations promulgated under Section 415
of the Code, plus any amount that would be so included but for the fact that it
was contributed to a qualified plan pursuant to an elective deferral under
Section 401(k) of the Code, but not including payments under stock option plans
and other employee benefit plans or any other amounts excluded from the
definition of compensation provided in the Treasury Regulations promulgated
under Section 415 of the Code. A Participant may change the withholding
rate of his or her payroll deduction authorization by written notice
delivered to the Company at least 15 days prior to the first day of the
Option Period as to which the change is to be effective. All amounts withheld
in accordance with a Participant's payroll deduction authorization will be
credited to a withholding account maintained in the Participant's name on the
books of the Company. Amounts credited to the withholding account shall
belong to the Company and shall not be required to be set aside in trust or
otherwise segregated from the Company's general assets.
SECTION 6. GRANT OF OPTIONS
Each person who is a Participant on the first day of an Option Period
will be granted, as of such day and for such Period, an Option entitling the
Participant to acquire shares of Stock equal in number to the lesser of:
(a) the whole number (disregarding any fractional share
amount) determined by dividing $[12,500] by the fair market value of
one share of Stock on the first day of the Option Period; and
(b) the number (rounded down to the nearest whole number)
determined by dividing (i) the balance credited to the Participant's
withholding account on the last day of the Option Period, by (ii) the
purchase price per share of the Stock determined under Section 7.
MSL will reduce, on a substantially proportionate basis, the number of shares of
Stock purchasable by each Participant upon exercise of his or her Option for an
Option Period in the event that the number of shares then available under the
Plan is insufficient. Option grants under this Section 6 shall be automatic and
need not be separately documented.
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SECTION 7. PURCHASE PRICE
The purchase price of Stock issued pursuant to the exercise of an
Option will be 85% of the fair market value of the Stock at (a) the time of
grant of the Option or (b) the time at which the Option is deemed exercised,
whichever is less. Fair market value will mean the Closing Price of the Stock.
The "Closing Price" of the Stock on any business day will be the last sale
price, regular way, with respect to such Stock, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
with respect to such Stock, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange; or, if such Stock is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which such Stock is
listed or admitted to trading; or, if such Stock is not listed or admitted to
trading, the last quoted price with respect to such Stock, or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market
with respect to such Stock, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or such other similar system
then in use; or, if on any such date such Stock is not quoted by any such
organization, the average of the closing bid and asked prices with respect to
such Stock, as furnished by a professional market maker making a market in such
Stock selected by the Board of Directors in good faith; or, if no such market
maker is available, the fair market value of such Stock as of such day as
determined in good faith by the Board of Directors.
SECTION 8. EXERCISE OF OPTIONS
If any Employee is a Participant in the Plan on the last business day
of an Option Period, he or she will be deemed to have exercised the Option
granted to him or her for that Period. Upon such exercise, the Company will
apply the balance of the Participant's withholding account to the purchase of
the number of whole shares of Stock determined under Section 6 and as soon as
practicable thereafter will issue and deliver certificates for said shares to
the Participant and will return to him or her the balance, if any, of his or her
withholding account in excess of the total purchase price of the shares so
issued; PROVIDED, that if the balance left in the account consists solely of an
amount equal to the value of a fractional share it will be retained in the
Account and carried over to the next Period. No fractional shares will be issued
hereunder.
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Notwithstanding anything herein to the contrary, MSL's obligation to
issue and deliver shares of Stock under the Plan will be subject to the approval
required of any governmental authority in connection with the authorization,
issuance, sale or transfer of said shares, to any requirements of any national
securities exchange applicable thereto, and to compliance by MSL with other
applicable legal requirements in effect from time to time.
SECTION 9. INTEREST
No interest will be payable on withholding accounts.
SECTION 10. CANCELLATION AND WITHDRAWAL
A Participant who holds an Option under the Plan may at any time prior
to exercise thereof under Section 8 cancel all (but not less than all) of his or
her Options by written notice delivered to the Company. Upon such cancellation,
the balance in the Participant's withholding account will be returned to the
Participant.
A Participant may terminate his or her payroll deduction authorization
as of any date by written notice delivered to the Company and will thereby cease
to be a Participant as of such date. Any Participant who voluntarily terminates
his or her payroll deduction authorization prior to the last business day of an
Option Period will be deemed to have canceled his or her Option.
SECTION 11. TERMINATION OF EMPLOYMENT
Except as otherwise provided in Section 12, upon the termination of a
Participant's employment with the Company for any reason, he or she will cease
to be a Participant, any Option held by him or her under the Plan will be deemed
canceled, the balance of his or her withholding account will be returned, and he
or she will have no further rights under the Plan.
5
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SECTION 12. DEATH OF PARTICIPANT
A Participant may elect that if death should occur during an Option
Period the balance, if any, of the Participant's withholding account at the time
of death will be applied at the end of the Period to the exercise of the
Participant's Option and the shares thereby purchased under the Option (plus any
balance remaining in the Participant's withholding account) will be delivered to
the Participant's designated beneficiary or beneficiaries. If the Participant
has more than one designated beneficiary, the Company will determine the
allocation among them and its determination will be final and binding on all
persons. For purposes of the Plan, a Participant's designated beneficiary(ies)
shall be (i) such person or persons as are treated as the Participant's
beneficiary(ies) for purposes of the Company group life insurance plan
applicable to the Participant, or (ii) in the absence of any beneficiary
determined under clause (i), the Participant's estate.
SECTION 13. EQUAL RIGHTS; PARTICIPANT'S RIGHTS NOT TRANSFERABLE
All Participants granted Options under the Plan with respect to any
Option Period will have the same rights and privileges. Each Participant's
rights and privileges under any Option granted under the Plan will be
exercisable during the Participant's lifetime only by him or her and except as
provided at Section 12 above may not be sold, pledged, assigned, or transferred
in any manner. In the event any Participant violates or attempts to violate the
terms of this Section, any Options held by him or her may be terminated by the
Company and, upon return to the Participant of the balance of his or her
withholding account, all of the Participant's rights under the Plan will
terminate.
SECTION 14. EMPLOYMENT RIGHTS
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Nothing contained in the provisions of the Plan will be construed as
giving to any Employee the right to be retained in the employ of the Company or
as interfering with the right of the Company to discharge any Employee at any
time.
SECTION 15. CHANGE IN CAPITALIZATION
In the event of any change in the outstanding Stock of MSL by reason of
a stock dividend, split-up, recapitalization, merger, consolidation,
reorganization, or other capital change, the aggregate number and type of shares
available under the Plan, the number and type of shares under Options granted
but not exercised, the maximum number and type of shares purchasable under an
Option, and the Option price will be appropriately adjusted.
SECTION 16. ADMINISTRATION OF PLAN
The Plan will be administered by the Board of Directors, which will
have the right to determine any questions which may arise regarding the
interpretation and application of the provisions of the Plan and to make,
administer, and interpret such rules and regulations as it will deem necessary
or advisable. Reference to the Board of Directors in connection with its
administrative function under the Plan shall include its delegates.
SECTION 17. AMENDMENT AND TERMINATION OF PLAN
MSL reserves the right at any time or times to amend the Plan to any
extent and in any manner it may deem advisable, by vote of the Board of
Directors; PROVIDED, that any amendment that would be treated as the adoption of
a new plan for purposes of Section 423 of the Code and the regulations
thereunder will have no force or effect unless approved by the shareholders of
MSL within twelve months before or after its adoption.
The Plan may be suspended or terminated at any time by the Board of
Directors. In connection therewith, the Board of Directors may either cancel
outstanding Options or continue them and provide that they will be exercisable
either at the end of the applicable Option Period as determined under Section 4
above or on such earlier date as the Board of Directors may specify (in which
case such earlier date shall be treated as the last day of the applicable Option
Period).
SECTION 18. APPROVAL OF SHAREHOLDERS
The Plan and the exercisability of Options granted hereunder will be
subject to the approval of the shareholders of MSL obtained within twelve months
before or after the date the Plan is adopted by the Board of Directors.
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Exhibit 10.10
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into this [__________ __], 2000
("Agreement"), by and between Manufacturers' Services Limited, a Delaware
corporation ("Company"), and [_____________] ("Indemnitee"):
WHEREAS, it is reasonable, prudent and necessary for the Company to
obligate itself to indemnify, and to advance expenses on behalf of, its
directors to the fullest extent permitted by applicable law so that they will
serve or continue to serve the Company free from undue concern that they will
not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve the Company
as a director and to take on additional service for or on its behalf on the
condition that he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve as a director of the
Company. Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or any obligation
imposed by operation of law).
2. INDEMNIFICATION - GENERAL. The Company shall indemnify, and advance
Expenses (as hereinafter defined) to, Indemnitee (a) as provided in
this Agreement and (b) (subject to the provisions of this Agreement) to
the fullest extent permitted by applicable law in effect on the date
hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be
limited to, the rights set forth in the other Sections of this
Agreement.
3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending or completed Proceeding (as
hereinafter defined), other than a Proceeding by or in the right of the
Company. Pursuant to this Section 3, Indemnitee shall be indemnified
against all Expenses, judgments, penalties, fines and amounts paid in
settlement (including all interest, assessments and other charges paid
or payable in connection with or in respect of such Expenses,
judgments, penalties, fines and amounts paid in settlement) actually
and reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was
unlawful.
<PAGE>
4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be
made, a party to or a participant in any threatened, pending or
completed Proceeding brought by or in the right of the Company to
procure a judgment in its favor. Pursuant to this Section, Indemnitee
shall be indemnified against all Expenses (including all interest,
assessments and other charges paid or payable in connection with or in
respect of such Expenses) actually and reasonably incurred by him or on
his behalf in connection with such Proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company; PROVIDED, HOWEVER, that indemnification
against such Expenses shall be made in respect of any claim, issue or
matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company if and only to the extent that the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that
such indemnification may be made.
5. PARTIAL INDEMNIFICATION. Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee is, by reason of his Corporate
Status, a party to (or a participant in) and is successful, on the
merits or otherwise, in defense of any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by
him or on his behalf in connection therewith. If Indemnitee is not
wholly successful in defense of such Proceeding but is successful, on
the merits or otherwise, as to one or more but less than all claims,
issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him
or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation,
the termination of any claim, issue or matter in such a Proceeding by
dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter. If Indemnitee is
entitled under any provision of this agreement to indemnification by
the Company for some or a portion of the Expenses, judgments,
penalties, fines and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection
with or in respect of such Expenses, judgments, penalties, fines and
amounts paid in settlement) actually and reasonably incurred by him or
on his behalf in connection with such Proceeding or any claim, issue or
matter therein, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion to
which the Indemnitee is entitled.
6. INDEMNIFICATION FOR ADDITIONAL EXPENSES.
1. The Company shall indemnify Indemnitee against any and all
Expenses and, if requested by Indemnitee, shall (within seven
(7) business days of such request) advance such Expenses to
Indemnitee, which are incurred by Indemnitee in connection
with any action brought by Indemnitee for (i) indemnification
or
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advance payment of Expenses by the Company under this
Agreement or any other agreement or by-law of the Company
now or hereafter in effect; or (ii) recovery under any
directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee
ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance
recovery, as the case may be.
2. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status,
a witness in any Proceeding to which Indemnitee is not a
party, he shall be indemnified against all Expenses actually
and reasonably incurred by him or on his behalf in connection
therewith.
7. ADVANCEMENT OF EXPENSES. The Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within seven (7) days after the receipt by the
Company of a statement or statements from Indemnitee requesting such
advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the Expenses incurred by Indemnitee and
shall include or be preceded or accompanied by an undertaking by or
on behalf of Indemnitee to repay any Expenses advanced if it shall
ultimately be determined that Indemnitee is not entitled to be
indemnified against such Expenses. Notwithstanding the foregoing,
the obligation of the Company to advance Expenses pursuant to this
Section 7 shall be subject to the condition that, if, when and to
the extent that the Company determines that Indemnitee would not be
permitted to be indemnified under applicable law, the Company shall
be entitled to be reimbursed, within thirty (30) days of such
determination, by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; PROVIDED, HOWEVER,
that if Indemnitee has commenced or thereafter commences legal
proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable
law, any determination made by the Company that Indemnitee would not
be permitted to be indemnified under applicable law shall not be
binding and Indemnitee shall not be required to reimburse the
Company for any advance of Expenses until a final judicial
determination is made with respect thereto (as to which all rights
of appeal therefrom have been exhausted or lapsed).
8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
1. To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including
therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary
to determine whether and to what extent Indemnitee is entitled
to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification,
advise the Board in writing that Indemnitee
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has requested indemnification.
2. Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 8(a) hereof, a
determination, if required by applicable law, with respect to
Indemnitee's entitlement thereto shall be made in the specific
case: (i) if a Change in Control (as hereinafter defined)
shall have occurred, by Independent Counsel (as hereinafter
defined) in a written opinion to the Board of Directors, a
copy of which shall be delivered to Indemnitee; or (ii) if a
Change of Control shall not have occurred, (A) by a majority
vote of the Disinterested Directors (as hereinafter defined),
even though less than a quorum of the Board, or (B) if there
are no such Disinterested Directors or, if such Disinterested
Directors so direct, by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to
Indemnitee or (C) if so directed by the Board, by the
stockholders of the Company; and, if it is so determined that
Indemnitee is entitled to indemnification, payment to
Indemnitee shall be made within seven (7) days after such
determination. The Company and the Indemnitee shall each
cooperate with the person, persons or entity making such
determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons
or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected
from disclosure and which is reasonably available to
Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with
the person, persons or entity making such determination shall
be borne by the Company (irrespective of the determination as
to Indemnitee's entitlement to indemnification), and the
Company hereby indemnifies and agrees to hold Indemnitee
harmless therefrom.
3. In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant
to Section 8(b) hereof, the Independent Counsel shall be
selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, the Independent Counsel shall
be selected by the Board of Directors, and the Company shall
give written notice to Indemnitee advising him of the identity
of the Independent Counsel so selected. If a Change of Control
shall have occurred, the Independent Counsel shall be selected
by Indemnitee (unless Indemnitee shall request that such
selection be made by the Board of Directors, in which event
the preceding sentence shall apply), and Indemnitee shall give
written notice to the Company advising it of the identity of
the Independent Counsel so selected. In either event,
Indemnitee or the Company, as the case may be, may, within 10
days after such written notice of selection shall have been
given, deliver to the Company or to Indemnitee, as the case
may be, a written objection to such selection; PROVIDED,
HOWEVER, that such objection may be asserted only on the
ground that the Independent Counsel so
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<PAGE>
selected does not meet the requirements of "Independent
Counsel" as defined in Section 17 of this Agreement, and the
objection shall set forth with particularity the factual basis
of such assertion. If such written objection is so made and
substantiated, the Independent Counsel so selected may not
serve as Independent Counsel unless and until such objection
is withdrawn or a court has determined that such objection is
without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant
to Section 8(a) hereof, no Independent Counsel shall have been
selected and not objected to, either the Company or Indemnitee
may petition the Court of Chancery of the State of Delaware
for resolution of any objection which shall have been made by
the Company or Indemnitee to the other's selection of
Independent Counsel and/or for the appointment as Independent
Counsel of a person selected by the Court or by such other
person as the Court shall designate, and the person with
respect to whom all objections are so resolved or the person
so appointed shall act as Independent Counsel under Section
8(b) hereof. The Company shall pay any and all reasonable fees
and expenses of Independent Counsel incurred by such
Independent Counsel in connection with acting pursuant to
Section 8(b) hereof, and the Company shall pay all reasonable
fees and expenses incident to the procedures of this Section
8(c), regardless of the manner in which such Independent
Counsel was selected or appointed, and if such Independent
Counsel was selected or appointed by the Indemnitee or the
Court, shall provide such Independent Counsel with such
retainer as may requested by such counsel. Upon the due
commencement of any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable
standards of professional conduct then prevailing).
4. The Company shall not be required to obtain the consent of the
Indemnitee to the settlement of any Proceeding which the
Company has undertaken to defend if the Company assumes full
and sole responsibility for such settlement and the settlement
grants the Indemnitee a complete and unqualified release in
respect of the potential liability. The Company shall not be
liable for any amount paid by the Indemnitee in settlement of
any Proceeding that is not defended by the Company, unless the
Company has consented to such settlement, which consent shall
not be unreasonably withheld.
9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
1. In making a determination with respect to entitlement to
indemnification or the advancement of expenses hereunder, the
person or persons or entity making such determination shall
presume that Indemnitee is entitled to indemnification or
advancement of expenses under this Agreement if Indemnitee has
submitted a request for indemnification or the advancement of
expenses in accordance with
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<PAGE>
Section 8(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection
with the making by any person, persons or entity of any
determination contrary to that presumption. Neither the
failure of the Company (including its board of directors or
independent legal counsel) to have made a determination prior
to the commencement of any action pursuant to this Agreement
that indemnification is proper in the circumstances because
Indemnitee has met the applicable standard of conduct, nor an
actual determination by the Company (including its board of
directors or independent legal counsel) that Indemnitee has
not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that Indemnitee
has not met the applicable standard of conduct.
2. If the person, persons or entity empowered or selected under
Section 8 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a
determination within sixty (60) days after receipt by the
Company of the request therefor, the requisite determination
of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification,
absent (i) a misstatement by Indemnitee of a material fact, or
an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; PROVIDED, HOWEVER, that
such 60-day period may be extended for a reasonable time, not
to exceed an additional thirty (30) days, if the person,
persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such
additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and
provided, further, that the foregoing provisions of this
Section 9(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and if
(A) within fifteen (15) days after receipt by the Company of
the request for such determination the Board of Directors has
resolved to submit such determination to the stockholders for
their consideration at an annual meeting thereof to be held
within seventy-five (75) days after such receipt and such
determination is made thereat, or (B) a special meeting of
stockholders is called within fifteen (15) days after such
receipt for the purpose of making such determination, such
meeting is held for such purpose within sixty (60) days after
having been so called and such determination is made thereat,
or (ii) if the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b)
of this Agreement.
3. The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction,
or upon a plea of NOLO CONTENDERE or its equivalent, shall not
(except as otherwise expressly provided in this
6
<PAGE>
Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did
not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
Company or, with respect to any criminal Proceeding, that
Indemnitee had reasonable cause to believe that his conduct
was unlawful.
4. RELIANCE AS SAFE HARBOR. For purposes of any determination of
Good Faith, Indemnitee shall be deemed to have acted in Good
Faith if Indemnitee's action is based on the records or books
of account of the Company or relevant enterprise, including
financial statements, or on information supplied to Indemnitee
by the officers of the Company or relevant enterprise in the
course of their duties, or on the advice of legal counsel for
the Company or relevant enterprise or on information or
records given in reports made to the Company or relevant
enterprise by an independent certified public accountant or by
an appraiser or other expert selected with reasonable care by
the Company or relevant enterprise. The provisions of this
Section 9(d) shall not be deemed to be exclusive or to limit
in any way the other circumstances in which the Indemnitee may
be deemed to have met the applicable standard of conduct set
forth in this Agreement.
5. ACTIONS OF OTHERS. The knowledge and/or actions, or failure to
act, of any director, officer, agent or employee of the
Company or relevant enterprise shall not be imputed to
Indemnitee for purposes of determining the right to
indemnification under this Agreement.
10. REMEDIES OF INDEMNITEE.
1. In the event that (i) a determination is made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of
Expenses is not timely made pursuant to Section 7 of this
Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 8(b)
of this Agreement within 90 days after receipt by the Company
of the request for indemnification, (iv) payment of
indemnification is not made pursuant to Section 5 or 6 of this
Agreement within ten (10) days after receipt by the Company of
a written request therefor, or (v) payment of indemnification
is not made within ten (10) days after a determination has
been made that Indemnitee is entitled to indemnification,
Indemnitee shall be entitled to an adjudication by the Court
of Chancery of the State of Delaware, or any other court of
competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to
be conducted by a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association.
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<PAGE>
2. In the event that a determination shall have been made
pursuant to Section 8(b) of this Agreement that Indemnitee is
not entitled to indemnification, any judicial proceeding or
arbitration commenced pursuant to this Section 10 shall be
conducted in all respects as a DE NOVO trial, or arbitration,
on the merits and Indemnitee shall not be prejudiced by reason
of that adverse determination. If a Change of Control shall
have occurred, in any judicial proceeding or arbitration
commenced pursuant to this Section 10, the Company shall have
the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may
be.
3. If a determination shall have been made pursuant to Section
8(b) of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such
determination in any judicial proceeding or arbitration
commenced pursuant to this Section 10, absent (i) a
misstatement by Indemnitee of a material fact, or an omission
of a material fact necessary to make Indemnitee's statement
not materially misleading in connection with the request for
indemnification, or (ii) a prohibition of such indemnification
under applicable law.
4. In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to
enforce his rights under, or to recover damages for breach of,
this Agreement, Indemnitee shall be entitled to recover from
the Company, and shall be indemnified by the Company against,
any and all expenses (of the types described in the definition
of Expenses in Section 17 of this Agreement) actually and
reasonably incurred by him in such judicial adjudication or
arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration that
Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the
expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately
prorated. The Company shall indemnify Indemnitee against any
and all Expenses and, if requested by Indemnitee, shall
(within ten (10) days after receipt by the Company of a
written request therefor) advance such expenses to Indemnitee,
which are incurred by Indemnitee in connection with any action
brought by Indemnitee for indemnification or advance of
Expenses from the Company under this Agreement or under any
directors' or officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee
ultimately is determined to be entitled to such
indemnification, advancement of Expenses or insurance
recovery, as the case may be.
5. The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section
10 that the procedures and
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<PAGE>
presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the
provisions of this Agreement.
11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
1. The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the Certificate of
Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No
amendment, alteration or repeal of this Agreement or of any
provision hereof shall limit or restrict any right of
Indemnitee under this Agreement in respect of any action taken
or omitted by such Indemnitee in his Corporate Status prior to
such amendment, alteration or repeal. To the extent that a
change in the General Corporation Law of the State of
Delaware, whether by statute or judicial decision, permits
greater indemnification or advancement of Expenses than would
be afforded currently under the Company's By-Laws and this
Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits
so afforded by such change. No right or remedy herein
conferred is intended to be exclusive of any other right or
remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
2. To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors,
officers, employees or agents of the Company or of any other
corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person serves at
the request of the Company, Indemnitee shall be covered by
such policy or policies in accordance with its or their terms
to the maximum extent of the coverage available for any such
director, officer, employee or agent under such policy or
policies.
3. In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of
the rights of recovery of Indemnitee, who shall execute all
papers required and take all action necessary to secure such
rights, including execution of such documents as are necessary
to enable the Company to bring suit or enforce such rights.
4. The Company shall not be liable under this Agreement to make
any payment of
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<PAGE>
amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
5. The Company's obligation to indemnify or advance expenses
hereunder to Indemnitee who is or was serving at the request
of the Company as a director, officer, employee or agent of
any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise shall be reduced by
any amount Indemnitee has actually received as indemnification
or advancement of expenses from such other corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise.
12. DURATION OF AGREEMENT.
1. This Agreement shall continue until and terminate upon the
later of: (a) 10 years after the date that Indemnitee shall
have ceased to serve as a director of the Company (or of any
other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which Indemnitee served at
the request of the Company); or (b) the final termination of
any Proceeding then pending in respect of which Indemnitee is
granted rights of indemnification or advancement of expenses
hereunder and of any proceeding commenced by Indemnitee
pursuant to Section 10 of this Agreement relating thereto.
2. This Agreement shall not be deemed an employment contract
between the Company (or any of its subsidiaries) and
Indemnitee. Indemnitee specifically acknowledges that
Indemnitee's employment with the Company (or any of its
subsidiaries), if any, is at will, and the Indemnitee may be
discharged at any time for any reason, with or without cause,
except as may be otherwise provided in any written employment
contract between Indemnitee and the Company (or any of its
subsidiaries), other applicable formal severance policies duly
adopted by the Board, or, with respect to service as a
director or officer of the Company, by the Company's
Certificate of Incorporation, By-laws, and the General
Corporation Law of the State of Delaware. The foregoing
notwithstanding, this Agreement shall continue in force as
provided above after Indemnitee has ceased to serve as a
director of the Company.
3. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of
Indemnitee and his heirs, executors and administrators.
13. SEVERABILITY. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each
portion of any Section of this Agreement containing any such provision
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<PAGE>
held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or
impaired thereby; (b) such provision or provisions shall be deemed
reformed to the extent necessary to conform to applicable law and to
give the maximum effect to the intent of the parties hereto; and (c) to
the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested
thereby.
14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES.
Except as provided in Section 6(a) of this Agreement, Indemnitee shall
not be entitled to indemnification or advancement of Expenses under
this Agreement with respect to any Proceeding brought by Indemnitee
(other than a Proceeding by Indemnitee to enforce his rights under this
Agreement), or any claim therein, unless the bringing of such
Proceeding or making of such claim shall have been approved by the
Board of Directors.
15. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence
of this Agreement.
16. HEADINGS. The headings of the paragraphs of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
17. DEFINITIONS. For purposes of this Agreement:
1. "Change in Control" shall have the meaning set forth on
Exhibit A.
2. "Corporate Status" describes the status of a person who is or
was a director, officer, employee, fiduciary or agent of the
Company or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise
which such person is or was serving at the request of the
Company.
3. "Disinterested Director" means a director of the company who
is not and was not a party to the Proceeding in respect of
which indemnification is sought by Indemnitee.
4. "Effective Date" means [_________ __], 2000.
5. "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs,
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<PAGE>
transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all
other disbursements or expenses of the types customarily
incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, being or preparing to
be a witness, in, or otherwise participating in, a Proceeding.
6. "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been,
retained to represent: (i) the Company or Indemnitee in any
matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under
the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company agrees
to pay the reasonable fees of the Independent Counsel referred
to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of
or relating to this Agreement or its engagement pursuant
hereto.
7. "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution
mechanism, investigation, inquiry, administrative hearing or
any other actual, threatened or completed proceeding, whether
brought by or in the right of the Corporation or otherwise and
whether civil, criminal, administrative or investigative, in
which Indemnitee was, is, may be or will be involved as a
party or otherwise, by reason of the fact that Indemnitee is
or was a director or officer of the Company, by reason of any
action taken by him or of any inaction on his part while
acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the
Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise; in each case whether or not he is acting or
serving in any such capacity at the time any liability or
expense is incurred for which indemnification or advancement
of expenses can be provided under this Agreement; except one
(i) initiated by an Indemnitee pursuant to Section 10 of this
Agreement to enforce his right under this Agreement or (ii)
pending on or before the Effective Date.
18. ENFORCEMENT.
1. The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it
hereby in order to induce Indemnitee to serve as a director
and/or officer of the Company, and the
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Company acknowledges that Indemnitee is relying upon this
Agreement in serving as a director and/or officer of the
Company.
2. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral,
written and implied, between the parties hereto with respect
to the subject matter hereof.
19. MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of
the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
20. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the Company
in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or
advancement of Expenses covered hereunder. The failure of Indemnitee to
so notify the Company shall not relieve the Company of any obligation
which it may have to the Indemnitee under this Agreement or otherwise.
21. NOTICES. All notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed to have been duly
given if (i) delivered by hand and receipted for by the party to whom
said notice or other communication shall have been direct, or (ii)
mailed by certified or registered mail with postage prepaid, on the
third business day after the date on which it is so mailed:
1. If to Indemnitee to:
[DIRECTOR NAME]
[ADDRESS]
2. If to the Company to:
300 Baker Avenue, Suite 106
Concord, Massachusetts 01742
Attention: General Counsel
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
22. CONTRIBUTION. To the fullest extent permissible under applicable law,
if the indemnification provided for in this Agreement is unavailable to
Indemnitee for any
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reason whatsoever, the Company, in lieu of indemnifying Indemnitee,
shall contribute to the amount incurred by Indemnitee, whether for
judgments, fines, penalties, excise taxes, amounts paid or to be paid
in settlement and/or for Expenses, in connection with any claim
relating to an indemnifiable event under this Agreement, in such
proportion as is deemed fair and reasonable in light of all of the
circumstances of such Proceeding in order to reflect (i) the relative
benefits received by the Company and Indemnitee as a result of the
event(s) and/or transaction(s) giving cause to such Proceeding; and/or
(ii) the relative fault of the Company (and its directors, officers,
employees and agents) and Indemnitee in connection with such event(s)
and/or transaction(s).
23. GOVERNING LAW; SUBMISSION TO JURISDICTION; APPOINTMENT OF AGENT FOR
SERVICE OF PROCESS. This Agreement and the legal relations among the
parties shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware, without regard to its conflict
of laws rules. Except with respect to any arbitration commenced by
Indemnitee pursuant to Section 10(a) of this Agreement, the Company and
Indemnitee hereby irrevocably and unconditionally (i) agree that any
action or proceeding arising out of or in connection with this
Agreement shall be brought only in the Chancery Court of the State of
Delaware (the "Delaware Court"), and not in any other state or federal
court in the United States of America or any court in any other
country, (ii) consent to submit to the exclusive jurisdiction of the
Delaware Court for purposes of any action or proceeding arising out of
or in connection with this Agreement, (iii) appoint, to the extent such
party is not a resident of the State of Delaware, irrevocably
[_______________] as its agent in the State of Delaware for acceptance
of legal process in connection with any such action or proceeding
against such party with the same legal force and validity as if served
upon such party personally within the State of Delaware, (iv) waive any
objection to the laying of venue of any such action or proceeding in
the Delaware Court, and (v) waive, and agree not to plead or to make,
any claim that any such action or proceeding brought in the Delaware
Court has been brought in an improper or otherwise inconvenient forum.
24. MISCELLANEOUS. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
ATTEST: MANUFACTURERS' SERVICES LIMITED
By:
- --------------------------------- ---------------------------------------
Name: Name:
Title:
ATTEST: INDEMNITEE
- --------------------------------- ---------------------------------------
Name: Name:
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<PAGE>
EXHIBIT A
CHANGE OF CONTROL. For the purposes of this Agreement, a "Change of
Control" means:
1. The acquisition by any person, corporation,
partnership, limited liability company or other
entity (a "Person", which term shall include a group
within the meaning of section 13(d) of the Securities
Exchange Act of 1934 (the "Exchange Act")) of
ultimate beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly of 30% or more of either (i)
the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a
Change of Control: (i) any such acquisition directly
from the Company, except for acquisition of
securities upon conversion of other securities of the
Company (ii) any such acquisition by the Company,
(iii) any such acquisition by any employee benefit
plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the
Company or (iv) any such acquisition by any
corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of
this Exhibit A; or
2. Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election, by the
Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board; or
3. Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company in one
or a series of transactions (a "Business
Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial
16
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owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
immediately following such Business Combination more
than 50% of, respectively, the outstanding shares of
common stock and the combined voting power of the
then outstanding voting securities entitled to vote
generally in the election of directors, as the case
may be, of the corporation resulting from such
Business Combination (including, without limitation,
a corporation which as a result of such transaction
owns the Company or all or substantially all of the
Company's assets either directly or through one or
more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company
Common Stock and outstanding Company Voting
Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such
Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination) ultimately
beneficially owns, directly or indirectly, 30% or
more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such
Business Combination or the combined voting power of
the then outstanding voting securities of such
corporation except to the extent that such ownership
existed prior to the Business Combination and (iii)
at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing
for such Business Combination; or
4. Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
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<PAGE>
Exhibit 10.19
2000 CASH INCENTIVE COMPENSATION PLAN
PHILOSOPHY: PAY FOR PERFORMANCE
- Goal is to increase shareholder valuation.
- Performance metrics must be understandable, measurable, consistent and
designed to achieve the goal.
INCENTIVE POTENTIAL consists of TARGET INCENTIVE and SUPER ACHIEVEMENT
INCENTIVE.
CONCORD AND SUPPLY SITES
TARGET INCENTIVE
- - Earned based on achieving business profitability, and Personal Performance
Goals (PPGs) with the portions allocable between business profitability and
PPGs determined individually based on function and responsibilities.
- - Capped at 5%-100% of Base Salary (% determined individually).
- - Target Incentive is tracked quarterly and paid annually.
- - BUSINESS PROFITABILITY COMPONENT
Metric is: EBITDA for Concord (this includes all participants not
in the Supply Sites or in Sales); and
PCM for the Supply Sites.
All metrics are measured in dollars, not percentages.
50% of this component is earned at 85% of the AOP metric, and the
balance is earned linearly up to 100% of the AOP metric.
- - PPG COMPONENT
Percentage earned is determined by scoring achievement of PPGs and is
contingent on the Company achieving at least 85% of AOP EBITDA (85%
of AOP PCM for the Supply Sites). At that point, whatever percentage
of the PPG Component that has been earned based on scoring of
performance is triggered and will be paid annually.
SUPER ACHIEVEMENT INCENTIVE
- - Earned based on exceeding the applicable AOP metric for profitability
(EBITDA for Concord and PCM for the Supply Sites). The Super Achievement
Incentive applies at the Site level only to the Site Managers and certain
members of their staffs as required by existing contractual commitments.
<PAGE>
- - A percentage of incremental profitability is allocated to a Super
Achievement Incentive pool for all participants, I.E., out of each $1.00 of
incremental EBITDA, $.20 is paid into the pool.
- - Super Achievement Incentive is calculated and paid annually.
ELIGIBILITY
- To be eligible for participation in the 2000 Cash Incentive Plan, the
employee must be employed by Manufacturers' Services or have been
promoted to an eligible position by October 1, 2000. All payments for
new hires are prorated based on the date of hire. Promotions,
involving a change to your bonus plan, are treated as follows:
- Promotion during the first half of the year receives credit for the
entire year.
- Promotion between July and September receives credit for the second
half of the year.
- To receive a Cash Incentive payment for 2000 the employee must be
employed by Manufacturers' Services on the date of payout.
- All Cash Incentive payments will be based on the participant's annual
average Base Salary.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 3 to the Registration
Statement on Form S-1 of our reports dated February 2, 2000 relating to the
financial statements and financial statement schedule of Manufacturers'
Services Limited, which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 28, 2000
<PAGE>
Exhibit 23.3
CONSENT
We hereby consent to the use in this Registration Statement on Form S-1
of our name and reference to, and inclusion of data contained in, our report
entitled "Contract Manufacturing from a Global Perspective, 1999 Update", which
appear in such Registration Statement.
/s/ Technology Forecasters, Inc.
Technology Forecasters, Inc.
Alameda, California
March 31, 2000
