-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AC5FKSNwoSTuF05UHLTxs3MAOJCClOzn7pDroRP0AT1hNXurDRoFun+pPvRDM2h1 LJBJsuvT04PaBB4zYuKPLQ== 0000950134-97-003782.txt : 19970514 0000950134-97-003782.hdr.sgml : 19970514 ACCESSION NUMBER: 0000950134-97-003782 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19970330 FILED AS OF DATE: 19970513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DII GROUP INC CENTRAL INDEX KEY: 0000899047 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 841224426 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21374 FILM NUMBER: 97602934 BUSINESS ADDRESS: STREET 1: 6273 MONARCH PARK PLACE CITY: NIWOT STATE: CO ZIP: 80503 BUSINESS PHONE: 3036522221 FORMER COMPANY: FORMER CONFORMED NAME: DOVATRON INTERNATIONAL INC DATE OF NAME CHANGE: 19930319 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 30, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 30, 1997 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-21374 THE DII GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 84-1224426 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6273 Monarch Park Place Suite 200 Niwot, Colorado 80503 (Address and zip code of principal executive offices) (303) 652-2221 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
OUTSTANDING AT CLASS May 9, 1997 ----- -------------- Common Stock, Par Value $0.01 12,186,897
2 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THE DII GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (In thousands, except earnings per share)
FOR THE FIRST QUARTER ENDED ---------------------------------- MAR. 30, 1997 MAR. 31, 1996 --------------- --------------- Net sales: Contract electronics manufacturing $ 85,001 72,765 Other 52,079 40,211 --------------- --------------- Total net sales 137,080 112,976 Cost of sales 110,900 92,406 --------------- --------------- Gross profit 26,180 20,570 Selling, general and administrative expenses 16,137 11,791 Interest income (242) (580) Interest expense 1,700 1,539 Amortization of intangibles 800 740 Other, net 93 (284) --------------- --------------- Income before income taxes 7,692 7,364 Income tax expense 2,615 2,297 --------------- --------------- Net income $ 5,077 5,067 =============== =============== Earnings per share: Primary $ 0.40 0.42 Fully diluted $ 0.40 0.40 Weighted average number of common shares and equivalents outstanding: Primary 12,561 12,173 Fully diluted 14,865 14,676
See accompanying notes to condensed consolidated financial statements 3 THE DII GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except par value data)
MARCH 30, DECEMBER 29, 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 17,447 25,010 Accounts receivable, net 90,443 79,851 Inventories 55,285 47,008 Other 8,665 8,829 ------------ ------------ Total current assets 171,840 160,698 Property, plant and equipment, net 117,053 106,977 Intangible assets, net 65,298 66,207 Other 2,347 1,969 ------------ ------------ $ 356,538 335,851 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 61,106 46,748 Accrued expenses 18,203 14,729 Accrued interest payable 2,464 1,116 Current installments of long-term financing obligations 7,286 10,572 Notes payable to sellers of businesses acquired 415 826 ------------ ------------ Total current liabilities 89,474 73,991 Convertible subordinated notes payable 86,250 86,250 Long-term financing obligations, excluding current installments 11,419 12,938 Notes payable to sellers of businesses acquired 1,571 1,262 Other 1,944 2,373 Commitments and contingent liabilities Stockholders' equity: Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued -- -- Common stock, $0.01 par value; 45,000,000 shares authorized; 12,056,760 and 11,964,415 shares issued and outstanding 121 120 Additional paid-in capital 94,985 91,976 Retained earnings 79,860 74,783 Cumulative foreign currency translation adjustments (4,001) (3,849) Deferred stock compensation (5,085) (3,993) ------------ ------------ Total stockholders' equity 165,880 159,037 ------------ ------------ $ 356,538 335,851 ============ ============
See accompanying notes to condensed consolidated financial statements 4 THE D I I GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
FOR THE FIRST QUARTER ENDED -------------------------------------- MAR. 30, 1997 MAR. 31, 1996 ------------- ------------- Net cash provided by operating activities $ 11,090 4,033 ------------- ------------- Cash flows from investing activities: Additions to property, plant and equipment (14,293) (5,772) Proceeds from sales of equipment 131 114 ------------- ------------- Net cash used by investing activities (14,162) (5,658) ------------- ------------- Cash flows from financing activities: Debt issuance costs -- (138) Repayments of long-term financing obligations (4,805) (2,542) Repayments of notes payable to sellers of businesses acquired (411) (10,133) Proceeds from stock issued under stock plans 676 481 ------------- ------------- Net cash used by financing activities (4,540) (12,332) ------------- ------------- Effect of exchange rate changes on cash 49 (10) ------------- ------------- Net decrease in cash and cash equivalents (7,563) (13,967) Cash and cash equivalents at beginning of year 25,010 55,533 ------------- ------------- Cash and cash equivalents at end of period $ 17,447 41,566 ============= =============
See accompanying notes to condensed consolidated financial statements 5 THE DII GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Financial information as of December 29, 1996 has been derived from the audited consolidated financial statements of The DII Group, Inc. and subsidiaries (the "Company" or "DII"). The condensed consolidated financial statements do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements as of and for the year ended December 29, 1996 included in the annual report on Form 10-K previously filed with the SEC. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. Operating results for the three-month period ended March 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 28, 1997. On August 22, 1996, the DII Group changed its fiscal year end from December 31 to the Sunday nearest to December 31, beginning with the fiscal year ended December 29, 1996. The accompanying condensed consolidated financial statements are therefore presented as of and for the three month period ended March 30, 1997 and March 31, 1996. (2) INVENTORIES Inventories consisted of the following:
MARCH 30, DECEMBER 29, 1997 1996 ------------ ------------ Raw materials $ 37,422 34,099 Work-in-process 21,652 15,721 Finished goods 2,786 2,580 ------------ ------------ 61,860 52,400 Allowance for inventory (6,575) (5,392) ------------ ------------ $ 55,285 47,008 ============ ============
The Company made provisions for the allowance for inventory impairment of $1,389 and $127 during the three months ended March 30, 1997 and March 31, 1996, respectively. 6 THE DII GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (3) COMMITMENTS AND CONTINGENCIES The Company is involved in certain litigation and environmental matters described in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1996. The ultimate outcome of these matters cannot, at this time, be predicted in light of the uncertainties inherent in these matters. Based upon the facts and circumstances currently known, management cannot estimate the most likely loss or the maximum loss for these matters. The Company has accrued the minimum estimated costs, which amounts are immaterial, associated with these matters in the accompanying condensed consolidated financial statements. The Company determines the amount of its accruals for environmental matters by analyzing and estimating the range of possible costs in light of information currently available. The imposition of more stringent standards or requirements under environmental laws or regulations, the results of future testing and analysis undertaken by the Company at its operating facilities, or a determination that the Company is potentially responsible for the release of hazardous substances at other sites, could result in expenditures in excess of amounts currently estimated to be required for such matters. No assurance can be given that actual costs will not exceed amounts accrued or that costs will not be incurred with respect to sites as to which no problem is currently known. Further, there can be no assurance that additional environmental matters will not arise in the future. The Company has approximately $614 of capital commitments as of March 30, 1997. As of March 30, 1997, the Company has a $60,000 senior secured revolving line-of-credit which expires in June 1998. This credit facility requires compliance with certain financial covenants and is secured by substantially all of the Company's assets. As of March 30, 1997, there were no borrowings outstanding under the line-of-credit, and the Company was in compliance with all financial covenants. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) CERTAIN FORWARD-LOOKING INFORMATION: This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to, statements regarding contingencies, litigation, environmental matters and capital expenditures under "Part I Financial Information - Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations". Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below. A. OVERVIEW The Company is a value-added electronics design, engineering and manufacturing service provider which operates through a global network of companies in North America, Europe and Southeast Asia. These companies are uniquely integrated to provide a broad range of related products and services, including semiconductor design and manufacturing of customer specific integrated circuits; initial printed circuit board design; manufacturing of prototype printed circuit boards; assembly of printed circuit boards; process tooling; machine tools; in-circuit and functional test hardware and software; and final system configuration. By being the fastest and most comprehensive provider of custom quick-turn design, engineering and manufacturing services for OEM customers, from microelectronics circuits through the final assembly of finished products, the Company believes it is better able to develop long-term relationships with its customers, expand into new markets and enhance its profitability. The Company provides the following products and services to the global electronics outsourcing industry: Custom Semiconductors--The Company designs and manufactures customer specific integrated circuits on a quick-turn basis through Orbit Semiconductor ("Orbit"). High Performance Printed Circuit Boards--The Company designs and manufactures high density, complex multilayer printed circuit boards on a quick-turn basis through Multilayer Technology ("Multek"). Systems Assembly and Distribution--The Company assembles complex electronic circuits and final system configuration (contract electronics manufacturing or "CEM") on a high and low volume contract basis through Dovatron International ("Dovatron"). Process Technologies--The Company manufactures surface mount printed circuit board solder cream stencils on a quick-turn basis through IRI International ("IRI"); designs and manufactures in-circuit and functional test software and hardware on a quick-turn basis through TTI Testron ("TTI Testron") and manufactures depaneling systems that route individual printed circuit boards from an assembled master panel in the final step of the electronics assembly process through Cencorp. Operating results may be affected by a number of factors including the economic conditions in the markets the Company serves; price and product competition; the level of volume and the timing of orders; product mix; the amount of automation existing on specific manufacturing projects; efficiencies achieved by inventory management; fixed asset utilization; the level of experience in manufacturing a particular product; customer product delivery requirements; shortages of components or experienced labor; start-up 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) A. OVERVIEW, CONTINUED costs associated with adding new geographical locations; expenditures required for research and development; and failure to introduce, or lack of market acceptance of, new processes, services, technologies and products on a timely basis. In addition, the level of sales can greatly shift based on whether certain projects are contracted on a turnkey basis where the Company purchases materials, versus a consignment basis where materials are provided by the customer. A majority of the Company's sales are to customers in the electronics industry, which is subject to rapid technological change, product obsolescence and price competition. The factors affecting the electronics industry (especially the semiconductor sector) in general, or any of the Company's major customers, in particular, could have a material adverse affect on the Company's operating results. The electronics industry (especially the semiconductor sector) has historically been cyclical and subject to significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices and overcapacity. The Company seeks a well-balanced customer profile across most sectors of the electronics industry in order to reduce exposure due to a downturn in any particular sector. The primary sectors within the electronics industry served by the Company are data communications, computer and peripherals, telecommunications, industrial, instrumentation, and medical. The Company offers outsourcing capabilities in three major electronics markets of the world (North America, Europe and Southeast Asia). The Company's international operations subject the Company to the risks of doing business abroad, including currency fluctuations, export duties, import controls and trade barriers, restrictions on the transfer of funds, greater difficulty in accounts receivable collection, burdens of complying with a wide variety of foreign laws and, in certain parts of the world, political instability. From time to time, some of the Company's customers have terminated their manufacturing arrangements with the Company, and other customers have significantly reduced or delayed the volume of design, engineering and manufacturing services from the Company. Any such termination of a manufacturing relationship or change, reduction or delay in orders could have a material adverse affect on the Company's operating results. Although management believes the Company has a broad diversification of customers and markets, the Company has no material firm long-term commitments or volume guarantees from its customers. In addition, customer contracts can be canceled and volume levels can be changed or delayed. The timely replacement of canceled, delayed or reduced contracts with new business cannot be assured. At any given time, certain customers may account for significant portions of the Company's business. No customer accounted for more than 10% of net sales during the three months ending March 30, 1997 or March 31, 1996. The Company's top ten customers accounted for 46% and 50% of net sales for the three months ending March 30, 1997 and March 31, 1996, respectively. The percentage of the Company's sales to its major customers may fluctuate from period to period. Significant reductions in sales to any of these customers could have a material adverse effect on the Company's operating results. The DII Group has actively pursued acquisitions in furtherance of its strategy to be the fastest and most comprehensive provider of custom quick-turn design, engineering and manufacturing services for OEM customers, from microelectronics circuits through the final assembly of finished products. Moreover, the Company's acquisitions enable the DII Group to provide more integrated outsourcing technology solutions with time-to-market and lower cost advantages, thereby enhancing its position as a leading provider of value-added design, engineering and manufacturing solutions. These acquisitions have played an important part in broadening the Company's presence in the global electronics marketplace, thereby enhancing the DII Group's capability to provide a comprehensive outsourcing technology solution and global electronics design, engineering and manufacturing services to a market increasingly dependent on outsourcing providers. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) A. OVERVIEW, CONTINUED Acquisitions involve numerous risks including difficulties in the assimilation of the operations, technologies, and products and services of the acquired companies, the diversion of management's attention from other business concerns, risks of entering markets in which the DII Group has no or limited direct prior experience and where competitors in such markets have stronger market positions, and the potential loss of key employees of the acquired company. The integration of certain operations following an acquisition will require the dedication of management resources that may distract attention from the day-to-day business of the Company. B. RESULTS OF OPERATIONS Net sales for the three months ended March 30, 1997 increased $24,104 (21%) to $137,080 from $112,976 for the comparable period in 1996. Contract electronics manufacturing, which represented 62% of net sales for the three months ended March 30, 1997, increased $12,236 (17%) to $85,001 from $72,765 for the comparable period in 1996. This increase is attributable to increased sales to existing customers; an expanding customer base, which includes the start-up of the high volume, multi-site Hewlett-Packard order; off-set by the planned phase-out of Dovatron Malaysia's largest customer (Seagate). Net sales for the Company's other products and services, which represented 38% of net sales for the three months ended March 30, 1997, increased $11,868 (30%) to $52,079 from $40,211 for comparable period in 1996. This increase is attributable to increased sales to existing customers, an expanding customer base and production generated at the Multek facility located in Roseville, Minnesota, which began limited production in April 1996. Gross profit for the three months ended March 30, 1997, increased $5,610 to $26,180 from $20,570 for the comparable period in 1996. The gross margin increased to 19.1% for the three months ended March 30, 1997 as compared to 18.2% for the comparable period in 1996. This increase is attributable to the slight shift in mix to the Company's other products and services which generate higher margins than contract electronics manufacturing services. Selling, general and administrative (SG&A) expense increased $4,346 to $16,137 for the three months ended March 30, 1997 from $11,791 for the comparable period in 1996. The percentage of SG&A expense to net sales was 11.8% and 10.4% for the three months ended March 30, 1997 and March 31, 1996, respectively. This increase is attributable to additional costs associated with the start-up of Orbit's newly acquired wafer fabrication facility while winding down its old wafer fabrication facility combined with the building of the Company's sales and marketing, finance, and other general and administrative infrastructure necessary to support the Company's projected sales growth in fiscal 1997. In addition, the Company recognized incentive-based stock plan compensation of $995 in the three-months ended March 30, 1997 versus $312 in the three months ended March 31, 1996. Recognition of such expense is based upon expected achievement of certain earnings per share targets established by the Compensation Committee of the Board of Directors. Interest income decreased $338 to $242 for the three months ended March 30, 1997 from $580 for the comparable period in 1996. This decrease is attributable to the earnings generated on the invested cash and cash equivalents. Interest expense increased $161 to $1,700 for the three months ended March 30, 1997 from $1,539 for the comparable period in 1996. This increase is associated with the increase in long-term financing obligations in connection with equipment additions related to Orbit's transition to its new 6-inch, 0.6 micron process facility. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) B. RESULTS OF OPERATIONS, CONTINUED Amortization of intangibles increased $60 to $800 for the three months ended March 30, 1997 from $740 for the comparable period in 1996. This increase is attributable to the amortization of the goodwill associated with the Chemtech acquisition, which occurred in April 1996. Other expenses (net) increased $377 for the three months ended March 30, 1997 from the comparable period in 1996. This increase was due mainly to the Company realizing a gain on the early extinguishment of long-term financing obligations in the three months ended March 31, 1996. The estimated effective income tax rate for the three months ended March 30, 1997 was 34% compared to 31% for the comparable period in 1996. The effective tax rate used to compute the income tax provision for each quarter was based on the Company's estimate of its domestic and foreign operating income for each respective year. The Company's estimated effective income tax rate differs from the U.S. statutory rate primarily due to lower effective income tax rates on foreign earnings considered permanently invested. The effective tax rate for a particular year will vary depending on the mix of foreign and domestic earnings. As foreign earnings considered permanently invested increase, as a percentage of consolidated earnings, the overall consolidated effective income tax rate will decrease as the foreign earnings are usually taxed at a lower rate than domestic earnings. C. FOREIGN CURRENCY EXPOSURE The Company conducts a significant amount of its business and has a number of operating facilities in countries outside of the United States. As a result, the Company may experience transaction and translation gains and losses because of currency fluctuations. In order to minimize foreign exchange transaction risk, the Company selectively hedges certain of its foreign exchange exposures through forward exchange contracts, principally relating to nonfunctional currency monetary assets and liabilities. To date, the Company's hedging activity has been immaterial. The strategy of selective hedging can reduce the Company's vulnerability to certain of its foreign currency exposures, and the Company expects to continue this practice in the future. D. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS At March 30, 1997, the Company had working capital of $82,366 and a current ratio of 1.9 compared to working capital of $95,195 and a current ratio of 2.3 at March 31, 1996. Cash and cash equivalents at March 30, 1997 were $17,447, a decrease of $7,563 from $25,010 at December 29, 1996. This decrease resulted from cash used by investing and financing activities of $14,162 and $4,540, respectively, offset by cash provided by operating activities of $11,090. The Company's net cash flows used by investing activities amounted to $14,162 and $5,658 for the three months ended March 30, 1997 and March 31, 1996, respectively. Capital expenditures amounted to $14,293 and $5,772 for the three-month periods ending March 30, 1997 and March 30, 1996, respectively. The increase in the first quarter of 1997 is attributable mainly to the Company's continued investment in state-of-the-art, high-technology equipment for its Multek and Dovatron operating companies which enables the Company to accept increasingly complex orders. Additionally, Orbit acquired capital equipment necessary for its new 6-inch, 0.6 micron process facility. The Company's net cash flows used by financing activities amounted to $4,540 and $12,332 in the first quarter of 1997 and 1996, respectively. The Company repaid $4,805 and $2,542 in long-term financing obligations in the three months ended March 30, 1997 and March 31, 1996, respectively. The Company 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) D. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS, CONTINUED also repaid $411 and $10,133 of notes payable to sellers of various businesses acquired during the three months ended March 30, 1997 and March 31, 1996, respectively. Management believes that cash generated from operations, existing cash reserves, leasing capabilities, and the line-of-credit availability will be adequate to fund the Company's current capital commitments. The Company's operations are subject to certain federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing processes. The Company believes that it is currently operating in compliance with applicable regulations and does not believe that costs of compliance with these laws and regulations will have a material effect upon its capital expenditures, earnings or competitive position. The Company determines the amount of its accruals for environmental matters by analyzing and estimating the range of possible costs in light of information currently available. The imposition of more stringent standards or requirements under environmental laws or regulations, the results of future testing and analysis undertaken by the Company at its operating facilities, or a determination that the Company is potentially responsible for the release of hazardous substances at other sites, could result in expenditures in excess of amounts currently estimated to be required for such matters. No assurance can be given that actual costs will not exceed amounts accrued or that costs will not be incurred with respect to sites as to which no problem is currently known. Further, there can be no assurance that additional environmental matters will not arise in the future. See Note 3 to the condensed consolidated financial statements for a description of commitments, contingencies and environmental matters. 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS A class action complaint for violations of federal securities law was filed against Orbit and three of its officers in 1995. The amended complaint alleges that Orbit and the named officers misled the market for Orbit's then existing public common stock, by issuing a number of allegedly false or misleading statements. The amended complaint alleges claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The Company believes that the claims asserted in the amended complaint are without merit and intends to defend against such claims vigorously. Third party discovery is ongoing and the court has not yet set a trial date. In addition to the above matter, the Company is involved in certain other litigation arising in the ordinary course of business. Although management is of the opinion that these matters will not have a material adverse effect on the consolidated financial position or results of operations of the Company, the ultimate outcome of these matters cannot, at this time, be predicted in light of the uncertainties inherent in litigation. See Note 10 of the Company's 1996 Consolidated Financial Statements included in Part II, Item 8 of Form 10-K for the Company's contingencies and environmental matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the first quarter of 1997, there were no matters submitted to a vote of security holders. ITEM 6(a). EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 Amendment to the $60,000,000 Revolving Line of Credit dated April 4, 1996 between The DII Group, Inc. and Norwest Bank Colorado, N.A., The Chase Manhattan Bank, N.A., Harris Trust and Savings Bank, and NBD Bank. *10.2 Agreement dated as of February 17, 1997, by and between Hewlett-Packard and Dovatron International, Inc. +10.3 The DII Group, Inc. Deferred Compensation Plan +10.4 The DII Group, Inc. Performance Share Agreement +10.5 Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Budacz. +10.6 Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr. +10.7 Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Snyder. +10.8 Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Dermott O'Flanagan. 13 ITEM 6(A). EXHIBITS, CONTINUED EXHIBIT NUMBER DESCRIPTION - ------- ----------- +10.9 Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Budacz. +10.10 Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr. +10.11 Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Snyder. +10.12 Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Dermott O'Flanagan. 11.1 Statement regarding computation of per share earnings. 27 Financial Data Schedule - ------------- * Confidential treatment has been granted as to portions of this exhibit. The omitted material has been separately filed with the Securities and Exchange Commission. + Management contract or compensatory plan. ITEM 6(b). REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE DII GROUP, INC. Date: May 12, 1997 By: /s/Ronald R. Budacz -------------- ---------------------------------- Ronald R. Budacz Chairman and Chief Executive Officer (Principal Executive Officer) Date: May 12, 1997 By: /s/Carl R. Vertuca, Jr. -------------- ---------------------------------- Carl R. Vertuca, Jr. Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: May 12, 1997 By: /s/Thomas J. Smach -------------- ---------------------------------- Thomas J. Smach Vice President and Corporate Controller (Principal Accounting Officer) 15 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 Amendment to the $60,000,000 Revolving Line of Credit dated April 4, 1996 between The DII Group, Inc. and Norwest Bank Colorado, N.A., The Chase Manhattan Bank, N.A., Harris Trust and Savings Bank, and NBD Bank. *10.2 Agreement dated as of February 17, 1997, by and between Hewlett-Packard and Dovatron International, Inc. +10.3 The DII Group, Inc. Deferred Compensation Plan +10.4 The DII Group, Inc. Performance Share Agreement +10.5 Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Budacz. +10.6 Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr. +10.7 Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Snyder. +10.8 Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Dermott O'Flanagan. +10.9 Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Budacz. +10.10 Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr. +10.11 Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Snyder. +10.12 Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Dermott O'Flanagan. 11.1 Statement regarding computation of per share earnings. 27 Financial Data Schedule
- ------------- * Confidential treatment has been granted as to portions of this exhibit. The omitted material has been separately filed with the Securities and Exchange Commission. + Management contract or compensatory plan. EX-10.1 2 AMENDMENT TO REVOLVING CREDIT LINE 1 EXHIBIT 10.1 FIRST AMENDMENT TO LOAN AGREEMENT THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment") executed December 20, 1996 but effective as of the Effective Date, is among THE DII GROUP, INC., a Delaware corporation, formerly known as DOVatron International, Inc. ("DII"), DOVATRON INTERNATIONAL, INC., a Delaware corporation, formerly known as DOVatron, Inc., CENCORP INC., a Delaware corporation, MULTILAYER TECHNOLOGY, INC., a California corporation, and TTI TESTRON, INC., a Delaware corporation, formerly known as TTI Merger Corporation, as successor to TTI Testron, Inc., a Rhode Island corporation, by virtue of its merger with TTI Merger Corporation (collectively, "Existing Borrowers"), and Orbit Semiconductor, Inc., a Delaware corporation ("OSI"), and NORWEST BANK COLORADO, NATIONAL ASSOCIATION, a national banking association ("Norwest"), THE CHASE MANHATTAN BANK, a New York state bank, as successor to The Chase Manhattan Bank, N.A., a national banking association, HARRIS TRUST AND SAVINGS BANK, an Illinois state bank, and NBD BANK, a Michigan banking corporation (together with their respective successors and permitted assigns, if any, from time to time, individually, a "Lender" and collectively, the "Lenders"), and Norwest, as agent for the Lenders (in such capacity, the "Agent"). RECITALS A. Existing Borrowers, the Lenders and the Agent are parties to the Loan Agreement, dated as of April 4, 1996 (as amended, and as it may hereafter be amended, restated or supplemented from time to time, the "Loan Agreement"), providing for a Loan from the Lenders to Existing Borrowers. Capitalized terms that are used but not defined herein have the meanings set forth in the Loan Agreement. B. Pursuant to a letter agreement dated June 5, 1996 (the "OSI Letter Agreement"), Existing Borrowers, the Lenders and the Agent agreed to modify the Loan Agreement, subject to satisfaction of certain conditions, if DII elected to proceed with the acquisition (the "OSI Acquisition") of OSI. DII has now completed the OSI Acquisition, and the parties desire to enter into this Amendment to give effect to their agreement. C. Pursuant to a letter agreement dated November 14, 1996 (the "Paradigm Letter Agreement"), Existing Borrowers, OSI, the Lenders and the Agent agreed to modify the Loan Agreement, subject to satisfaction of certain conditions, if OSI elected to proceed with the purchase of the assets (the "Paradigm Asset Acquisition") of Paradigm Technology, Inc., a Delaware corporation ("Paradigm"). OSI has now completed the Paradigm Asset Acquisition, and the parties desire to enter into this Amendment to give effect to their agreement. 2 AGREEMENT IN CONSIDERATION of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Existing Borrowers, OSI, the Lenders and the Agent agree as follows: 1. Capitalized Terms. Capitalized terms that are used but not defined in this Amendment have the meanings given to them in the Loan Agreement. 2. Addition of OSI as Co-Borrower. (a) OSI is hereafter a co-borrower with respect to the Loan, jointly and severally liable with the Existing Borrowers pursuant to the terms of the Loan Agreement, as amended by this Amendment, the Note (as made by OSI and amended concurrent herewith) and the other Loan Documents (as amended concurrent herewith). Accordingly, all references in this Amendment and the Loan Agreement to the term "Borrower" hereafter mean and refer to OSI as well as to each of the Existing Borrowers, and to the term "Borrowers" hereafter mean and refer to OSI and the Existing Borrowers, collectively. (b) OSI hereby represents that there is nothing preventing OSI from entering into this Amendment or assuming all obligations of co-Borrower under the Loan Documents and co-Maker of the Notes. OSI further represents and warrants that all representations and warranties of "Borrowers" set forth in the Loan Documents are true and correct with respect to OSI as of the Effective Date as if such representations and warranties were being made by OSI. 3. Definitional and Other Amendments. (a) The definition of the term "EBITDA" in Section 1.1 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "EBITDA" means earnings before interest expense, income taxes, extraordinary expenses related to (a) the repayment of the Revenue Bonds, (b) the repayment of the Prior Loans, (c) the acquisition of OSI (provided that such expenses do not exceed $4,649,000.00) and (d) the Paradigm Asset Acquisition (provided that such expenses do not exceed $11,300,000.00), depreciation and amortization expense for Borrowers and their Subsidiaries, calculated on a Consolidated basis in accordance with GAAP, calculated in each case on the basis of the four Quarters immediately preceding the date of calculation. (b) The definition of the term "Fixed Charge Coverage Ratio" in Section 1.1 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: 2 3 "Fixed Charge Coverage Ratio" means the ratio of EBITDA (for the most recent four Quarters including the Quarter in which the determination is being made and the preceding three Quarters) to Fixed Charges. (c) Section 7.2(b) of the Loan Agreement is hereby amended by deleting the words "calendar month" the first line thereof, and substituting in its place the word "Quarter" and deleting the word "monthly" in the second line thereof, and substituting in its place the word "quarterly," and deleting the word "month" in the third line thereof, and substituting in its place the word "Quarter." (d) Section 7.11(b) of the Loan Agreement is hereby amended and restated to read in its entirety as follows: (b) Fixed Charge Coverage Ratio. Borrowers shall maintain a Fixed Charge Coverage Ratio not less than the ratio set forth below for the four Quarters ending with the applicable Quarter end set forth below:
Four-Quarter Period Ending: Ratio -------------- ----- 6/30/96 2.0 to 1 9/30/96 2.0 to 1 12/31/96 2.10 to 1 3/31/97 2.20 to 1 6/30/97 2.20 to 1 9/30/97 2.20 to 1 12/31/97 2.20 to 1 3/31/98 2.30 to 1
(e) Section 7.11(e) of the Loan Agreement is hereby amended and restated in its entirety to read as follows: (e) Minimum Tangible Net Worth. Borrowers' minimum Tangible Net Worth at all times after January 1, 1997 shall be not less than (i) an amount equal to the greater of: (A) $87,500,000 and (B) Borrowers' Tangible Net Worth at December 31, 1996, plus (ii) an amount equal to 50 percent of net income (but not net loss) for the period from January 1, 1997 to the date of determination, plus (iii) 75 percent of new equity proceeds (excluding the OSI Acquisition). Borrowers' minimum Tangible Net Worth at all times prior to and including December 31, 1996 shall be not less than (i) an amount equal to $46,618,000 plus (ii) an amount equal to fifty percent (50%) of net income (but not loss) for the period from December 31, 1995 to the date of 3 4 determination, plus (iii) seventy-five percent (75%) of new equity proceeds. (f) Sections 8.1(d) and 8.1(e) of the Loan Agreement are hereby amended and restated in their entirety to read as follows: (d) during the period expiring on September 30, 1996, Indebtedness (which may include Accommodation Obligations for the benefit of Affiliates and related parties but no other Accommodation Obligations), not exceeding $14,000,000 in the aggregate outstanding at any one time (including (c) above, but excluding (a) and (b) above); and (e) during the period commencing on October 1, 1996 and expiring on the date of expiration or termination of this Agreement, Indebtedness (which may include Accommodation Obligations for the benefit of Affiliates and related parties but no other Accommodation Obligations) in the aggregate outstanding at any one time (including (c) above, but excluding (a) and (b) above) not exceeding the amount set forth below at any time during such period:
Period Indebtedness ------ ------------ October 1, 1996-December 31, 1996 $35,000,000 January 1, 1997-March 31, 1997 $35,000,000 April 1, 1997-June 30, 1997 $30,000,000 July 1, 1997-September 30, 1997 $30,000,000 October 1, 1997-December 31, 1997 $25,000,000 January 1, 1998-June 30, 1998 $25,000,000
(g) Section 8.2 of the Loan Agreement is hereby amended by adding a new Section 8.2(e) reading in its entirety as follows: (e) liens encumbering the property described on EXHIBIT A attached to the First Amendment to Loan Agreement, dated December 20, 1996, securing the Indebtedness described on EXHIBIT A attached to such First Amendment to Loan Agreement; to the extent, but only to the extent, that such liens encumber equipment or other assets acquired with the proceeds of such Indebtedness. (h) Section 8.4 of the Loan Agreement is hereby amended and restated in its entirety to read as follows: 4 5 8.4 Capital Expenditures. Make or incur, directly or indirectly, any capital expenditures (as such term is defined in accordance with GAAP, but excluding capital expenditures for investment in new businesses, which are the subject of the limitations in Section 8.5 below), exceeding the aggregate limit set forth below for any four Quarter period (based on the Quarter in which the determination is being made and the preceding three Quarters).
Four-Quarter Period Ending: Amount -------------- ------ 6/30/96 $20,000,000 9/30/96 $35,000,000 12/31/96 $55,000,000 3/31/97 $57,000,000 6/30/97 $57,000,000 9/30/97 $55,000,000 12/31/97 $35,000,000 3/31/98 $35,000,000
4. Exclusion from Acquisition Limitation. Lenders hereby agree that the OSI Acquisition constitutes an exception to the limitations on acquisitions contained in Section 8.5 of the Loan Agreement, such that (a) the payment of consideration exceeding $15,000,000 in connection with the OSI Acquisition shall not be deemed a violation of Section 8.5, and (b) the consideration paid for and the costs of acquiring OSI shall not be considered for purposes of determining whether Borrower has exceeded the aggregate ceiling on acquisition costs of $50,000,000 as specified in Section 8.5 of the Loan Agreement. 5. Waiver of Merger Restriction. Lenders hereby waive the restrictions contained in Section 8.6 of the Loan Agreement regarding merger with respect to the merger of OSI into DII for the sole purpose of effecting the OSI Acquisition. 6. Conditions Precedent. All of Lenders' obligations under this Amendment and the effectiveness of the amendments, agreements and waivers stated in Sections 2 through 5 above are conditioned upon and subject to satisfaction of all of the following conditions precedent in a manner acceptable to Agent on or before December 24, 1996: (a) Borrowers' pledge to Agent, as agent for Lenders, as additional security for the Loan, of all of the assets of OSI (including all of the assets of Paradigm acquired by OSI), subject to only those liens and encumbrances listed on EXHIBIT A, which may secure only the Indebtedness listed on EXHIBIT A to the extent, but only to the extent that the subject assets were 5 6 acquired using the proceeds of such Indebtedness (the "Permitted Orbit Encumbrances"); (b) Borrower's pledge to Agent, as Agent for Lenders, as additional security for the Loan all of the outstanding stock of OSI, subject to no liens or encumbrances. (c) Borrowers' execution and delivery to Agent of the following documents, in form and substance satisfactory to Agent, to effect the pledges contemplated by paragraphs (a) and (b) above, together with such other documents as Agent may reasonably request: (1) General Security Agreement and UCC-1 financing statements, (2) Pledge Agreement, (3) original stock certificates representing 100 percent of the capital stock of OSI, together with stock powers, and (4) copy of the corporate resolutions authorizing the merger and the pledges contemplated hereby, articles of incorporation, bylaws, certificate of good standing and merger documents, certified as true, complete and correct by authorized officers of OSI and DII; (d) Receipt by the Agent, as agent for the Lenders, of a copy of the Merger Agreement governing DII's acquisition of OSI. (e) Execution and delivery by OSI and Existing Borrowers and their affiliates (as the case may be) of amendments to the Note and the other Loan Documents, to give effect to the amendments effected by this Amendment, and the execution and delivery by OSI, as co-maker, of the Note; (f) Receipt by the Agent, as agent for the Lenders, of a copy of the agreements governing the Paradigm Asset Acquisition. (g) Receipt by the Agent, as agent for the Lenders, of an opinion of counsel with respect to the loan modifications effected by this Amendment and the amendments executed concurrent herewith, the addition of OSI as a co-borrower and co-maker, and the pledges contemplated by the foregoing, which opinion must be acceptable in form and substance to Agent, in Agent's reasonable discretion; (h) Borrowers shall pay all Loan Expenses incurred by the Agent and the Lenders in connection with the transactions contemplated by this Amendment; and (i) As of the date of this Amendment, and as of the Effective Date, there was and is no Default or Unmatured Event of Default, except as specifically set forth in Section 4 and Section 5 above. 7. Repayment of Existing Financing. Borrowers represent and warrant to the Lenders that, as of the execution date hereof, (i) the Indebtedness identified on EXHIBIT A is the only Indebtedness of OSI or Indebtedness of Paradigm (A) assumed by OSI or (B) secured by any assets of Paradigm acquired by OSI, and (ii) the terms and conditions of such Indebtedness are not more restrictive than the terms and conditions of the Loan and do not contain any covenants or place any obligations on Borrower that are more restrictive than the covenants and 6 7 obligations set forth in the Loan Document (as amended hereby and concurrent herewith), and (iii) no term, condition or requirement governing or relating to such Indebtedness violates or conflicts with any of the terms, conditions or requirements of the Loan Agreement (as amended hereby) and the other Loan Documents (as amended concurrent herewith). 8. Further Assurances. Borrowers shall execute all documents and instruments and take all actions, and shall use its best efforts to cause any other party (including without limitation, Paradigm), to execute all documents and instruments and take all actions as the Agent may reasonably require to effect the transactions contemplated by this Amendment. Without limiting the generality of the foregoing, within sixty days of the date hereof, Borrowers shall provide to the Agent original stock certificates in the name of TTI TesTron, a Delaware corporation (formerly known as TTI Merger Corporation, a Delaware corporation), and Orbit Semiconductor, Inc. (formerly known as Orbit Merger, Inc.), to replace the existing stock certificates currently held by the Agent in the name of TTI Merger Corporation and DII Merger, Inc., respectively and execute all documents required by Agent in connection therewith. 9. Representations and Warranties. (a) Borrowers hereby certify to the Lenders that as of the date of this Amendment (taking into consideration the transactions contemplated by this Amendment), all of Borrowers' representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects, and no Event of Default or Unmatured Event of Default has occurred under any Loan Document (as amended concurrent herewith). Without limiting the generality of the foregoing, Borrowers represent and warrant to the Lenders that the execution and delivery of this Amendment has been authorized by all necessary action on the part of Borrowers, that each person executing this Amendment on behalf of Borrowers is duly authorized to do so, and that this Amendment constitutes the legal, valid, binding and enforceable obligation of Borrowers. (b) Each of the Borrowers, on their own behalf and on behalf of OSI, represent and warrant that (i) there are no effective financing statements of record (A) against any assets of Orbit (including the assets acquired from Paradigm) other than the assets described in Exhibit A attached hereto or (B) securing any Indebtedness of Orbit (including Indebtedness of Paradigm acquired by Orbit) other than the Indebtedness described in Exhibit A attached hereto. 10. Loan Documents. (a) The Lenders, the Agent, and Borrowers agree that all of the Loan Documents shall be amended to reflect the amendments set forth herein. (b) All references in any document to the Loan Agreement hereafter refer to the Loan Agreement as amended pursuant to this Amendment. 7 8 (c) All references in the Loan Agreement to the Loan Documents, or any particular Loan Document, hereby refer to such Loan Documents as amended pursuant to the amendments executed concurrent herewith. 11. Continuation of the Loan Agreement Except as specified in this Amendment, the provisions of the Loan Agreement remain in full force and effect, and if there is a conflict between the terms of this Amendment and those of the Loan Agreement, the terms of this Amendment control. 12. Miscellaneous. (a) This Amendment shall be governed by and construed under the laws of the State of Colorado and shall be binding upon and inure to the benefit of the parties hereto and their successors and permissible assigns. (b) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (c) This Amendment and all documents to be executed and delivered hereunder may be delivered in the form of a facsimile copy, subsequently confirmed by delivery of the originally executed document. (d) Time is of the essence hereof with respect to the dates, terms and conditions of this Amendment and the documents to be delivered pursuant hereto. (e) This Amendment constitutes the entire agreement between Borrowers, the Agent, and the Lenders concerning the subject matter of this Amendment. This Amendment may not be amended or modified orally, but only by a written agreement executed by Borrowers, the Agent and the Lenders and designated as an amendment or modification of the Loan Agreement. (f) If any provision of this Amendment is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Amendment shall not be impaired thereby. (g) The section headings herein are for convenience only and shall not affect the construction hereof. (h) Execution of this Amendment is not intended to and shall not constitute a waiver by the Lenders of any Event of Default or Unmatured Event of Default, except as expressly contemplated by Sections 4 and 5 (subject to the conditions precedent stated in Section 6). (i) This Agreement is effective as of the Effective Date. Effective Date as used here means August 22, 1996, which is the date that The DII Group, Inc. completed the acquisition of Orbit Semiconductor, Inc. ("Orbit"); except that with respect to any matters 8 9 relating to the acquisition of the assets of Paradigm Technology, Inc. ("Paradigm") by Orbit (including, but without limitation, the pledge by Orbit of all of the assets of Paradigm acquired by Orbit), Effective Date shall mean November 18, 1996, which is the date Orbit acquired the assets of Paradigm. EXECUTED as of the date first set forth above. LENDERS: NORWEST BANK COLORADO, NATIONAL ASSOCIATION By: ------------------------------------------ David S. Mazar Vice President THE CHASE MANHATTAN BANK, a New York state bank, as successor to The Chase Manhattan Bank, N.A., a national banking association By: ----------------------------------------- Michael Brunner Vice President HARRIS TRUST AND SAVINGS BANK, an Illinois state bank By: ----------------------------------------- James H. Colley Vice President NBD BANK, a Michigan banking corporation By: ----------------------------------------- Timothy O'Neil Vice President 9 10 AGENT: NORWEST BANK COLORADO, NATIONAL ASSOCIATION, a national banking association By: ----------------------------------------- David S. Mazar Vice President BORROWERS: THE DII GROUP, INC. (formerly known as DOVatron International, Inc.), a Delaware corporation By: ------------------------------------ Carl R. Vertuca Jr. Senior Vice President and Chief Financial Officer DOVATRON INTERNATIONAL, INC., (formerly known as DOVatron, Inc.), a Delaware corporation By: ------------------------------------ Carl R. Vertuca Jr. Senior Vice President and Chief Financial Officer CENCORP INC., a Delaware corporation By: ------------------------------------ Carl R. Vertuca Jr. Senior Vice President and Chief Financial Officer MULTILAYER TECHNOLOGY, INC., a California corporation By: ------------------------------------ Carl R. Vertuca Jr. Senior Vice President and Chief Financial Officer 10 11 TTI TESTRON, INC., (formerly known as TTI Merger Corporation), a Delaware corporation, as successor to TTI TesTron, Inc., a Rhode Island corporation By: ------------------------------------ Name: ------------------------------ Title: ----------------------------- ORBIT SEMICONDUCTOR, INC., a Delaware corporation (formerly known as DII Merger, Inc. By: ------------------------------------ Name: ------------------------------ Title: ----------------------------- 11 12 EXHIBIT A Attached to and forming a part of the First Amendment to Loan Agreement, dated December __, 1996, among The DII Group, Inc.; DOVatron International, Inc.; CENCORP Inc.; Multilayer Technology, Inc.; TTI TesTron, Inc.; Orbit Semiconductor, Inc.; Norwest Bank Colorado, National Association; The Chase Manhattan Bank; Harris Trust and Savings Bank; and NBD Bank (See Attached) 12 EX-10.2 3 AGREEMENT DATED 2/17/97 1 EXHIBIT 10.2 MASTER MANUFACTURING AGREEMENT This Master Agreement ("Agreement") is effective as of 2/17/97 ("the Effective Date") between Hewlett Packard Company ("HP") and Dovatron International ("Dovatron"). The term "Agreement" includes all Exhibits, Agenda, and References. 1.0 EXHIBITS 1.1 These Exhibits are attachments that support this Agreement, and are incorporated by reference. E.1.0 Product Description and Assembly Requirements E.2.0 Quality Yield Expectations E.3.0 Quality Reference Standards E.4.0 Pricing of Assemblies E.5.0 Material and Supplier Management Procedure and Responsibilities E.6.0 HP-SDD Standard Confidential Disclosure Agreement 2.0 ADDENDA 2.1 The referenced Addendum A.1.0 is the sub-Agreement that defines the specific working relationship between the HP Mexico International Procurement Organization and Dovatron Mexico (HP-MIPO and DMEX). The referenced Addendum A.2.0 is the sub-Agreement that defines the specific working relationship between HP Asia Hardcopy Manufacturing Organization and Dovatron Malaysia (HP-AHMO and DMAL). Both Addenda are incorporated by reference. 3.0 REFERENCES 3.1 The following References summarize the processes, procedures and operating guidelines for the Denali project which are incorporated by reference. R.1.0 Quality Reporting R.2.0 ICT and FCT Plans R.3.0 RMA R.4.0 Corrective Action Procedure R.5.0 PCO Process and AVL Control 2 R.6.0 T (Technology), Q (Quality), R (Responsiveness), D (Delivery), C (Cost), and E (Environmental) Review 4.0 SCOPE OF WORK 4.1 This Agreement covers the Denali Project of Printed Circuit Assemblies, ("PCAs"), as outlined in the attached EXHIBIT 1, PRODUCT DESCRIPTION AND ASSEMBLY REQUIREMENTS, ON BEHALF OF HP'S SAN DIEGO DIVISION ("HP SDD). 4.2 Dovatron shall support the project by installing two dedicated manufacturing lines for the main PCA (one line in Mexico and an identical manufacturing line in Malaysia) with projected initial manufacturing capacity of 60k to 75k PCA's per month per facility. In addition, Dovatron will install a dedicated manufacturing line to support the North American LIU in Mexico with a projected initial manufacturing capacity of 120k to 150k per month. At each given current run rate, a 20% surge capability will be available within twelve weeks of receipt of written notice by Dovatron for HP-SDD. HP-SDD agrees to initiate one 20% surge within a six month period. 5.0 QUALITY 5.1 The specific quality guidelines and yield expectations are outlined in EXHIBIT 2, QUALITY YIELD EXPECTATIONS for each PCA. 5.2 Achieving and maintaining the highest level of quality is a strategic objective for HP-SDD. Dovatron shall be committed to implementing and continuously improving the manufacturing processes and quality systems in accordance with the expectations set forth in EXHIBIT 2, QUALITY YIELD EXPECTATIONS. 5.3 Dovatron shall materially meet the requirements of all HP-SDD conducted ESD audits. These surveys will use the HP-SDD "Workmanship Specification for Electrostatic Discharge Control," Drawing No. A-5951-1589-1, Revision F as the basis of the reviews. Dovatron shall also conduct at a minimum monthly self audits at all locations which manufacture products for HP-SDD. 5.4 Dovatron shall properly monitor, identify and provide prompt notification to HP-SDD of any significant or consequential component or process quality problems. Each party will demonstrate due diligence to remedy such problems as required to effect a full and complete corrective action. 5.5 Dovatron shall to provide to HP-SDD production yield data, failure analysis reports and defect yield data as specified in REFERENCE R.1.0, QUALITY REPORTING. 5.6 Dovatron shall to follow the ICT and FCT plans and requirements as outlined in REFERENCE R.2.0, CT AND FCT PLANS. 3 5.7 The listed IPC documents as identified in EXHIBIT E.3.0, QUALITY REFERENCE STANDARDS will be used in the acceptance or rejection of assembly workmanship by both HP-SDD and Dovatron. 5.9 Dovatron shall to follow the requirements as specified in REFERENCE R.2.0, RETURN MATERIAL AUTHORIZATION (RMA) for all returned PCA's. 5.10 Dovatron shall to follow the corrective action process as outlined in REFERENCE R.4.0, CORRECTIVE ACTION PROCEDURE in resolving quality issues. 6.0 PRICING AND COST LEADERSHIP. 6.1 Dovatron and HP-SDD mutually agree to aggressively and proactively seek to reduce the overall product cost and HP-SDD's price where appropriate. Dovatron will reduce its cost through pro-active efforts to include: process improvements, material cost reductions, improved quality and reduce the overall supply chain. HP-SDD shall provide assistance and information to aid Dovatron in the reduction of its costs, where appropriate. 6.2 HP-SDD and Dovatron will meet once per quarter to review volume, assembly and procurement pricing, materials management and other pertinent business issues during the TQRDC reviews. The price review shall include a costed Bill of Materials (BOM), any proposed material and or cost changes and any process/test/yield improvements. The materials management review will include: component lead-times, supplier performance on quality and delivery, suggested Approved Vendor List changes, and component material exposure. 6.3 The pricing structures are identified in EXHIBIT E.4.0, PRICING OF ASSEMBLIES. 6.4 Purchase price variance (PPV) will be addressed as follows: All MIPO and SIPO procured components and any specific and previously negotiated component by HP-SDD for price adjustment *** 6.5 All other components with a price change from the current standard will be reflected in the standard costed BOM at the end of the current quarter *** 6.6 Both Companies agree to meet April 1st and October 1st to review pricing. The reviewed pricing will be effective May 1st and November 1st respectively. - ------------------------- *** MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION. 4 7.0 PURCHASE ORDERS AND FORECAST 7.1 DMEX will receive its firm purchase orders for PCAs through HP-MIPO. Reference ADDENDUM A.1.0 for details of purchase order management. 7.2 DMAL will receive its firm purchase orders for PCAs through HP-AHMO. Reference ADDENDUM A.2.0 for details of purchase order management. 7.3 HP-SDD will provide Dovatron with a 12 month rolling forecast for production builds every month. 7.4 HP-SDD may postpone or decrease any purchase order by written notice to Dovatron at least five work days prior to the delivery date. HP-SDD may, without charge, extend the delivery date by up to thirty days from the original delivery date. For any reschedule beyond thirty days of the original delivery date, HP-SDD will be responsible for a 1.5% per month carrying charge on material acquired pursuant to the original delivery date. 7.5 The preprinted standard purchase order terms and conditions of both HP-MIPO and HP-AHMO are incorporated by reference, and shall govern transactions between Dovatron and those HP sites, respectively. 8.0 DELIVERY 8.1 HP-SDD expects 100% on time delivery unless delivery commitments are impacted by actions taken by HP-SDD, defined as receipt of product by HP-SDD within a window of three days early and zero days late of the mutually agreed upon committed delivery date. 8.2 Dovatron shall immediately notify HP-SDD of any prospective failure to deliver the specified quantities on the specified delivery date. Should only a portion of the products be available on the delivery date, Dovatron may ship the partial amount only after receiving prior approval from HP-MIPO or HP-AHMO. 8.3 Dovatron is responsible for any expedition fees that may result in ensuring that a shipment meets the committed delivery date, if the lateness is attributed to Dovatron. Likewise, if a delay in shipment is prompted by HP-SDD, expedition fees will by paid by HP-SDD. 8.4 Delivery requirements for DMEX are detailed in ADDENDUM A.1.0 8.5 Delivery requirements for DMAL are detailed in ADDENDUM A.2.0 9.0 MATERIALS AND INVENTORY MANAGEMENT 5 9.1 In order to insure fulfillment of HP-SDD schedule requirements, all quantities of parts planned and ordered by Dovatron in support of the Denali Project are to be used exclusively for Denali, unless otherwise authorized by HP-SDD in writing. 9.2 Dovatron shall follow prudent purchasing practices in order to meet HP-SDD's demand flexibility as outlined in the respective ADDENDUM A.1.0, A.2.0 while minimizing total inventory exposure. Dovatron shall implement a comprehensive purchasing system that ensures that HP-SDD's purchase orders will be fulfilled. The purchasing system must utilize a rolling forecast to the component suppliers and allow for accurate percentage award allocations. 9.3 Dovatron shall buy all components according to HP-SDD's approved vendor list ("AVL") and any sourcing plans. 9.4 Dovatron shall maintain a supplier database for all the purchased components on the AVL. Dovatron is required monthly to supply to HP-SDD a report highlighting any supplier that falls outside the required lead-time and that affects the purchase order requirements and demand flexibility requirements as outlined this Agreement and in the respective ADDENDUM A.1.0, A.2.0. 9.5 Dovatron shall provide HP-SDD, once per quarter, a report statistically showing the quality, delivery, lead-time and cost trends for the component suppliers. This report will be broken down geographically and consolidated for both manufacturing facilities as outlined in EXHIBIT E.5.0, MATERIAL AND SUPPLIER MANAGEMENT PROCEDURE AND RESPONSIBILITIES. 9.6 As referenced in EXHIBIT 5.0 SECTION 5.0.2 Both Companies agreed on the issuance by Dovatron of a monthly report on component inventory exposure. 10.0 MATERIAL LIABILITY 10.1 In the event of an engineering change pursuant to Section 12.2 below, or complete or partial termination/cancellation, (including a severe volume drop, or discontinuance of an HP-MIPO or of an HP-AHMO purchase order), HP-SDD shall be liable for Dovatron's actual termination inventory in accordance with the following conditions: a) HP-SDD SHALL PURCHASE DOVATRON'S on hand inventory and material ordered within the reported cancellation window as defined in EXHIBIT E.5.0, MATERIAL AND SUPPLIER MANAGEMENT PROCEDURE AND RESPONSIBILITIES, that is required to support the scheduling, safety stock and flexibility requirements described in the respective ADDENDA A.1.0 AND A.2.0. HP-SDD will acknowledge the document found within Exhibit E5.4. within five working days from the date submitted to HP-SDD. b) Dovatron shall demonstrate best efforts to cancel its purchase order commitments or return for credit or find other uses for the materials intended for use in the HP-SDD product provided that HP-SDD shall be liable for any cancellation charges and penalties. 6 c) Dovatron will cancel all possible pending orders to component suppliers. d) HP-SDD will purchase the liable inventory as follows: 1) For all raw material, *** as quoted and within agreed to inventory amounts for all material on-hand in the stockroom, all material on-order inside the suppliers stated cancellation lead time as outlined in EXHIBIT E.5.0, MATERIAL AND SUPPLIER MANAGEMENT PROCEDURE AND RESPONSIBILITIES., and for any supplier stated buffer and safety stock that is non cancelable also outlined in EXHIBIT E.5.0, MATERIAL AND SUPPLIER MANAGEMENT PROCEDURE AND RESPONSIBILITIES. 2) For work-in-process, *** 3) For finished product, *** 11.0 PAYMENT TERMS 11.1 HP-SDD and Dovatron shall pay NET 30 days upon proof of shipment of product from Dovatron. Reconciliation of discrepant receipts are outlined in the respective ADDENDA A.1.0 AND A.2.0 11.2 Currency will be in U.S. dollars. 11.3 Dovatron shall pay all HP-SDD component suppliers based on the terms and conditions outlined on Dovatron purchase orders. 12.0 WARRANTIES: 12.1 WARRANTY. DOVATRON warrants to HP-SDD that items assembled or manufactured by DOVATRON will conform to mutually agreed upon specifications and be free from defects in workmanship under normal use and service for a period of one year after shipment by DOVATRON. DOVATRON's responsibility shall be limited to procurement of materials, incoming inspection, and safe handling of the components while in-house at DOVATRON. HP-SDD is responsible for the selection of all materials, as well as ensuring the quality of the vendors and the compatibility of the components. HP-SDD is also responsible for designing a product which does not unduly stress the components being used. DOVATRON's obligation under this warranty is limited to replacing, repairing, or issuing credit for any said items that after inspection are deemed defective by DOVATRON. All - ------------------------- *** MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION. 7 defective products shall be returned to DOVATRON manufacturing facility, F.O.B. HP-SDD, with reference to a DOVATRON supplied Returned Materials Authorization number ("RMA"). No products inspected by DOVATRON shall be returned without the prior written consent of DOVATRON unless the cause for the rejection or defect is mutually determined to be the responsibility of DOVATRON. A shipping and handling charge will be assessed for invalid returns or those where no defect is found. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES WHETHER STATUTORY, EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE AND FOR ALL OTHER OBLIGATIONS OR LIABILITIES ON DOVATRON'S PART. 12.2 DOVATRON neither assumes nor authorizes any other person to assume for DOVATRON any other liability in connection with the sale of the said items. This warranty shall not apply to any of such products which shall have been repaired or altered except by DOVATRON or which shall have been subject to misuse, negligence, or accident. A prior written authorization must be obtained from DOVATRON before any items can be returned to DOVATRON pursuant to a warranty claim. DOVATRON is not liable for incidental, consequential or special damage of any kind or for personal injury resulting directly or indirectly from the design, material, workmanship, operation or installation of the items being assembled under this agreement. 12.3 PRODUCT RECALL. Dovatron shall reimburse HP-SDD for reasonable and mutually agreed to recall costs incurred by HP-SDD for recall campaigns [related to] that are the direct result of workmanship defects in the Products [provided thereunder] manufactured by Dovatron hereunder in order to remedy a breach of Dovatron's warranty provided in Section 11.1 hereof. In the event of any dispute between Dovatron and HP-SDD with respect to such recall costs, the "Dispute Resolution Process" specified in Section 15.4 hereof shall apply. 13.0 PROCESS OR ENGINEERING CHANGES 13.1 Dovatron shall not undertake any significant process changes affecting performance, form, fit or function, or life reliability without the prior written notice to and concurrence of HP-SDD. 13.2 HP-SDD may, effective upon notice to Dovatron, change HP-SDD's design, specification or process requirements at any time. If any such change directly affects the price, delivery or quality performance of product, an equitable impact proposal shall be presented to HP-SDD for approval prior to Dovatron initiating any change. 13.3 Dovatron shall follow the requirements as specified in REFERENCE R.5.0, PCO PROCESS AND AVL CONTROL. 14.0 TECHNICAL, QUALITY, RESPONSIVENESS, DELIVERY, COST (TQRDC) 8 REVIEW 14.1 Dovatron will be evaluated quarterly by means of HP-SDD's supplier performance expectations as outlined in REFERENCE R.6.0, TQRDC REVIEW. 14.2 HP-SDD will collect feedback from both MIPO and AHMO to prepare a TQRDC review with Dovatron. Where objectives are not met, both parties will establish a mutually agreed upon corrective action plan. 14.3 HP-MIPO and HP-AHMO may elect to establish their own TQRDC schedule and will be highlighted in the respective ADDENDUM A.1.0 AND A.2.0. If referenced in an Addendum, the Addendum will take precedence over the terms of this Agreement. 15.0 TERMINATION 15.1 All orders issued prior to the effective date of any termination shall be fulfilled pursuant to the terms of this Agreement, even if the delivery dates of the products of this Agreement under such orders are after the effective date of the expiration or termination. 15.2 If Dovatron fails to perform this Agreement HP-SDD and Dovatron shall immediately initiate a senior management meeting to resolve the related issues, concerns, or deviance. If Dovatron is unable to remedy the problem, a one month written notice of cure will be issued by HP-SDD to serve as notice of the need for final resolution. HP-SDD reserves the right to terminate this Agreement (in whole or part) by furnishing Dovatron with six months written notice of termination. Dovatron reserves the right to terminate this Agreement, (in whole or part), by furnishing HP-SDD six months written notice of termination 15.3 Termination for any other reason by either party will require a senior level management meeting between HP-SDD and Dovatron to discuss the reasons relating to termination. This meeting will focus on reviewing the reasons for termination and, in good faith, attempt to resolve the issues through exploring other alternatives to negate the need to terminate this Agreement. If a resolution cannot be obtained, HP-SDD will use best efforts to provide Dovatron with a six month phase out plan. In addition, all remaining inventory will follow the Material Liability Process outlined on 9.0. 15.4 DISPUTE RESOLUTION PROCESS. It is the intent of the parties that any dispute be resolved informally and promptly through good faith and negotiations between HP-SDD and Dovatron. Either party may initiate the proceedings by written notice to the other party setting forth the particulars of the dispute. The parties shall meet in good faith to jointly define the scope of the problem and a method to remedy the dispute. If these meetings are not productive of a resolution, then the mutually agreed to assigned representatives of HP-SDD and Dovatron will meet and confer in a bona fide attempt to resolve the matter. If 9 complete Agreement cannot be reached by the parties within 30 days of initiation of this process either party may seek to have the dispute redressed by litigation. 15.5 This Agreement shall be interpreted and governed by the laws of the State of California. Dovatron and HP hereby consent to the jurisdiction and venue of such courts. 16.0 PROPRIETY INFORMATION 16.1 HP-SDD owns all rights, titles, and interests with respect to the intellectual property of the Product. 16.2 HP- SDD and Dovatron shall execute as part of this Agreement the E.6.0, HP-SDD Standard Confidential Disclosure Agreement. The term "confidential information" shall include: a) HP-SDD furnished drawings, specifications, software, photographs and other engineering or manufacturing information shall remain proprietary property and when no longer required for the performance of the PCAs to be manufactured, shall be returned to HP-SDD. This property shall only be duplicated as authorized in writing by the disclosing party and shall be returned to the disclosing party upon request. b) All information or data concerning or relating to HP-SDD's products (including the discovery, invention, research, improvement, development, or sale of HP-SDD products) or business operations of either party (including sales costs, profits, pricing methods, materials pricing, organization, employee or customer lists and processes). c) All procurement information including component contract pricing of the disclosing party, including supplier names/AVL, HP-SDD part numbers, production schedules, component and assembly lead-times, forecast data, order quantities and other terms and conditions, including fully costed (BOMs). 16.3 ALL HP CONFIDENTIAL INFORMATION SHALL BE USED ONLY IN THE PERFORMANCE OF THIS AGREEMENT AND SHALL BE RETURNED TO HP UPON ANY EXPIRATION OR TERMINATION OF THIS AGREEMENT. 170 EQUIPMENT AND INVENTORY 17.1 Dovatron shall be solely liable and responsible for any loss of or damage to HP-SDD equipment, test fixtures or inventory in the care, custody and control of Dovatron. 18.0 PRODUCT SUPPORT 18.1 Discontinuance leading to a lifetime buy requirement shall be used by Dovatron as a last resort, and only under extreme circumstances where Dovatron is unable to support an HP Product through the life of this Agreement. In the exceptional case where Product will not be available from Dovatron after the conclusion of this Agreement, Dovatron shall give a 10 minimum of one year's notice in advance of the last order date that Dovatron will accept an order for the Product(s). 19.0 MISCELLANEOUS 19.1 SURVIVAL. The following terms and conditions of this Agreement shall survive termination of this Agreement for any reason: Section 11 (Warranties), Section 14.2 (Dispute Resolution Process), and section 15 (Proprietary Information). 19.2 SEVERABILITY. In the event that any provision of this Agreement shall be unenforceable or invalid under any applicable law or be so held by applicable court decision, such unenforceability or invalidity shall not render this Agreement unenforceable or invalid as a whole, and in such event, such provision shall be changed and interpreted so as to best accomplishes the objectives of such unenforceable or invalid provision within the limits of applicable law or applicable court decisions. 19.3 RIGHTS AND REMEDIES CUMULATIVE. Except as expressly provided herein, the rights and remedies provided in this Agreement shall be cumulative and not exclusive of any other rights and remedies provided by law or otherwise. 19.4 THIRD PARTIES. Nothing in this Agreement is intended, nor shall be deemed to confer any rights or remedies upon any person or legal entity not a party hereto. 19.5 ASSIGNMENT. The rights, duties and obligations under this Agreement shall not be assignable by any party without the prior written consent of the other parties, except as provided by this Agreement. Any attempted assignment without the required consent will be void. Notwithstanding the foregoing, all rights, duties and obligations under this Agreement may be assigned to an affiliate of a party ("affiliate" is identified as a company in which a party owns 50% or more of that company) without the prior written consent of the other parties. 19.6 ENTIRE AGREEMENT, AMENDMENT. This Agreement, along with the exhibits, addenda and references, attached hereto, embodies the final, complete and exclusive understanding between the parties, and replaces and supersedes all previous agreements, understandings or arrangements between the parties with respect to the subject matter contained herein. No modifications or waiver of any terms or conditions hereof nor any representations or warranties shall be of any force or effect unless such modification or waiver is in writing and signed by an authorized officer of each party hereto. 19.7 FORCE MAJEURE. No party shall be liable to any other party for its failure to perform any of its obligations under this Agreement, other than the failure to pay any sums where due, during any period in which such performance is delayed because rendered impracticable of impossible due to circumstances beyond its reasonable control, provided that the party e experiencing the delay promptly notifies the other parties of the delay. 19.8 NOTICES. All notices, consents, agreements, communications, requests and the like required 11 or permitted under this Agreement will be writing and will be deemed given and received (a) when delivered personally, (b) when sent by confirmed telecopy, (C) three days after having been duly mailed by first class, registered or certified mail, postage prepaid, or (d) two days after deposit with a commercial overnight carrier, with written verification of receipt. All notices will be addressed as follows: If to Dovatron: 4076 Specialty Place Longmont, CO 80504 Attention: Carl Plichta Phone: (303) 772 2954 Fax: (303) 684 0909 If to HP-SDD: 16399 West Bernardo Drive San Diego, California 92127-1899 Attention: Nancy Huelsmann Phone: (619) 655 8651 Fax: (619) 675 7004 or to such other address as the person to whom notice is to be given may have furnished to the other in writing in accordance herewith. 19.9 WAIVER. The failure of any party to enforce the provisions of this Agreement shall not be deemed a waiver of such provisions or of the right of such party thereafter to enforce such provisions. 19.10 COUNTERPARTS. This Agreement may be executed in counterparts with the same force and effect as if each of the signatories had executed the same instrument. 19.11 HP-SDD will defend, at is expense, any action brought against Dovatron to the extent that such action is based on the claim that a PCA manufactured by Dovatron in conformance with HP-SDD's specifications directly infringe the intellectual property rights of any third party, provided that HP-SDD is promptly notified in writing of the commencement of such action and is given the authority, information and reasonable assistance ( at HP-SDD expense) necessary to defend or settle such action. In addition, HP-SDD shall pay all damages and costs finally awarded in such action. 19.12 ORDER OF PRECEDENCE. In the event of any conflict with or inconsistency between any of the terms of this Agreement, any Addendum hereto or the purchase order terms and conditions, the following order of precedence shall apply: (1) this Agreement; (2) any Addendum; and (3) the purchase order terms and conditions. 19.13 LIMITATION OF LIABILITY. In no event shall either party hereto be liable for any incidental, consequential, indirect, or special damages, including (without limitation) damages for lost 12 profits, loss of revenue, cost of capital, claims or customers for service interruptions. The total liability of Dovatron (including its subcontractors and suppliers) for all claims, whether in contract, tort (including negligence and product liability) or otherwise, arising out of or connected with this Agreement shall not exceed the total amounts received by Dovatron from HP-SDD with respect to any Products that give rise to such claim or claims. -------------------- ---------------------- Robert Mc Cline Carl Plichta Global Procurement Senior Vice President Hewlett-Packard, SDD Dovatron International 13 EXHIBIT 1.0 PRODUCT DESCRIPTION THE FOLLOWING ASSEMBLIES ARE COVERED BY THIS AGREEMENT: MAIN DENALI PCA ASSEMBLY C3801-60104 MAIN KODIAK PCA ASSEMBLY C5316-60101 N.A. LIU TOP ASSEMBLY C3801-60028-1 N.A. LIU PCA ASSEMBLY C3801-6015 14 EXHIBIT 2.0: QUALITY YIELD EXPECTATIONS THE FOLLOWING ARE THE FINAL ASSEMBLY TARGET YIELDS AT SDD & HMO: Q1 after MR less than or equal to 5000ppm Q2 after MR less than or equal to 2000ppm Q3 after MR less than or equal to 1500ppm One year After MR less than or equal to 500ppm 15 EXHIBIT 3.0 QUALITY REFERENCE The following listed IPC documents will be used for reference in the acceptance or rejection of assembly workmanship by both Dovatron and HP. IPC-T-50 Terms and Definitions IPC-CH-65 Guidelines for Cleaning Printed Boards and Assemblies IPC-RB-276 Quality and Performance Specification for Rigid Printed Boards IPC-A-600D Acceptability of Printed Board IPC-QE-605 Printed Board Quality Evaluation Handbook IPC-A-601A Acceptability of Electronic Assemblies IPC-R-700G Guidelines for Modification, Rework, and Repair of Printed Board and Assemblies NOTE: These are nonattached references. 16 Exhibit 4.0 *** *** EXHIBIT (1 PAGE) OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION. 17 Exhibit 5 *** *** EXHIBIT (23 PAGES) OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL IS FILED SEPARATELY WITH THE COMMISSION. 18 EXHIBIT 6 CONFIDENTIAL DISCLOSURE AGREEMENT - -------------------------------------------------------------------------------- Effective Date: January 31, 1997 In order to protect certain confidential information, Hewlett-Packard Company and its corporate affiliates ("HP"), and the "Participant" identified below, agree that: 1. DISCLOSING PARTY: The party disclosing confidential information ("Disclosure") is both parties (Note: Fill in "HP", "Participant", or "both parties".) 2. PRIMARY REPRESENTATIVE: Each party's representative for coordinating disclosure or receipt of confidential information is: HP: HEWLETT-PACKARD SAN DIEGO DIVISION ------------------------------------------------------------------------- PARTICIPANT: ERNESTO LOPEZ ----------------------------------------------------------------- 3. DESCRIPTION OF CONFIDENTIAL INFORMATION: The confidential information disclosed under this Agreement is described as: HP: ALL NECESSARY INFORMATION TO MANUFACTURE -------------------------------------------------------------------------- PCAS FOR DENALI & KODIAK PRODUCTS. - ----------------------------------------------------------------------------- PARTICIPANT: ALL PROCESS PROCEDURES TO ENSURE ----------------------------------------------------------------- QUALITY AND DELIVERY. ALSO FINANCIAL INFORMATION. - ----------------------------------------------------------------------------- (Note: Be specific; for example, individually list materials provided. Attached additional sheets if needed.) 4. USE OF CONFIDENTIAL INFORMATION: The party receiving confidential information ("Recipient") shall make use of the confidential information only for the following purpose (e.g., "evaluation and testing for a make/buy decision on project xyz"): HP: TRACK PERFORMANCE OF DOVATRON INTERNATIONAL -------------------------------------------------------------------------- PARTICIPANT: MANUFACTURE PCAS FOR HP-SDD ----------------------------------------------------------------- 5. CONFIDENTIALITY PERIOD: This Agreement and Recipient's duty to hold confidential information in confidence expire on: DECEMBER 31, 1999 - ----------------------------------------------------------------------------- (Note: This is the period of protection of confidential information.) 6. DISCLOSURE PERIOD: This Agreement pertains to confidential information that is disclosed between the Effective Date and DECEMBER 31, 1999 - ----------------------------------------------------------------------------- (Note: This is the period during which confidential information is going to be disclosed.) 7. STANDARD OF CARE: Recipient shall protect the disclosed confidential information by using the same degree of care, but no less than a reasonable degree of care, to prevent the unauthorized use, dissemination, or publication of the confidential information as Recipient uses to protect its own confidential information of a like nature. 8. MARKETING: Recipient's obligations shall only extend to confidential information that is described in paragraph 3, and that: (a) comprises specific materials individually listed in paragraph 3; or, (b) is marked as confidential at the time of disclosure, or, (c) is unmarked (e.g. orally disclosed) but treated as confidential at the time of disclosure, and is designated as confidential in a written memorandum sent to Recipient's primary representative within thirty days of disclosure summarizing the confidential information sufficiently for identification. 9. EXCLUSIONS: This Agreement imposes no obligation upon Recipient with respect to information that: (a) was in Recipient's possession before receipt from Disclosure; (b) is or becomes a matter of public knowledge through no fault of Recipient; (c) is rightfully received by Recipient from a third party without a duty of confidentiality; (d) is disclosed by Discloser to a third party without a duty of confidentiality on the third party; (e) is independently developed by Recipient; (f) is disclosed under operation of law; or (g) is disclosed by Recipient with Discloser's prior written approval. 10. WARRANTY: each Disclose warrants that it has the right to make the disclosures under this Agreement. NO OTHER WARRANTIES ARE MADE BY EITHER PARTY UNDER THIS AGREEMENT. ANY INFORMATION EXCHANGED UNDER THIS AGREEMENT IS PROVIDED "AS IS". 11. RIGHTS: Neither party acquires any intellectual property rights under this Agreement except the limited rights necessary to carry out the purposes set forth in paragraph 4. This Agreement shall not restrict reassignment of Recipient's employees. MISCELLANEOUS 12. This Agreement imposes no obligation on either party to purchase, sell, license, transfer or otherwise dispose of any technology, services or products. 13. Both parties shall adhere to all applicable laws, regulations and rules relating to the export of technical data, and shall not export or reexport any technical data, any products received from Discloser, or the direct product of such technical data to any proscribed country listed in such applicable laws, regulations and rules unless properly authorized. 14. This Agreement does not create any agency or partnership relationship. 15. All additions or modifications to this Agreement must be made in writing and must be signed by both parties. 16. This Agreement is made under, and shall be construed according to, the laws of the State of California, U.S.A. HEWLETT-PACKARD COMPANY San Diego Division - ----------------------------------------------------------------------------- (Entity Name) 16399 W. Bernardo Drive - ----------------------------------------------------------------------------- San Diego , CA 92127 - ----------------------------------------------------------------------------- (Address) BY -------------------------------------------------------------------------- (Functional Manager's Signature) Mike Fawkes - ----------------------------------------------------------------------------- Manufacturing Manager - ----------------------------------------------------------------------------- (Title) PARTICIPANT Dovatron International - ----------------------------------------------------------------------------- (Company Name) 4076 Specialty Place - ----------------------------------------------------------------------------- Longmont, CO 80504 - ----------------------------------------------------------------------------- (Address) BY -------------------------------------------------------------------------- (Authorized Signature) Carl Plichta - ----------------------------------------------------------------------------- VP HP WW Programs - ----------------------------------------------------------------------------- (Title) 19 ADDENDA A.1.0 Not yet executed A.2.0 Not yet executed 20 REFERENCE 1.0 CM: DOVATRON MEXICO PRODUCT: NORTH AMERICAN LIU WORKWEEK: 18 WEEK ENDING: MAY 2, 1997 1) LINE YIELD LOSS SUMMARY
==================================================================================================== Station Description Prev. Mth WW14 WW15 WW16 WW17 WW18 Cur. Mth - ---------------------------------------------------------------------------------------------------- Station Description Prev. Mth WW14 WW15 WW16 WW17 WW18 Cur. Mth ==================================================================================================== Total PCA Inspected --------------------------------------------------------------------------------- AUTOMATIC Total Defective PCA --------------------------------------------------------------------------------- Insert/production Yield Loss In PPM 0 0 0 0 0 0 0 --------------------------------------------------------------------------------- 100% inspect Target In PPM 50ppm 50ppm 50ppm 50ppm 50ppm 50ppm 50ppm ==================================================================================================== Total PCA Inspected 0 0 0 0 0 0 0 --------------------------------------------------------------------------------- Total Defective PCA 0 0 0 0 0 0 0 --------------------------------------------------------------------------------- Yield Loss In PPM 0 0 0 0 0 0 0 --------------------------------------------------------------------------------- Target In PPM ==================================================================================================== Total PCA Inspected --------------------------------------------------------------------------------- POST WAVE Total Defective PCA --------------------------------------------------------------------------------- Production 100% Yield Loss In PPM 0 0 0 0 0 0 0 --------------------------------------------------------------------------------- Inspection Target In PPM 500ppm 500ppm 500ppm 500ppm 500ppm 500ppm 500ppm ==================================================================================================== Total Tested --------------------------------------------------------------------------------- Total Defects --------------------------------------------------------------------------------- ICT Yield Loss % 0 0 0 0 0 0 0 --------------------------------------------------------------------------------- Target In % 2% 2% 2% 2% 2% 2% 2% --------------------------------------------------------------------------------- Total Repaired --------------------------------------------------------------------------------- WIP For Repair ==================================================================================================== ICT Breakdown Material Process Workmanship NIF Others ==================================================================================================== Total Tested --------------------------------------------------------------------------------- Total Defects --------------------------------------------------------------------------------- FCT Yield Loss % 0 0 0 0 0 0 0 --------------------------------------------------------------------------------- Target In % 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% --------------------------------------------------------------------------------- Total Repaired --------------------------------------------------------------------------------- WIP For Repair ==================================================================================================== ICT Breakdown Material Process Workmanship NIF Others ==================================================================================================== Total Inspected --------------------------------------------------------------------------------- OBA Total Defects --------------------------------------------------------------------------------- Yield Loss In % 0 0 0 0 0 0 0 --------------------------------------------------------------------------------- Target In % 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% ====================================================================================================
21
=========================================================================================== WORK WEEK: 18 DEFECT BREAKDOWN WEEK ENDING: 05/02/97 PRODUCTS: NORTH AMERICAN LIU - ------------------------------------------------------------------------------------------- STATION CLASS QUANTITY BOARDS DEFECT BREAKDOWN QUANTITY DEFECTS LOCATIONS - ------------------------------------------------------------------------------------------- STATION CLASS QUANTITY BOARDS DEFECT BREAKDOWN QUANTITY DEFECTS LOCATIONS =========================================================================================== Automatic Insertion Top side =========================================================================================== POST IR BOT =========================================================================================== POST WAVE ===========================================================================================
22 =========================================================================================== WORK WEEK: 18 DEFECT BREAKDOWN WEEK ENDING: 05/02/97 PRODUCTS: NORTH AMERICAN LIU - ------------------------------------------------------------------------------------------- STATION CLASS QUANTITY BOARDS DEFECT BREAKDOWN QUANTITY DEFECTS LOCATIONS - ------------------------------------------------------------------------------------------- STATION CLASS QUANTITY BOARDS DEFECT BREAKDOWN QUANTITY DEFECTS LOCATIONS =========================================================================================== ICT =========================================================================================== FCT =========================================================================================== OBA ===========================================================================================
23 REF. 2.0 - ICT AND FCT PLANS DEVELOPMENT AND IMPLEMENTATION OF AN INTEGRATED GLOBAL TEST STRATEGY WITH CONTRACT MANUFACTURERS BY JOHN SEDEJ MIKE MCDANIEL ABSTRACT The San Diego Division has targeted the Home Office/Small Office market with its multi-function product line. The highly successful OfficeJet, which is running at 60,000 units per month is being replaced with the Denali platform. Currently, SDD is developing manufacturing plans to produce upwards of 500,000 units per month within the next three to five years. Implementing a global test strategy with world-wide contract manufacturers has become crucial to ensure HP quality levels are maintained. The high growth projections and cost pressures of the Denali project requires San Diego Division to utilize contract manufacturers for the assembly of the Division's products. SDD is using multiple contract manufacturers for the manufacture of printed circuit boards and electro-mechanical assemblies. Concurrently, the San Diego Division is faced with meeting the challenges of shorter product development cycles, aggressive ramp schedules and multiple product launches. With HP's quality level being highly influenced by its suppliers, SDD must still maintain global control, while keeping its resources at minimum. In order to meet the challenge of implementing a global test strategy, San Diego Division has elected to partner with TTI Testron, a test development contract manufacturer. The objective of this partnership is to develop a global test strategy that ensures a comprehensive test system is implemented across its contract manufacturing base, thus eliminating the need to maintain a traditional internal test engineering and development infrastructure. This paper explores the challenges of establishing and implementing a global test strategy with an external partner. It also outlines the project management challenges of coordinating the multiple interfaces. The ultimate success is determined by maximizing and leveraging off the multiple cross expertise's and the timing of the coordination INTRODUCTION During the development and launch of the Denali program, San Diego's resources in test development were very limited. Due to the critical development path, additional engineering resources were to be focused on product development and not test development. Yet, without early planning and focus on test development, significant opportunities would be missed and the ability to achieve maximum test coverage would be jeopardized. Further complicating the situation was SDD's manufacturing strategy to completely outsource its printed circuit assembly requirements across multiple contract manufacturers. TTI Testron was chosen to support the San Diego Division in developing and implementing its global test strategy due to its global presence and engineering test capabilities. It was recognized that in order for the test strategy to be successful, a strong partnership would have to be developed. This paper explores some of the major challenges faced by establishing and implementing this partnership. The following major challenges are addressed: 1. Establishing the overall global test strategy and objectives. 2. Defining the roles and responsibilities of both the internal support personnel and contract manufacturer. 3. Defining and getting agreement on the deliverables for each phase of the development cycle. 4. Coordinating and managing test development during the product development phases. 5. Developing new and/or modifying existing procedures to handle changes and modifications after MR. 24 CHALLENGE ONE: ESTABLISHING THE OVERALL GLOBAL TEST STRATEGY AND OBJECTIVES Clearly defining the test strategy at the start of the project is absolutely critical to ensuring a successful implementation. The test strategy and timing of the plan must be correlated to the product development cycle. But the effort is highly weighted towards the front end of the project, where the most positive impact can be made. Also, by driving the test requirements from the top down ensures that the same information structure and system is established throughout the various contract manufacturers. The most significant windows of opportunities lie at the start of the design and waiting too long for incorporating the test plans, precludes one from incorporating them. In addition to establishing the tactical objectives and focusing on the test coverage, it is important to define the strategic test objectives. Identifying the strategic objectives determines the full scope of resources required. A well defined strategy, also anchors the project effectively, enabling one to compare against the core objectives to ensure that the project is effectively on track. The San Diego Division established the following test objectives: 1. Maximize test coverage at the ICT level. 2. Minimize test cycle times. 3. Establish identical test systems for the same printed circuit assemblies across the contract manufacturing base. 4. Maintain global control over test systems, both test fixtures and test programs. 5. Coordinate test platform changes to maintain identical systems. 6. Establish a flexible development plan that enhances product development and not hinders it. By establishing these strategic objectives, SDD essentially determined the scope of resources that would be required. Test support would be needed immediately at the start of the program and would also be required globally to ensure full implementation of the strategy. Since SDD's test resources were limited, the only remaining choice was to outsource the test development. Developing the internal infrastructure was immediately ruled out because of the limitation placed on test resources. The short development cycle precluded the possibility of creating an internal infrastructure in time to support the program. There was another immediate benefit to pre establishing the strategic objectives. The objectives stated by themselves have merit. They set the stage and focus for selling the strategy and getting buy-in from all affected parties. One could always reference these objectives and then build consensus by adjusting for minor differences without significantly deviating from the core. Without pre-establishing clear objectives, endangers one from diverging and getting lost in a tangent path. Successful implementation of the plan requires close cooperation and coordination between numerous organizations within the San Diego Division, AMMO, TTI Testron and the contract manufacturers. The objectives always enables a starting point of reference and serves as the foundation for any discussion. Each project will have its unique set of objectives and the San Diego Division attempted to establish its objectives to encompass all affected parties interests. Maintaining this consensus is an on-going task. CHALLENGE TWO: DEFINING THE ROLES AND RESPONSIBILITIES OF BOTH THE INTERNAL SUPPORT PERSONNEL AND CONTRACT MANUFACTURER. A crucial step in establishing the partnership is defining the responsibilities of the individual and team. Without having a clear understanding of each others area of responsibility, it is impossible to have a successful project. This is especially true when working with an outside partner. Unless the supplier has worked extensively with the division, he cannot be expected to understand all the various changes and personalities that make up an organization. 25 Therefore, it is imperative that one defines for both parties the roles and set the expectations. This step is also crucial in identifying any voids that one may have in the plan. The detail and definition of the responsibility of the supplier becomes more crucial with the larger scope of work being outsource. As the suppliers role becomes more involved, then the importance of clearly defining his role becomes more critical. This is true because as the role of the supplier becomes more of a partner, the level of interactions becomes more sophisticated. His expectations and demands must be viewed as an equal with the division as they relate to supporting the objectives of the project. Without a clear definition of the roles, then there is a tendency to slide back into the standard supplier/customer mode and communication tends to be unidirectional A successful project requires true bi-directional communication. Time must be taken at the start of the project to map out and create a responsibility matrix to eliminate any potential misunderstandings. During the beginning of the project SDD and TTI established a rough draft of the roles and responsibilities with each other. This also allowed both companies to create a set of common objectives. It is also critical that you periodically review the responsibility matrix to ensure that everyone's expectations remain the same as the project itself evolves. Organizations are changing and as new people are added to the program expectations can change. It is absolutely critical that the team members re-calibrate themselves, especially for the supplier. The supplier is working without the benefit of being within the HP organization and he tends to receive his information in step wise fashion. The changes that take place always appear more severe to him. So it is imperative that one road maps out the various program changes and establishes the expectations of the team members for the various program stages. One of the major objectives of outsourcing the test development is to accomplish more with less and to leverage off and use each other's expertise. Without clearly defining the roles, there is a tendency for redundant activity to take place, thereby eliminating one of the advantages of outsourcing. CHALLENGE THREE: DEFINING AND GETTING AGREEMENT ON THE DELIVERABLES FOR EACH PHASE OF THE DEVELOPMENT CYCLE. Defining the deliverables for each of the project development phases is absolutely critical. The project and test development is undergoing a constant evolution with each new phase potentially requiring changes and/or modifications. Without clear tactical deliverables defined for each development phase and their associative test coverage expectations established, there will be a constant misunderstanding between the parties. This will only lead to a deterioration in the relationship and potentially yield an unsatisfactory result. By establishing the test expectations for each phase, clearly sets the base line and metrics for tracking the performance of the plan. The success of the test plan and coverage requires strong cross communication between the test development supplier and HP. Clear defined deliverables, objectively sets the requirements amongst the team members and allows for a more productive interface. It also serves as an objective measure of the success of the strategy at the various stages of the project. SDD established a set of test coverage deliverables with TTI prior to critical phases of the project. It was evident that a formal definition of the deliverables is required up front and that they need be reviewed periodically. As the project evolved, the deliverables had to be adjusted to accommodate the changes that were encountered. But without a formal pre-established deliverable list, one could never be assured whether previously established commitments were being met. One of the biggest generators of tension and frustration between a partnership is the feeling that commitments are not be met. The list serves as the objective means of measuring the success of the commitments. Another critical use of the deliverable list is to verify and track the effectiveness of the test program and fixtures. As one passes through each phase of the program development and produces a certain number of units, one can monitor the quality levels and then review the robustness of the test program. And then intelligently make the necessary modifications to the test platform and program to obtain the desired quality levels. CHALLENGE FOUR: COORDINATING AND MANAGING TEST DEVELOPMENT DURING THE PRODUCT DEVELOPMENT PHASES. 26 The success of the global test strategy and implementation is highly dependent on the effectiveness of the management of the project. This is especially true when using an outside supplier for both the test development and manufacturing, which tends to complicate the communication channels. Perhaps the most important first step in managing the project is to ensure that you have buy-in from all the affected parties and that everyone agrees on the project objectives. Without adequate understanding and agreement from the affected parties, one only complicates the management and jeopardizes the success of the plan. Extensive time and effort is required establishing and obtaining a joint agreement. But there are other benefits from making the effort. By getting everyone to understand and agree on the objectives, creates a certain momentum between the team members that could not be duplicated in any forced manner. Care must be taken to analyze and review upfront who all the affected parties could be and immediately start building consensus. The San Diego division sought out the support of the contract manufacturers which are the recipients of the test platforms, HN10, SDD's Asian top level manufacturing site, and the following organizations within SDD: R and D, Manufacturing Engineering and Procurement. This process took numerous personal meetings and conferences over a period of a year. Successful project management requires the balancing of several variables. One must ensure and maintain strong technical exchange between the R and D team and the test development supplier. This requires direct and personal contact between the cross team members. Anything that can be done to facilitate this is an added benefit In order to meet the tight development schedules, the test development supplier must be aware of the latest information as early as possible so they can incorporate the changes. In addition, someone must ensure that the overall test strategy and required deliverables are on track and will support the overall project objectives. Constant feedback and cross communication is required to ensure that everyone is working with the latest information and that the best recommendations are being incorporated. With all the required cross communications taken place, it is critical to hold periodic check point and review meetings to ensure that everyone is at the same level of understanding. One needs to accelerate and facilitate the communication flow so that opportunities are not lost, but without careful management it is also easy to create confusion and misunderstandings. Holding periodic reviews and issuing detailed status reports helps prevent problems. The San Diego Division set up weekly reviews and meetings with TTI Testron and R and D to review and develop the test platforms. These meetings were then expanded to include Manufacturing Engineering. Although one does not want to spend too much time generating status reports, it was apparent that without regular meetings and status reports, confusion and misunderstandings quickly generated. Procurement worked with R and D to ensure that the overall project was tracking to the development and implementation schedule and ensured that the contract manufacturer was included in the i communication loop. It is extremely important that the contract manufacturer's input is included, since you must have assurances that the robustness of the design supports the manufacturing plans and environment. The main objective is to end up with a platform that provides maximum coverage possible at the lowest possible cycle count. Each player brings a certain perspective and need. By coordinating effectively all the various players, ensures that all the perspectives are incorporated within a reasonable balance. CHALLENGE FIVE: DEVELOPING NEW AND/OR MODIFYING EXISTING PROCEDURES TO SUPPORT OUTSOURCING THE TEST DEVELOPMENT. Current procedures and support systems are structured towards test development organizations and systems that utilize internal development teams. One must review these systems and procedures to see how they can be adapted or modified to support the new model of outsourcing the test development. This becomes extremely important when one looks beyond the MR date. New questions arise and must be answered such as how to efficiently incorporate changes after production is launched and how to maintain and support the systems once they have been implemented. The San Diego Division has adopted a modified model where the ongoing program and fixture modifications will be handled by TII Testron under the joint review and approval of SDI) and HMO. But this will be done in a coordinated fashion in order not to jeopardize one of the original goals of ensuring identical test systems and coverage. The idea is that no modification can be accomplished without the approval and knowledge of all affected parties and the change must be incorporated universally. This ensures identical coverage and the ability to correlate the data on a global basis. The "learned" performance of the process is documented and distributed to all the contract manufacturers, and not just those privy to the event. But this also highlights the need to establish a strong partnership with your outside 27 test development supplier since his services will be required on an on-going basis. Care must be taken when choosing the start-up supplier and on-going monitoring of their available resources and capabilities must be maintained. This emphasizes one of the misnomers of outsourcing that most organizations tend to overlook. Outsourcing alone does not eliminate all the issues associated with the task and certain requirements and issues will always remain. Strong on-going project management will be required and the level of sophistication of the people managing the project increases with the complexity of the task being outsourced. Care must also be taken with the internal resources as they rotate to other projects to ensure that the same level of interfacing with the supplier is maintained. It does not take long for the communication system to break down quickly, since it tends to be highly people dependent. In order to maintain the on-going objective of identical test systems and to ensure the same high level of coverage, requires centralized coordination from the engineering division. This does not imply absolute control and, in fact, is not recommended, but some type of centralized control is required. The complexity of the project and manufacturing strategy will determine the level of coordination required from the engineering division. SUMMARY The San Diego Division chose to outsource its test development with TTI Testron primarily due to resource constraints and the need to provide global consistency with its test platforms and coverage. The benefits to date have been the ability of the division to develop a more comprehensive test platform that has kept up with its shortened project development cycle. The San Diego Division has been able to support the development ; and launch of four different test platforms with four different contract manufacturers in five different countries without adding test resources. In addition, the test program development and coverage has been controlled by the R and D team with the tactical development and implementation being handled by TTI Testron. The San Diego Division has been able to leverage off the test manufacturing experience of TTI Testron while focusing on its core strength. The San Diego and HMO division continues to focus on the project management of the test strategy, while TTI Testron focuses on the mechanics of developing and implementing the test platforms. TTI Testron was also tasked with managing and coordinating the test fixture development and buy-offs with the contract manufacturers of the printed circuit assemblies. This model allowed for each partner to focus on their core strengths and enabled a more comprehensive test system to be created than if being implemented and controlled by SDD alone. With an effective project management system to support the team members, a synergistic advantage can be successfully achieved. The final objective of this test strategy is to enable the San Diego Division to monitor and accurately correlate the quality data on a global basis. The plan also ensures that the systems to monitor the printed circuit assemblies are the same. This consistency adds to the confidence level, enabling for more effective decisions and allowing for changes to be made quickly on a global basis. The test platforms utilized serve as the last quality and check barrier and must be implemented to protect HP's interest. By utilizing TTI Testron, the San Diego Division has been able to maintain global control over the test platforms without having to create a large test infrastructure in order to meet its objectives. SPECIAL THANKS AND APPRECIATION A special thanks and appreciation to Henry Munoz and Johnson Ng of TTI Testron for their personal dedication, commitment and vision to ensuring that the objectives of the San Diego Division were met. 28 REFERENCES 3.0 AND 4.0 DOCUMENT: HP RMA PROCEDURE PART NUMBER: PMOR0009 REV: B PAGE 1 OF 5 ================================================================================ PROCEDURE NAME - -------------------------------------------------------------------------------- RMM process for HP SDD returns ================================================================================ ================================================================================ APPLICATION - -------------------------------------------------------------------------------- All products manufactured to HP's SDD ================================================================================
================================================================================ VERIFIED APPROVED IMPLEMENT REV DATE CONTENT BY BY BY PAGES COMMENT - -------------------------------------------------------------------------------- A 2/14/97 Initial Release A. Robles B. Hehir A. Robles 5 - -------------------------------------------------------------------------------- B 4/23/97 Updated A. Morales A. Morales 5 ================================================================================
================================================================================ REVISION FREQUENCY: WHERE ANY CHANGE OR MODIFICATION RELEASE - -------------------------------------------------------------------------------- Next scheduled revision: None ================================================================================ 29 DOCUMENT: HP RMA PROCEDURE PART NUMBER: PMOR0009 REV: B PAGE 2 OF 5 0.0 INDEX
======================================== CONTENTS PAGE ---------------------------------------- Objective 2 ---------------------------------------- Input/Output Diagram 2 ---------------------------------------- Flow Diagram 3 ---------------------------------------- Procedure Description 4 ---------------------------------------- References 5 ========================================
1.0 OBJECTIVE The Objective of this document is to establish the procedure for the Ass'y returns generated at Hewlett Packard's San Diego Division assembly line. 2.0 INPUT/OUTPUT DIAGRAM
SUPPLIER INPUT PROCESS OUTPUT CUSTOMER - -------- ----------------- ----------------- -------------- -------- ----------------- HP Line return RMA # DMEX Internal RMA Repaired Ass'y HP request approved process to HP returns -----------------
30 DOCUMENT: HP RMA PROCEDURE PART NUMBER: PMOR0009 REV: B PAGE 3 OF 5 3.0 FLOW DIAGRAM [FLOW CHART] 31 4.0 PROCEDURE DESCRIPTION 4.1 HP REQUEST & RECEIVE RMA # SAME DAY. As soon as the SDD line has detected any problem found in the assemblies produced by DMEX, the SDD responsible person must contact DMEX Program Manager to request a RMA number. An RMA # will be supplied back to IAP person by this Program Mgr. A database identified as HP-RMADB.xIs will be keep updated with all RMA's requested from SDD with the appropriate information including all generated corrective actions and solutions. 4.2 ISSUE FORMAT PMFT0005. DMEX program manager will log all details on RMA in the format PMFT0005 and get all authorization signatures requested. 4.3 HP SEND BACK TO DMEX THE NON CONFORMING ASS'YS. HP SDD then. will send the Non Conforming ASS Ys back to DMEX. As soon as the material is received there is a period of three (3) calendar days to these ASS'Ys must be repaired and send it back to SDD. These ASSY's must be tagged and sent back with a description of line failures found by Serial Number. A report of the failures found on rejected boards must be attached with the HP shipment. 4.4 ASS'YS SEND TO THE FLOOR Once the material is received, must be processed according to the internal rework process factory plan, based on the HP's Non Conforming Process ( For ASS'Ys returned to the CM ) procedure, This PIP procedure is pan of this document and is located on page 6 of this Document. 4.5 CREDIT MEMO DMEX will generate an credit memo to HP for the same amount of ASS'Ys described on the RMA document PMFT0005. 4.6 MATERIAL THAT HAS BEEN RETURNED BEFORE Once the rejected ASS'Ys start to be processed internally at DMEX, the first step is to verify how many 'R' the PCBA has stamped. Here are two possibilities; 1. If the PCBA has two 'R', the board must to be diagnosed and generate a report of failures found, however. the final disposition will be 'Scrap'. It is not allowed by I IP to rework any PCBA by third time. 2. If the PCBA has one 'R', the assembly must be processed according to the internal rework process factory plan based on the Non Conforming Process ( For PCA's returned to the CM, Rev 1A ). 4.7 ASS'Y REWORK If the Ass'y has no 'R's or only one 'R', this board must be processed in accordance to the Non conforming Process (For Ass'y returned to the CM Rev 1A). 4.8 DATA COMPILATION AND RESORTS Once the Ass'y has been repaired all data collected from diagnostics and repairs will be keep in-a electronic data base named HP_LRDB.XLS. This DataBase will be updated any lime with the data collected from the line returns received from SDD. Also this information will serve as support to create all the troubles found and Corrective actions reports. Also to track the status of these corrective actions. 4.9 REPORTS DISTRIBUTION A problems found and no trouble found report together with Corrective actions report will be issued and] distributed to the following persons: o RMA # requester at SDD o Dovatron s HP world wide Program Manager o MIPO representative 32 o DMSC Program Manager o DMEX Program Manager 4.10 SEND REPAIRED ASS'YS Repaired ASS y will be sent back to SDD as regular production 4.11 END OF THE PROCEDURE. 5.0 REFERENCES o Non Conforming Process (For PCAs returned to the CM) Rev 1A. o DMEX RMA format # PFT0005 33 REFERENCE 5.0 PCO PROCESS AND AVL CONTROL
================================================================================ REV RELEASED REVISION CHANGES EFFECTIVITY - -------------------------------------------------------------------------------- 1 January 1 Initial Release. January 6, 1997 2 JANUARY 24 CLARIFICATION CHANGES. JANUARY 24 ================================================================================
APPROVED BY: /s/ G. EDGMON G. EDGMON DATE: JAN. 2, 1997 PROGRAM MANAGER DISTRIBUTION: Julio Acevedo (MIPO) Alvaro Aguilar (DMEX) Jesus Bernal (DMEX) Sergio Guevara (DMEX) Pat Hehir (DMEX) Ernesto Lopez (MIPO) Mike McDaniel (SDD) Henry Munoz (TTI) Carl Plichta (DOV HQ) Arturo Robles (DMEX) Bernardo Romero (DMEX) Luis Valtierra (MIPO) BC Seow (DMAL) Simon Choo (DMAL) Lily Aw (Singapore) Greg Edgmon (DOV HQ) 1.0 PURPOSE: The purpose of this procedure is to establish a method of communicating and tracking Customer Engineering Changes. 2.0 SCOPE: This procedure applies to the all Dovatron facilities involved in the Denali program. This procedure applies to both process and materials changes. 3.0 REFERENCE DOCUMENTS: 34 PCO (Process Change Order) Form 4.0 DEFINITIONS: DMEX: Dovatron Mexico Facility. DMAL: Dovatron Malaysia Facility. DOV HQ: Dovatron Worldwide Corporate Headquarters. Customer: HP SDD. Customer IPO: MIPO/SIPO PCO: HP supplied Process Change Order. 35 5.0 ENGINEERING CHANGE ORDER PROCEDURE: 5.1 A PCO is transmitted to the Denali Worldwide Program Manager. 5.2 The customer sends the following PCO information: [ ] DATA: Part Number Affected and Change Details. [ ] DIVISION: Site Affected. [ ] DATES: Implementation Date. [ ] DIRECTION: Assembly, Component and WIP Disposition. 5.2.1 The DATA portion of the PCO must include: [ ] Part Number Affected. [ ] Revision Level. [ ] Tooling and Process Change Information. [ ] Details of Change. [ ] Customer Part Number , QTY Per and Description. [ ] Reference Designator(s). [ ] AVL Information and Supplier Selection. [ ] MPN Details and Evaluation Status. [ ] Gerber Data and Drawings. 5.2.2 The DIVISION portion of the PCO must include: [ ] Site Affected. [ ] Specific Implementation Details. [ ] Qualification and Testing Requirements. [ ] Details of Support Services Provided by Customer (If Applicable). 5.2.3 The DATE portion of the PCO must include: [ ] Phase in or Cut in Logistics Specified. [ ] Date Required. [ ] Qualification Timeline. [ ] Certification Requirements Schedule. 5.2.4 The DIRECTION portion of the PCO must include: [ ] Disposition Needs: o Assemblies. o Components. o Work In Process. o Equipment. 36 [ ] Logistics Needs: o Open Order Directive. o PPV Approval. o Scrap Authorization. 5.3 The PCO form is assigned a tracking number and logged in the PCO log. 5.4 The PCO form is transmitted to the site for implementation analysis. 5.5 The site reviews the changes identified on the PCO form and submits the following deliverables to the Denali Worldwide Program Manager: [ ] Material Availability. [ ] Tooling, Process and Pricing Information. [ ] Performance Data for Supplier Allocation Recommendation. [ ] Equipment Availability. [ ] Estimated Lead Time and Delivery Schedule. [ ] Disposition Details: o Assemblies. o Components. o Work In Process. o Equipment. [ ] Procurement Logistics Details: o Continuous Order Execution Status. o PPV Analysis. o Scrap Analysis. 5.6 The Denali Worldwide Program Manager merges the Site deliverables into a global format and communicates it to the customer for final ECO implementation authorization and approval. 5.7 The Denali Worldwide Program Manager identifies and provides the customer with the following deliverables: [ ] Global Coordination Planning Model. o Goals and Milestones. o Action Item and Follow-up Details. o Implementation Schedule Details. [ ] Strategic Delivery Planning Schedule. [ ] Project Coordination and Implementation Plan Timelines 37 5.8 Upon receiving implementation direction from the customer, the Denali Worldwide Program Manager contacts the site to execute the implementation plan. 5.9 The site confirms to the Denali Worldwide Program Manager completion of all actions required to implement the ECO. 5.10 The PCO is logged as completed. 5.11 Any pertinent site implementation data is merged into a global format and communicated to the customer. 38 HEWLETT PACKARD SUPPLIER PERFORMANCE EVALUATION AND DEVELOPMENT PLAN - ----------------------------------------------------------------------- SUPPLIER NAME: SUPPLIER NUMBER: SUPPLIER REPRESENTATIVE: COMMODITY BEING EVALUATED: COMMODITY BUYER: PROCUREMENT ENGINEER: PROCUREMENT ENGINEER (MIPO): EVALUATION DATE: - ----------------------------------------------------------------------- This evaluation is intended as a supplier management tool and a method of compiling performance data to provide feedback to our suppliers. The Procurement Team will work with you to set expectations, create specific objectives and identify actions that you and Vancouver Division can take to continually improve the overall level of performance. - ----------------------------------------------------------------------- SUMMARY: Area of Date Last Performance Score Evaluated ----------- ----- --------- Technology - Quality - Responsiveness - Delivery - OVERALL SCORE: DATE: This score will be calculated on a periodic basis when all five areas are evaluated. REV. 2/90 39 TECHNOLOGY OBJECTIVE: Hewlett-Packard must compete in the world market on the basis of manufacturing technology, as well as design technology. We expect our suppliers to be technological leaders in their respective fields of design and manufacturing. Suppliers are expected to participate in mutual engineering throughout HP's products' lifecycle to enable timely introductions and continuous quality and cost improvements. Provide Leading-Edge Technology Products (T1) 4 = Usually first with new technology introductions 3 = Sometimes first with new technology introductions 2 = Introduces new technology along with other industry leaders 1 = Follows with new technology within one year after technology introduced 0 = "Me too" for available technologies or none at all N = Not applicable T1 SCORE:____ Timely New Product Introductions (T2) 4 = Usually ahead of promised production availability schedule 3 = Sometimes ahead of promised production availability schedule 2 = Meets promised availability schedule 1 = Sometimes meets promised availability schedule 0 = Never meets promised availability schedule N = Not applicable T2 SCORE:____ Mutual Engineering: Technology / Design Support (T3) 4 = Proactive and effective 3 = Effective 2 = Usually available 1 = Some 0 = Little or none N = Not applicable T3 Score____ "T" AVG. SCORE:__ 40 QUALITY Objective: HP has set a quality goal of zero defective products for electrical, mechanical, cosmetic, and administrative reasons. HP's quality expectation is defect-free materials. Quality and reliability are expected to be achieved through superior design, process control and continuous process improvements. All material must be fit for use and cosmetically acceptable. Quality (Q1) HP Incoming inspection * OR * HP In-Process Quality 4 = 0 to n ppm 4 = 0 to n ppm 3 = n to n ppm 3 = n to n ppm 2 = n to n ppm 2 = n to n ppm 1 = n to n ppm 1 = n to n ppm 0 = > n ppm 0 = > n ppm * OR * If you are not currently collecting PPM data for Incoming Inspection or In-Process Quality, please answer the following metric instead: Quality Expectations 4 = Consistently exceeds expectations 3 = Consistently meets and occasionally exceeds expectations 2 = Consistently meets expectations 1 = Occasionally meets expectations 0 = Consistently does not meet expectations N = Not applicable Q1 Score____ Demonstrated Quality/Reliability (Q2) 4 = No quality/reliability problems (Supplier has proactive Q/R verification programs which are effective) 3 = Minimum number of problems. Problems or alerts identified by supplier. Supplier presented effective and permanent corrective action 2 = Minimum number of problems. Problems or alerts identified by HP. Prompt, effective and permanent corrective action initiated by supplier 1 = Problems encountered with slow response by supplier 0 = Many problems and/or unacceptable corrective action N = Not applicable Q2 Score____ Overall Q Score____ 41 RESPONSIVENESS Objective: HP expects suppliers to be responsive to swings in demand, with short cycle times, and appropriate inventory management, while maintaining flexible capacity capabilities to successfully resolve problems and improve worldwide service. Timely Response (R1) CRITERIA 4 = Meets all of the criteria * Timely Order Acknowledgments 3 = Meets 3 of the 4 criteria * Timely response to normal in- 2 = Meets 2 of the 4 criteria quiries (price, availability) 1 = Meets 1 of the 4 criteria * Timely communication of pro- 0 = Meets none of the criteria cess changes and/or problems N = Not applicable * Timely response to emergency inquiries R1 Score____ Effective Service and Support (R2) CRITERIA 4 = Meets all of the criteria * Meets expectations for con- 3 = Meets 3 of the 4 criteria tacting divisions 2 = Meets 2 of the 4 criteria * Demonstrates professionalism 1 = Meets 1 of the 4 criteria and product knowledge 0 = Meets none of the criteria * Easily accessible N = Not applicable * Meets expectations for sample part & documentation support R2 Score____ Does your local representative meet your service expectation? (R3) Y = Yes N = No, comment required (Not Scored) R3 Score___ Long Term Product Support (R4) CRITERIA 4 = Meets all of the criteria * Committed to long term supply 3 = Meets 3 of the 4 criteria * Provides alternate solutions 2 = Meets 2 of the 4 criteria for product discontinuances 1 = Meets 1 of the 4 criteria * Meets requirements for 0 = Meets none of the criteria product discontinuances N = Not applicable * Extends to meet special HP requirements R4 Score____ 42 Flexibility to Changes (Accepts and completes reasonable requests for Purchase Order changes and additions) (R5) 4 = Consistently exceeds expectations 3 = Consistently meets and occasionally exceeds expectations 2 = Consistently meets expectations 1 = Occasionally meets expectations 0 = Consistently does not meet expectations N = Not applicable R5 Score____ Support of Sole Sourced Parts (R6) CRITERIA 4 = Meets all of the criteria * Assurance of supply 3 = Meets 3 of the 4 criteria * Parts priced fairly 2 = Meets 2 of the 4 criteria * Cost reductions/improvements 1 = Meets 1 of the 4 criteria implemented and passed to HP 0 = Meets none of the criteria * Long term product support N = Not applicable R6 Score____ Overall R Score____ 43 DELIVERY Objective: HP expects deliveries to be 100% on time all the time within a window of -3/+0 (three days early and no days late). To achieve this expectation there must be continuos improvement in overall delivery performance and our suppliers must be prepared to meet commitments worldwide. Lead times must be short by industry standards, reliable and decreasing over time. On-Time Delivery (Division Six Month Average - If supplier meets on-time delivery percentage but has any deliveries greater than 5 days late select the next lower number). Primary Weight = 60% (D1) ** 4 = Greater than 95% On-time 3 = Greater than or equal to 85% On-time 2 = Greater than or equal to 70% On-time 1 = Greater than or equal to 60% On-time 0 = Less than 60% On-time N = Not applicable D1 Score _____ X .6 = Lead Time - Secondary Weight = 30% (D2) CRITERIA 4 = Meets all of the criteria * Stable (even in mkt upturns) 3 = Meets 3 of the 4 criteria * Contract lead times being met 2 = Meets 2 of the 4 criteria * Competitive 1 = Meets 1 of the 4 criteria * Decreasing over time through 0 = Meets none of the criteria supplier process improvement N = Not applicable efforts D2 Score _____ X .3 = Packaging/Shipping - Secondary Weight = 10% (D3) CRITERIA 4 = Meets all of the criteria * Requested quantity; accurate 3 = Meets 3 of the 4 criteria and complete invoicing/ship- 2 = Meets 2 of the 4 criteria ping documentation 1 = Meets 1 of the 4 criteria * Complies with shipping ins- 0 = Meets none of the criteria tructions N = Not applicable * Consistently provides proper packaging and markings * Proactive in solving packa- ging/shipping issues D3 Score _____ X .1 = Overall D Score__ 44 ENVIRONMENTAL HP suppliers should have an implementation plan with metrics which is tied to their environmental improvement policy. HP suppliers should strive to improve the environment in their location by instituting programs with progressive and measurable improvements. Progress on these metrics should be reported within their company and reviewed with HP periodically. Which environmental improvement factors the supplier chooses (e.g., reduced air or water emissions, eliminated use of toxic materials, increased recycling, etc.) to measure and how rigorous these goals and objectives are, is the responsibility of the supplier. (E2) Does the supplier have an improvement implementation plan with metrics which is directly tied to their environmental improvement policy? 4 = Documented plan with objectives, metrics, and demonstrable results 3 = Documented plan with objectives and metrics 2 = Documented plan with objectives 1 = Documented plan 0 = No plan Weight = 33% Elimination of ODS: HP fully supports the Montreal Protocol, the U.S. Clean Air Act, and international efforts to protect the earth's ozone layer through conservation and an orderly phase-out of ozone depleting substances. HP has eliminated ODS use in its worldwide manufacturing processes. HP expects its suppliers to support this goal by eliminating their ODS use in manufacturing of parts and materials used in HP products. (E3) Has the supplier eliminated the use of ozone depleting substances? 4 = Yes 0 = No Weight = 34% 45 SUPPLIER COMMENTS: EX-10.3 4 DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.3 THE DII GROUP, INC. DEFERRED COMPENSATION PLAN ARTICLE I PURPOSE 1.1 ESTABLISHMENT OF THE PLAN. Effective as of February 28, 1997, The DII Group, Inc. (the "Company") hereby establishes The DII Group, Inc. Deferred Compensation Plan (the "Plan"), as set forth in this document. 1.2 PURPOSE OF THE PLAN. The Plan permits participating employees and directors to defer the payment of certain cash and other compensation that they may earn. The opportunity to elect such deferrals is provided in order to help the Company attract and retain key employees and directors. This Plan is unfunded and is maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and directors. It is accordingly intended to be exempt from the participation, vesting, funding, and fiduciary requirements set forth in Title I of the Employee Retirement Income Security Act of 1974. ARTICLE II DEFINITIONS For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 2.1 "ACCOUNT OR ACCOUNTS" shall mean, with respect to a Participant other than a Director, the (i) the Deferred Compensation Account, (ii) Common Stock Account, (iii) Matching Contribution Account and (iv) Discretionary Contribution Account established pursuant to Article VII and, with respect to a Participant who is a Director, the Common Stock Account. These Accounts shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to this Plan. The Deferred Compensation and Common Stock Accounts shall be fully vested at all times and the Matching Contribution Account and the Discretionary Contribution Account shall vest in accordance with Article XIII. 2.2 "BENEFICIARY" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article XII to receive benefits under this Plan upon the death of a Participant. 2.3 "BOARD" shall mean the Board of Directors of the Company. 2 2.4 "BONUS" shall mean bonuses paid in the calendar year in question to a Participant for employment services rendered to the Company or Related Employer, before reduction for compensation contributed to or deferred under any Company or Related Employer benefit plan. 2.5 "CHANGE IN CONTROL" shall mean a change in control of the Company, which shall be deemed to have occurred if the conditions set forth in any one of the following four paragraphs shall have been satisfied: (i) any corporation, person, other entity or group (other than the trustee of any qualified retirement plan maintained by the Company) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of twenty-four consecutive months, individuals who at the beginning of such consecutive twenty-four month period constitute the Board cease for any reason (other than retirement upon reaching normal retirement age, disability or death) to constitute at least a majority thereof, unless the election or the nomination for election by the Company's shareholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such twenty-four month period; (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan or complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; (iv) there shall occur a transaction or series of transactions which the Board shall determine to have the effect of a Change in Control. 2.6 "CLAIMANT" shall have the meaning set forth in Section 16.1, below. 2.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.8 "COMMON STOCK" shall mean the Common Stock, par value $0.01 of the Company, or any security of the Company issued in substitution, exchange or lieu thereof. 2 3 2.9 "COMMITTEE" shall mean the Compensation Committee of the Board. 2.10 "COMPANY" shall mean The DII Group, Inc. and its successors. 2.11 "DIRECTOR" shall mean a member of the Board. 2.12 "DIRECTOR SHARES" shall mean compensation in the form of shares of Common Stock issued under the Company's Non-Employee Directors' Stock Compensation Plan. 2.13 "DISABILITY" shall mean any inability on the part of an Employee, commencing before age 64 1/2, as determined by the Committee or Plan Administrator, in its complete and sole discretion, to perform the substantial and material duties of his or her job due to injury or sickness lasting for more than one hundred eighty (180) consecutive days. Disability for purposes of this Plan shall be deemed to commence as of the first day following the end of such one hundred eighty (180) day period. If an Employee makes application for disability benefits under the Social Security Act, as now in effect or as hereafter amended, and qualifies for such benefits, the Employee shall be presumed to suffer from a Disability under this Plan. The Committee or Plan Administrator may require the Employee to submit to an examination by a physician or medical clinic selected by the Committee or Plan Administrator. On the basis of such medical evidence and in the absence of qualification for disability benefits under the Social Security Act, the determination of the Committee or Plan Administrator as to whether or not a condition of Disability exists shall be conclusive. To constitute Disability, the same must commence after the Employee has become a Participant in the Plan. The significance under this Plan of a Participant suffering a Disability is that the Participant (i) shall be deemed to have had a Termination of Employment, which shall cause his or her Account to be distributed pursuant to Article X and (ii) the Participant's Account shall become fully Vested pursuant to Article XIII. 2.14 "EARNINGS" shall mean the amount credited or debited to a Participant's Account based on the earnings or losses attained on the investment of the amounts held by the Trust, and any amount credited to the Common Stock Account pursuant to Section 7.2 which is attributable to a dividend. Until distributed to the Participant, Earnings are solely the property of the Company (subject to the terms of the Trust) and shall be subject to the rights of the Company's general creditors. 2.15 "EFFECTIVE DATE" of the Plan shall mean February 28, 1997. 2.16 "EMPLOYEE" shall mean an individual who renders services to the Company or a Related Employer as a common law employee (i.e., a person whose wages from the Company are subject to federal income tax withholding). 2.17 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 3 4 2.18 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended and in effect from time to time. 2.19 "FAIR MARKET VALUE" shall mean, if the Common Stock is listed on a national securities exchange in the United States on the date in question, the average of the high and low sale prices on such national securities exchange in the United States on the date in question, but if the Common Stock is not traded on such date, or such national securities exchange is not open for business on such date, the fair market value per share shall be the average of the high and low sale prices determined as of the closest preceding date on which such exchange shall have been open for business and the Common Stock was traded. If the Common Stock is listed on more than one national securities exchange in the United States on the date in question, the Committee or Plan Administrator shall determine which national securities exchange shall be used for the purpose of determining the fair market value per share. If the Common Stock is not listed on a national securities exchange but is listed on the Nasdaq National Market ("Nasdaq"), the fair market value per share shall be deemed to be the average of the high and low sale prices on the date in question as reported by Nasdaq or, if the Common Stock is not traded on such date or Nasdaq is not open for business on such date, the fair market value per share shall be the average of the high and low sale prices determined as of the closest preceding date on which Nasdaq shall have reported the shares. 2.20 "NON-QUALIFIED STOCK OPTION" shall mean an award to purchase shares of Common Stock that is not an incentive stock option under Section 422 of the Code and is granted pursuant to the provisions of any of the Company's stock option plans which grant the optionee the ability to elect to defer the Option Profit under this Plan. 2.21 "NORMAL RETIREMENT DATE" shall mean the date a Participant attains age 65. 2.22 "OPTION PROFIT" shall mean the amount (not less than zero) by which the Fair Market Value of a share of Common Stock subject to the Non-Qualified Stock Option on the date of the Participant's exercise of the Non-Qualified Stock Option exceeds the exercise price of a Non-Qualified Stock Option. 2.23 "PARTICIPANT" shall mean any Employee or Director who is covered by this Plan as provided in Article III. 2.24 "PERFORMANCE SHARES" shall mean performance shares awarded under the Company's 1994 Stock Incentive Plan and under any successor plan of the Company which permits the awardee to elect to defer the Performance Shares under this Plan. 2.25 "PLAN" shall mean The DII Group, Inc. Deferred Compensation Plan hereby created and as it may be amended form time to time. 4 5 2.26 "PLAN ADMINISTRATOR" shall mean the Plan Administrator, if appointed pursuant to Section 14.1. 2.27 "PLAN YEAR" shall mean the 12-month period ending on December 31. 2.28 "RELATED EMPLOYER" shall mean an affiliate (and its successors) of the Company, related to the Company in the manner described in Sections 414(b) or (c) of the Code, that the Committee or Plan Administrator in its sole discretion allows to participate in the Plan. 2.29 "SALARY" shall mean base salary paid in the calendar year in question to a Participant for services rendered to the Company or Related Employer, before reduction for compensation contributed to or deferred under any Company or Related Employer benefit plan. In no event shall severance benefits of any type be taken into account in computing a Participant's Salary. 2.30 "STOCK UNITS" shall mean units in the Plan each of which represents a share of Common Stock. 2.31 "TERMINATION OF EMPLOYMENT" shall mean a Participant's cessation of employment or service with the Company or a Related Employer voluntarily or involuntarily, for any reason other than death. 2.32 "TRUST" shall mean the one (1) or more grantor, or "rabbi", trusts, within the meaning of Code Section 671 that may be established between the Company (and the Related Employers) and the trustee (or trustees) named therein. Despite the existence of such a trust, this Plan is technically an unfunded plan for tax purposes and for purposes of Title I of ERISA. 2.33 "UNFORESEEABLE FINANCIAL EMERGENCY" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) other such extraordinary and unforeseeable circumstances, all as determined in the sole discretion of the Committee or Plan Administrator. 2.34 "VALUATION DATE" shall mean any date for which the balance of the Accounts maintained for a Participant is determined. 5 6 ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 SELECTION. Participation in the Plan shall be limited to (i) a select group of management or highly compensated Employees and (ii) the Directors. From the select group of Employees, the Committee or Plan Administrator, in its sole discretion, shall determine those Employees eligible to participate in the Plan. To be eligible for participation, an Employee must be highly compensated or have significant responsibility for the management, direction and/or success of the Company or a Related Employer. The Committee or Plan Administrator, in its sole discretion, may terminate the ongoing participation of any Participant, provided that any such termination shall only affect the ability of a Participant to defer additional future compensation hereunder. 3.2 PARTICIPATION. Once a selected Employee or Director has filed with the Committee or Plan Administrator (within 30 days of becoming eligible to participate or such other time as the Committee or Plan Administrator permits) an executed copy of a deferred compensation agreement prescribed by the Committee or Plan Administrator, the Employee or Director shall become a Participant on the latest of the date set forth in the deferred compensation agreement, the date on which his or her deferred compensation agreement is filed with the Committee or Plan Administrator or the date upon which a deferral is first credited to his or her Account. 3.3 ADOPTION BY RELATED EMPLOYER. A Related Employer may adopt this Plan by appropriate action of its board of directors. The terms of the Plan will apply separately to each Related Employer adopting the Plan and its Participants in the same manner as is expressly provided for the Company and its Participants except that the powers of the Board and Committee under the Plan will be exercised by the Board and Committee of the Company alone. The Company and each Related Employer adopting the Plan will bear the cost of providing plan benefits for its own Participants. ARTICLE IV DEFERRAL ELECTIONS 4.1 CASH DEFERRAL AMOUNT. A Participant may elect to defer all or any part of his or her anticipated Salary or Bonus. 4.2 ELECTIONS TO DEFER CASH. In connection with a Participant's commencement of participation in the Plan, the Participant may make a deferral election by delivering to the Committee or Plan Administrator a completed and signed election form at the same time the Participant files his or her completed and signed deferred compensation agreement with the Committee or Plan Administrator. Thereafter, if the Participant wishes to commence or discontinue making a deferral, or to change the amount of his or her deferral, the Participant must file a new election form with the Committee or Plan Administrator 30 days before the beginning of the (a) Plan Year for changes to the deferral of a Participant's Bonus or (b) calendar quarter (i.e., January 1, April 1, July 1 or October 1) for changes to the deferral of a Participant's Salary, or such 6 7 other time as the Committee or Plan Administrator permits. Such new election form shall supersede any prior election form. 4.3 DIRECTOR SHARES DEFERRALS. A Director may elect to defer all or any part of his or her anticipated Director Shares. 4.4 DIRECTOR SHARES ELECTIONS. A Director may commence or discontinue making a Director Shares deferral, or change the amount of his or her deferral by filing an election form with the Committee or Plan Administrator 30 days prior to any calendar quarter for changes in the deferral of a Director's Director Shares which shall supersede any prior election form. 4.5 PERFORMANCE SHARE DEFERRALS. A Participant may elect to defer all or any part of his or her unvested Performance Shares. 4.6 ELECTIONS TO DEFER PERFORMANCE SHARES. A Participant may make an election to defer Performance Shares upon vesting by filing an election form with the Committee or Plan Administrator at least one year prior to the date the Performance Shares vest or such other time as the Committee or Plan Administrator permits. Notwithstanding anything to the contrary contained in this Section, a Performance Share deferral and election shall be subject to any additional requirements imposed by the plan under which the Performance Shares are granted to the Participant. 4.7 OPTION PROFIT DEFERRALS. A Participant may elect to defer all or any part of his or her Option Profit on the exercise of a Non-Qualified Stock Option, but only if the Participant paid the exercise price of the Non-Qualified Stock Option with Common Stock. 4.8 OPTION PROFIT ELECTIONS. A Participant may make an Option Profit deferral by filing an election form with the Committee or Plan Administrator at least one year prior to the date the Non-Qualified Stock Option vests or such other time as the Committee or Plan Administrator permits. With respect to Non-Qualified Stock Options that are vested as of the Effective Date or will become vested within one year after the Effective Date, a Participant may make an Option Profit deferral within thirty days of the Effective Date. Notwithstanding anything to the contrary contained in this Section, an Option Profit deferral and election shall be subject to any additional requirements imposed by the plan under which the Non-Qualified Stock Option is granted to the Participant. 4.9 WITHHOLDING OF DEFERRAL AMOUNTS. A Participant's deferrals shall be withheld as specified in the Participant's election form, subject to any rules established by the Committee and the Plan Administrator limiting or prescribing how deferrals are to be withheld, such as rules requiring that deferrals first be made out of incentive compensation. 7 8 4.10 IRREVOCABLE ELECTIONS. Except as provided in Sections 4.2 and 4.11, any election by a Participant pursuant to Section 4.1 shall be irrevocable for any Plan Year once the Plan Year has begun. Except as provided in Section 4.2, any deferral election will continue until revoked or modified in a writing delivered by the Participant to the Committee or Plan Administrator. Except as provided in Sections 4.4 and 4.11, any election by a Participant made pursuant to Sections 4.3, 4.5 and 4.7 shall be irrevocable. 4.11 UNFORESEEABLE FINANCIAL EMERGENCY. If a Participant suffers an Unforeseeable Financial Emergency, the Participant will be permitted to revoke his deferral election for the remainder of the Plan Year in which it is determined by the Committee or Plan Administrator that the Unforeseeable Financial Emergency has occurred. ARTICLE V COMMON STOCK ACCOUNT 5.1 DEFERRAL AMOUNTS. The entire amount of the Director Shares, Performance Shares and the Option Profit subject to a Participant's deferral election shall be credited to the Participant's Common Stock Account in the form of Stock Units. A corresponding number of shares of Common Stock shall be issued by the Company to the Trust, to be held in accordance with the terms of the Trust. 5.2 CREDITED AMOUNTS. The Participant's Common Stock Account will be credited with a number of Stock Units equal to the following amounts: Director the number of shares of Common Stock deferred by a Shares Participant from a Director Shares grant when the shares are otherwise payable Performance the number of shares of Common Stock deferred by a Shares Participant from a Performance Share award when the shares are otherwise payable (i.e., on the date of vesting) Option the amount of the Option Profit deferral divided by Profit the Fair Market Value on the date of exercise of the Non-Qualified Stock Option The amounts shall be credited on the date the Director Shares, Performance Shares and Option Profit would otherwise be payable to the Participant. 8 9 ARTICLE VI COMPANY MATCHING CONTRIBUTIONS 6.1 MATCHING CONTRIBUTIONS. The Company will credit each Participant's Matching Contribution Account with a matching contribution based upon his Salary and Bonus deferrals, as follows:
PERCENTAGE OF COMPENSATION DEFERRED MATCHING PERCENTAGE ----------------------------------- ------------------- The first 5% of Salary and 100% Bonus The next 5% of Salary 25% and Bonus
6.2 DISCRETIONARY CONTRIBUTIONS. As of each Plan Year, the Company may, in its sole discretion, credit a Participant's Discretionary Contribution Account with a discretionary contribution in an amount to be determined by the Company in its sole discretion. ARTICLE VII PARTICIPANT ACCOUNTS AND INVESTMENT OF DEFERRED AMOUNTS 7.1 DEFERRED COMPENSATION ACCOUNT. Deferrals pursuant to Section 4.1 shall be recorded by the Committee or Plan Administrator in a Deferred Compensation Account maintained in the name of the Participant. The Deferred Compensation Account shall be credited with all amounts that have been deferred by the Participant pursuant to Section 4.1 during the Plan Year, plus Earnings and such account shall be charged from time to time with all amounts that are distributed to the Participant. 7.2 COMMON STOCK ACCOUNT. (a) Deferrals made pursuant to Sections 4.3, 4.5 and 4.7 shall be recorded by the Committee or Plan Administrator in the Common Stock Account and shall be represented by Stock Units. The Common Stock Account shall be credited with all amounts that have been deferred by the Participant pursuant to Sections 4.3, 4.5 and 4.7. In addition, in the event the Company declares and pays a dividend, the Common Stock Account shall be credited with an amount equal to the amount of the dividend paid on the number of shares of Common Stock equal to the number of Stock Units in the Participant's Common Stock Account. Finally, the Common Stock Account shall be charged from time to time with all amounts that are distributed to the Participant. 9 10 (b) In the event of any stock dividend, stock split, combination or exchange of shares of Common Stock, recapitalization or other change in the capital structure of the Company, corporate separation or division (including, but not limited to, split-up, spin-off or distribution to Company shareholders other than a normal cash dividend), sale by the Company of all or a substantial portion of its assets, rights offering, merger, consolidation, reorganization or partial or complete liquidation, or any other corporate transaction or event having an effect similar to any of the foregoing, the number of Stock Units in each Participant's Common Stock Account shall be appropriately adjusted in an equitable manner by the Committee or there shall be made such other equitable adjustments to each Participant's Common Stock Account as shall be determined by the Committee. 7.3 MATCHING CONTRIBUTION ACCOUNT. Company matching contributions credited to a Participant pursuant to this Plan shall be recorded by the Committee or Plan Administrator in a Matching Contribution Account maintained in the name of the Participant. The Matching Contribution Account shall be credited with all amounts that have been contributed by the Company during the Plan Year, plus Earnings and such account shall be charged from time to time with all amounts that are distributed to the Participant. 7.4 DISCRETIONARY CONTRIBUTION ACCOUNT. Company discretionary contributions, if any, credited to a Participant pursuant to this Plan shall be recorded by the Committee or Plan Administrator in a Discretionary Contribution Account maintained in the name of the Participant. The Discretionary Contribution Account shall be credited with all amounts that have been contributed by the Company during the Plan Year, plus Earnings and such account shall be charged from time to time with all amounts that are distributed to the Participant. 7.5 EARNINGS. A Participant's Account shall be credited with Earnings commensurate with earnings or losses attained on the investment of amounts held by the Trust, except that Earnings attributable to a dividend (pursuant to Section 7.2) shall be credited on the date the dividend is paid. 7.6 INVESTMENT. The Committee or Plan Administrator shall permit a Participant (or Beneficiary) to have the right to direct the investment of all or any part of the Trust allocable to his or her Accounts, including amounts credited to the Participant's Common Stock Account, provided that such amounts are currently available for investment purposes, subject to the Committee's or Plan Administrator's final determination. Such directions to invest are subject to all of the following: (a) All directions to invest must be made in writing, or in accordance with procedures established by the Committee or Plan Administrator for telephone direction. 10 11 (b) All directions to invest are limited to investment options selected by the Committee or Plan Administrator, unless the Committee or Plan Administrator permits otherwise. (c) All interest and other income earned on investments directed by the Participant shall be accumulated and added to the principal for the Participant's benefit. (d) The Committee or Plan Administrator and Trustee shall not be responsible for any loss incurred as the result of the Participant's direction to invest. (e) No investments may be made in shares of Common Stock pursuant to this Section 7.6. The crediting of assumed earnings shall not mean that any deferred compensation promise to a Participant is secured by particular investment assets or that the Participant is actually earning interest or any other form of investment income under the Plan. 7.7 VALUATION OF ACCOUNTS. As of each Valuation Date, a Participant's Account shall consist of the balance of the Participant's Account as of the last preceding Valuation Date, plus the Participant's deferrals and contributions by the Company credited to the Account, plus Earnings on the Account, minus the amount of any distributions made since the immediately preceding Valuation Date. 7.8 STATEMENT OF ACCOUNTS. The Committee or Plan Administrator shall submit to each Participant, within ninety (90) days after the close of each Plan Year and at such other time as determined by the Committee or Plan Administrator, a statement setting forth the balance to the credit of the Accounts maintained for a Participant. ARTICLE VIII IN SERVICE DISTRIBUTIONS 8.1 DISTRIBUTIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may, with the approval of the Plan Administrator, receive a partial or full distribution from the Plan of the Vested amounts in his or her Accounts. The distribution shall not exceed the lesser of the Vested balance then credited to the Participant's Account or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. 8.2 WITHDRAWAL ELECTION. A Participant may at any time elect to withdraw all of the balance then credited to his or her Accounts, less a ten (10) percent withdrawal penalty. Thereafter, the Participant shall never again be eligible to participate in the Plan. 11 12 ARTICLE IX LOANS 9.1 LOANS TO PARTICIPANTS (a) The Plan Administrator shall have the investment management discretion to direct the Trustee to loan money to Participants. Each such loan shall be treated as an investment of the borrower's Account. (A former Employee who still has an Account under the Plan or a Beneficiary who is entitled to future benefits because of the death of a Participant, shall not be entitled to borrow from the Plan.) (b) The Plan Administrator shall establish Plan Rules governing loan procedures. These Rules may limit the number of loans a Participant may receive, require payment of loan processing fees by the Participant (either directly or out of his or her Vested Account) or establish any other requirements the Plan Administrator determines to be necessary or desirable. A Participant who wishes to borrow money from the Plan shall file a written loan application with the Plan Administrator in accordance with these Plan Rules. The Plan Administrator, in its sole discretion, shall approve or deny the loan. The Plan Administrator may deny a loan application if it believes that the loan would not be repaid (e.g., if the borrower has failed to repay a prior loan on time) or for any other reason if denial would be in the best interests of the Plan or the Participant. The Plan Administrator shall exercise its discretion in a uniform and nondiscriminatory manner. No loan shall be granted unless the following requirements are met: (i) No more than two loans shall be outstanding at any time; (ii) No loan shall be made if the loan amount, when aggregated with the amount of any outstanding loan, would exceed the lesser of $100,000 or fifty percent of the Vested portion of the Participant's Account, including the Participant's Common Stock Account represented by Stock Units; (iii) The loan shall bear a reasonable rate of interest not in excess of that permitted by law; (iv) Except as otherwise authorized by the Plan Administrator, interest and principal on a loan must be repaid through payroll deduction in installments not less frequently than quarterly over a specified period not to exceed five years (including renewals, extensions and refinancing); and 12 13 (v) The loan shall be documented by such notes, evidences of indebtedness and other instruments executed by the Participant which the Plan Administrator in its discretion requires. (c) Each loan from the Plan shall be secured by the borrowing Participant's interest in the Plan. (d) A loan shall be in default if the Participant fails to make any payment when due or if there occurs such other circumstances as may be prescribed by Plan Rule. A loan which is in default shall, at the Plan Administrator's election, become immediately due and payable and shall be subject to the execution provisions of subsection (f). (e) If a Participant's Employment terminates or the Plan terminates before he or she has repaid a loan, the loan, at the Plan Administrator's election, shall become immediately due and shall be repaid out of the Participant's Vested Account which secures the loan and that Account shall be reduced accordingly. (f) If a Participant's loan is in default for 120 consecutive days and the Participant's Employment has not terminated, the loan shall be satisfied to the extent possible from the Participant's Vested Account which secures the loan and the Account shall be reduced accordingly. In addition, the Participant shall be assessed a penalty of ten (10) percent of the outstanding balance of the defaulted loan as of the date the penalty is assessed. Unless the defaulting Participant satisfies the penalty by paying it directly to the Company, the defaulting Participant's Vested Account shall be reduced by the amount of the penalty, in which case the penalty shall be paid to the Company directly or used to reduce the Company's obligation to make matching contributions under Section 6.1, at the Company's option. In all cases, the Participant shall be responsible for any indebtedness not discharged pursuant to the provisions of this subsection (f). ARTICLE X DISTRIBUTIONS FOLLOWING TERMINATION OF EMPLOYMENT 10.1 DISTRIBUTION. Upon Termination of Employment, a Participant's Vested Account shall be distributed in accordance with this Article. 10.2 ELECTIONS. A Participant, on his or her initial election form, shall elect to receive distributions following Termination of Employment in a lump sum or in installment payments, not more frequently than quarterly, over a period of not more than ten years. A Participant may change this election on any subsequent election form filed at least one (1) year prior to the Participant's Termination of Employment; if made within one (1) year of Termination of Employment, such a new election shall be invalid. 13 14 10.3 TIME FOR PAYMENT. The lump sum payment shall be made, or installment payments shall commence, no later than sixty (60) days after the Participant's Termination of Employment. If installment payments are being made, the first benefit payment to a Participant shall be prorated. Installment payments shall be made pro rata from all of the Participant's Accounts. Undistributed portions of a Participant's Accounts shall continue to accrue Earnings. The following formula shall be used to determine each installment payment to a Participant: the remaining Account balance divided by the number of remaining installments, including the current one. 10.4 SMALL PAYMENTS. The minimum annual installment payment shall be $5,000 (before withholding of taxes). If annual installment payments to a Participant would be less than this amount, the Participant's Account shall be distributed over the longest installment period available under Section 10.2 under which the annual payment would be at least $5,000 (before withholding of taxes) or, if no such period exists, in a lump sum. 10.5 CASHOUT OF INSTALLMENT PAYMENTS. A Participant who has elected to receive installment payments may, at the time installments are to commence or thereafter, elect to receive, in lieu of any future installment payments, a lump sum payment of the balance then credited to his or her Account, less a ten (10) percent early withdrawal penalty. The ten (10) percent early withdrawal penalty shall be used to reduce the Company's obligation to make matching contributions to other Participants under Section 6.1. 10.6 FORM OF PAYMENT. All payments made pursuant to this Article shall be made in cash, except that distributions made from the Common Stock Account shall be made in Common Stock. 10.7 RESTRICTIONS ON COMMON STOCK. Common Stock distributions pursuant to this Article shall only be distributed to a Participant upon delivery to the Company of such representations and warranties as the Company deems necessary or advisable with respect to the investment intent of the Participant as required by the Securities Act of 1933, as amended, and any other federal or state securities laws. The Company shall not be required to distribute shares of Common Stock to a Participant before such shares become listed for trading on any stock exchange on which the Common Stock may then be listed, if any, and the completion of such registration or other qualification of such shares under any state or federal law, rule or regulation, as the Plan Administrator shall determine to be necessary or advisable. ARTICLE XI DISTRIBUTIONS FOLLOWING DEATH 11.1 DEATH WHILE EMPLOYED BY EMPLOYER GROUP. If a Participant dies while employed by the Company or a Related Employer, the Participant's 14 15 Beneficiary shall receive the Participant's Account in the form of death benefit payments elected by the Participant on his or her last election form. The Participant may elect to have such payments made in a lump sum or in installment payments over a period of not more than ten years. The minimum annual installment payment shall be $5,000 (before withholding of taxes). If annual installment payments to a Beneficiary would be less than this amount, the Participant's Account shall be distributed over the longest installment period available under this Section under which the annual payment would be at least $5,000 (before withholding of taxes) or, if no such period exists, in a lump sum. Death benefit payments shall commence within sixty (60) days after the date the Plan Administrator is provided with proof of the Participant's death satisfactory to it. 11.2 DEATH AFTER TERMINATION OF EMPLOYMENT. If a Participant dies after Termination of Employment but before his or her Account has been fully distributed, unpaid amounts due under Article 10 shall be paid to the Participant's Beneficiary in the same amount and at the same time as they would have been paid under Section 11.1. 11.3 LUMP SUM ELECTION. While a Beneficiary may not select the manner of payment, if requested by a Beneficiary and allowed in the sole discretion of the Plan Administrator, the Beneficiary shall be paid a lump sum calculated in accordance with Section 10.5 but without the ten (10) percent early withdrawal penalty. 11.4 FORM OF PAYMENT. All payments made pursuant to this Article shall be made in cash, except that distributions made from the Common Stock Account shall be made in Common Stock. 11.5 RESTRICTIONS ON COMMON STOCK. Common Stock shall only be distributed to a Participant upon delivery to the Company of such representations and warranties as the Company deems necessary or advisable with respect to the investment intent of the Participant as required by the Securities Act of 1933, as amended, and any other federal or state securities laws. The Company shall not be required to distribute shares of Common Stock to a Participant before such shares become listed for trading on any stock exchange on which the Common Stock may then be listed, if any, and the completion of such registration or other qualification of such shares under any state or federal law, rule or regulation, as the Plan Administrator shall determine to be necessary or advisable. ARTICLE XII BENEFICIARY DESIGNATION 12.1 BENEFICIARY. Each Participant shall have the right, at any time, to designate his or her Beneficiary (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The 15 16 Beneficiary designated under this Plan may be the same as or different from the beneficiary designated under any other plan in which the Participant participates. 12.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant shall designate his or her Beneficiary by completing and signing a Beneficiary designation form, and returning it to the Committee or Plan Administrator or its designated agent. A Participant shall have the right to change a Beneficiary by completing and signing a new Beneficiary designation form, or such other form approved by the Committee or Plan Administrator, and filing it with the Committee or Plan Administrator. If the Participant names someone other than his or her spouse as a Beneficiary, a spousal consent, in the form designated by the Committee or Plan Administrator, must be signed by that Participant's spouse and returned to the Committee or Plan Administrator. Upon the acceptance by the Committee or Plan Administrator of a new Beneficiary designation form, all Beneficiary designations previously filed shall be canceled. The Committee or Plan Administrator shall be entitled to rely on the last Beneficiary designation form filed by the Participant and accepted by the Committee or Plan Administrator prior to his or her death. 12.3 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in Sections 12.1 and 12.2 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse or, if none the Participant's estate. 12.4 DOUBT AS TO BENEFICIARY. If the Committee or Plan Administrator has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee or Plan Administrator shall have the right, exercisable in its discretion, to withhold such payments until this matter is resolved to the Committee's or Plan Administrator's satisfaction. ARTICLE XIII VESTING 13.1 VESTING SCHEDULES. A Participant shall become vested in his or her Accounts in accordance with the Vesting Schedules described in this Article. 13.2 DEFERRED COMPENSATION ACCOUNT. All Deferred Compensation and Common Stock Accounts shall be fully Vested at all times. 13.3 VESTING SCHEDULE FOR MATCHING CONTRIBUTION AND DISCRETIONARY CONTRIBUTION ACCOUNTS . The Vested portion of a Participant's Matching Contribution and Discretionary Contribution Accounts shall be the percentage of such Account shown on the following table (with credit for prior years 16 17 service to the Company or a subsidiary which is or hereafter becomes a Related Employer):
YEARS OF SERVICE VESTED PERCENTAGE ----------------------- ---------- Less than one year 0% 1 20% 2 40% 3 60% 4 80% 5 (or more) 100%
13.4 ACCELERATED VESTING. A Participant's Matching Contribution and Discretionary Contribution Accounts shall become fully Vested upon the earliest to occur of: (a) the individual's attaining Normal Retirement Age while employed by the Company or a Related Employer, (b) the individual's death (or presumed death) while employed by the Company or a Related Employer, (c) the individual's suffering a Disability while employed by the Company or a Related Employer, and (d) a Change in Control. 13.5 FORFEITURES UPON TERMINATION OF EMPLOYMENT. The unvested portion of the Accounts of a Participant whose employment terminates shall be forfeited on the date of his or her Termination of Employment. Forfeitures shall be used to reduce the Company's obligation to make matching contributions to other Participants under Section 6.1. ARTICLE XIV ADMINISTRATION 14.1 COMMITTEE AND PLAN ADMINISTRATOR. The Committee shall administer the Plan and may select one or more persons to serve as the Plan Administrator. The Plan Administrator shall perform such administrative functions as the Committee may delegate to it from time to time. Any person selected to serve as the Plan Administrator may, but need not, be a Committee member or an officer or employee of the Company. However, if a person serving as Plan Administrator or a member of the Committee is a Participant, such person may not vote on a matter affecting his interest as a Participant. Except as provided in Section 16.6, the Committee or Plan Administrator 17 18 shall have complete control and discretion to manage the operation and administration of the Plan. Not in limitation, but in amplification of the foregoing, the Committee or Plan Administrator shall have the following powers: (a) To determine all questions relating to the eligibility of Employees to participate or continue to participate; (b) To maintain all records and books of account necessary for the administration of the Plan; (c) To interpret the provisions of the Plan and to make and to publish such interpretive or procedural rules as are not inconsistent with the Plan and applicable law; (d) To compute, certify and arrange for the payment of benefits to which any Participant or Beneficiary is entitled; (e) To process claims for benefits under the Plan by Participants or Beneficiaries; (f) To engage agents and professionals to assist the Plan Administrator in carrying out its duties under this Plan; (g) To adopt or modify Plan rules for the regulation or application of the Plan; such rules may establish administrative procedures or requirements which modify the terms of this Plan but Plan rules shall not substantially alter significant requirements or provisions of the Plan; and (h) To develop and maintain such instruments as may be deemed necessary from time to time by the Committee or Plan Administrator to facilitate payment of benefits under the Plan. 14.2 COMMITTEE'S AND PLAN ADMINISTRATOR'S AUTHORITY. The Committee or Plan Administrator may consult with Company officers, legal and financial advisers to the Company and others, but nevertheless the Committee or Plan Administrator shall have the full authority and discretion to act, and the Committee's and Plan Administrator's actions shall be final and conclusive on all parties. 18 19 ARTICLE XV AMENDMENT AND TERMINATION 15.1 AMENDMENTS. The Company reserves the right to amend the Plan prospectively or retroactively, at any time. No amendment shall reduce the value of a Participant's Vested Account prior to such amendment. 15.2 TERMINATION OF PLAN. The Company shall have the right at any time to declare the Plan terminated completely as to it or as to any of its divisions, facilities, operational units or job classifications. Subject to Section 15.3, upon termination of the Plan, the Company may, but shall not be required to, accelerate distribution of the amounts in each Participant's Vested Account. 15.3 FOLLOWING A CHANGE IN CONTROL. Upon the occurrence of a Change in Control, this Plan no longer shall be subject to alteration, amendment, change, suspension, substitution, deletion, revocation or termination in any manner adverse to the Participants and Beneficiaries. ARTICLE XVI CLAIMS PROCEDURES 16.1 PRESENTATION OF CLAIM. If any person (a "Claimant") does not believe that he or she will receive the benefits to which the person is entitled or believes that fiduciaries of the Plan have breached their duties or that the Plan is not being operated properly or that his or her legal rights have been or are being violated with respect to the Plan, the Claimant must file a formal claim with the Committee or Plan Administrator under the procedures set forth in this Article. The procedures in this Article shall apply to all claims that any person has with respect to the Plan, including claims against fiduciaries and former fiduciaries, unless the Committee or Plan Administrator determines, in its sole discretion, that it does not have the power to grant, in substance, all relief reasonably being sought by the Claimant. A claims official appointed by the Committee or Plan Administrator shall, within a reasonable time, consider the claim and shall issue his or her determination thereon in writing. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within one hundred-eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 16.2 NOTIFICATION OF DECISION. Written notice of the disposition of a claim shall be furnished to the Claimant within thirty (30) days after the claim is filed with the Committee or Plan Administrator. In the event the claim is denied, the reasons for the denial shall be specifically set forth in writing, pertinent provisions of 19 20 the Plan shall be cited and, where appropriate, an explanation as to how the claim can be perfected will be provided. 16.3 REVIEW OF A DENIED CLAIM. Within ninety (90) days after receiving a notice from the Committee or Plan Administrator that a claim has been denied in whole or in part, a Claimant may appeal the denial of his or her claim by filing a written statement of the Claimant's position with the review official designated by the Committee or Plan Administrator. The review official shall schedule and give the Claimant an opportunity for a full and fair hearing before the review official of the issue within thirty (30) days after the appeal is requested. The review official's decision following such hearing shall be made within thirty (30) days and shall be communicated in writing to the Claimant. 16.4 ARBITRATION. If a Claimant's claim described in Section 16.1 (an "Arbitrable Dispute") is denied pursuant to Section 16.3, the Claimant's only further recourse shall be to submit the claim to final and binding arbitration in the County of Boulder, State of Colorado, before an experienced employment arbitrator selected in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. Except as otherwise provided in Section 18.10, each party shall pay the fees of their respective attorneys, the expenses of their witnesses and any other expenses connected with the arbitration, but all other costs of the arbitration, including the fees of the arbitrator, costs of any record or transcript of the arbitration, administrative fees and other fees and costs shall be paid in equal shares by each party (or, if applicable, each group of parties) to the arbitration. Except as otherwise provided in Section 18.10, in any dispute involving a Claimant or the trustee of a Trust in which the Claimant or the trustee prevails, the Company shall reimburse the Claimant's or the trustee's reasonable attorneys fees and related expenses. Arbitration in this manner shall be the exclusive remedy for any Arbitrable Dispute. The arbitrator's decision or award shall be fully enforceable and subject to an entry of judgment by a court of competent jurisdiction. Should any party attempt to resolve an Arbitrable Dispute by any method other than arbitration pursuant to this Section, the responding party shall be entitled to recover from the initiating party all damages, expenses and attorneys fees incurred as a result. 16.5 LEGAL ACTION. Prior to a Change in Control, except to enforce an arbitrator's award, no actions may be brought by a Claimant in any court with respect to an Arbitrable Dispute. 16.6 FOLLOWING A CHANGE IN CONTROL. Upon the occurrence of a Change in Control, an independent party selected by the Committee or Plan Administrator prior to a Change in Control shall assume all duties and responsibilities of the Committee or Plan Administrator under this Article and actions may be brought by a Claimant in any appropriate court with respect to an Arbitrable Dispute. 20 21 ARTICLE XVII TRUST 17.1 ESTABLISHMENT OF TRUST. The Company (and the Related Employers) shall establish a Trust and shall at least annually transfer over to the Trust such assets, if any, as the Committee or Plan Administrator, in its sole discretion, determines to be appropriate. The assets of the Trust shall be considered part of the general assets of the Company subject to the claims of its general creditors. All expenses of operating and administering this Plan, including the fees of, and general expenses incurred by, the Trustee, shall be paid by the Company. 17.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and the deferred compensation agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of any Trust shall govern the rights of the Participant and the creditors of the Company to the assets transferred to such Trust. The Company shall at all times remain liable to carry out its obligations under the Plan. The Company's obligations under the Plan shall be deemed satisfied to the extent met with assets distributed pursuant to the terms of the Trust. ARTICLE XVIII MISCELLANEOUS 18.1 UNSECURED GENERAL CREDITOR/UNFUNDED PLAN. The Plan constitutes an unsecured promise by the Company or a Related Employer to pay benefits in the future and the Participants shall have the status of general unsecured creditors of the Company and Related Employers. The Plan is unfunded for Federal tax purposes and for purposes of Title I of ERISA. All amounts credited to the Participants' accounts will remain the general assets of the Company and the Related Employers and shall remain subject to the claims of the Company's and the Related Employers' general creditors until such amounts are distributed to the Participants. 18.2 PAYMENTS TO MINORS AND INCOMPETENTS. If the Plan Administrator receives satisfactory evidence that a person who is entitled to receive any benefit under the Plan, at the time such benefit becomes available, is a minor or is physically unable or mentally incompetent to receive such benefit and to give a valid release therefor, and that another person or an institution is then maintaining or has custody of such person, and that no guardian committee, or other representative of the estate of such person shall have been duly appointed, the Committee or Plan Administrator may authorize payment of such benefit otherwise payable to such person to such other person or institution; and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit. 21 22 18.3 PLAN NOT A CONTRACT OF EMPLOYMENT. The Plan shall not be deemed to constitute a contract between the Company or any Related Employer and any Participant, nor to be consideration for the employment of any Participant. Nothing in the Plan shall give a Participant the right to be retained in the employ of the Company or any Related Employer; all Participants shall remain subject to discharge or discipline as Employees to the same extent as if the Plan had not been adopted. 18.4 NO INTEREST IN ASSETS. Nothing contained in the Plan shall be deemed to give any Participant any equity or other interest in the assets, business or affairs of the Company or a Related Employer. No Participant in the Plan shall have a security interest in assets of the Company or a Related Employer used to make contributions or pay benefits. 18.5 RECORDKEEPING. Appropriate records shall be maintained for the purpose of the Plan by the officers and Employees of the Company at the Company's expense and subject to the supervision and control of the Committee or Plan Administrator. 18.6 NOTICE. Any notice or filing required or permitted to be given to the Committee or Plan Administrator under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail or by telefax (with a hard copy sent by mail), to the address or telefax number shown below (or such other address or telefax number specified in notice given pursuant to this Section): The DII Group, Inc. 6273 Monarch Park Place, Suite 200 Niwot, CO 80503 Telefax: 303-652-0416 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 18.7 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns and the Participant, his or her Beneficiary and their permitted successors and assigns. 18.8 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 22 23 18.9 TAXES AND WITHHOLDING. For each Plan Year in which deferrals are being withheld, the Company shall ratably withhold from that portion of the Participant's Salary and Bonus that is not being deferred, the Participant's share of FICA and other employment taxes on the deferral (including deferrals of Salary, Bonus, Performance Shares and Option Profit). If necessary, the Committee or Plan Administrator shall reduce a Participant's deferrals in order to comply with this Section. The Company (or the trustee of the Trust) shall withhold from benefits distributed under the Plan all federal, state and local income, employment and other taxes required to be withheld by applicable law. 18.10 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. After a Change in Control, if any person or entity has failed to comply (or is threatening not to comply) with any of its obligations under the Plan, any Trust or any related agreement, or takes or threatens to take any action to deny, diminish or to recover from any Participant the benefits intended to be provided thereunder, the Company shall reimburse the Participant for reasonable attorneys fees and related costs incurred in the successful pursuance or defense of the Participant's rights. If the Participant does not prevail, attorneys fees shall also be payable under the preceding sentence to the extent the Participant had reasonable justification for retaining counsel, but only to the extent that the scope of such representation was reasonable. 18.11 COURT ORDER. The Committee or Plan Administrator is authorized to make any payments directed by court order in any action in which the Plan or the Committee or Plan Administrator has been named as a party. 18.12 FURNISHING INFORMATION. A Participant will cooperate with the Company by furnishing any and all information requested by the Company and take such other actions as may be requested in order to facilitate the administration of the Plan and the payment of benefits hereunder, including but not limited to taking such physical examinations as the Company may deem necessary. 18.13 NON-ALIENATION OF BENEFITS. No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. No benefit under the Plan shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to any such benefit, except as specifically provided in the Plan. 18.14 GOVERNING LAW. Except to the extent preempted by ERISA, this Plan shall be construed in accordance with the laws of New York without regard to its conflicts of laws principles. 18.15 SECTION 16. With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor rules under the Exchange Act. To the extent any provision under the Plan or action by the Committee fails to so comply, it shall be 23 24 deemed null and void to the extent permitted by law and deemed advisable by the Committee. 18.16 LIABILITY LIMITED. In administering the Plan, neither the members of the Committee, the Plan Administrator nor any officer, Director or Employee thereof shall be liable for any act or omission performed or omitted, as the case may be, by such person with respect to the Plan; provided, that the foregoing shall not relieve any person of liability for gross negligence, fraud or bad faith. The members of the Committee, the Plan Administrator, its officers, Directors and Employees shall be entitled to rely conclusively on all tables, valuations, certificates, opinions and reports that shall be furnished by any actuary, accountant, trustee, insurance company, consultant, counsel or other expert who shall be employed or engaged by the Committee or Plan Administrator in good faith. 24 25 IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer on this 28th day of February, 1997. THE DII GROUP, INC. By: /s/ Carl R. Vertuca, Jr. ---------------------------------- Name: Carl R. Vertuca, Jr. Title: Senior Vice President and Chief Financial Officer 25 EX-10.4 5 PERFORMANCE SHARE AGREEMENT 1 EXHIBIT 10.4 THE DII GROUP, INC. PERFORMANCE SHARE AGREEMENT PURSUANT TO THE 1994 STOCK INCENTIVE PLAN This Performance Share Agreement is made and entered into as of the Date of Award specified herein, by and between THE DII GROUP, INC., a Delaware corporation (the "Company") and Ronald R. Budacz (the "Grantee") W I T N E S S E T H: WHEREAS, the Company maintains the The DII Group, Inc. 1994 Stock Incentive Plan (the "Plan") under which the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") may, among other things, grant awards of performance shares in the form of shares of the Company's Common Stock, $.01 par value per share ("Common Stock"), subject to such terms, conditions and restrictions as the Compensation Committee may deem appropriate; and WHEREAS, pursuant to the Plan, the Compensation Committee has granted the Grantee an award of performance shares conditioned upon the execution by the Company and the Grantee of a Performance Share Agreement setting forth all the terms, conditions and restrictions relating to the performance shares. NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the parties hereto hereby agree as follows: 1. Award of Performance Shares. Pursuant to the terms of the Plan, the Compensation Committee has granted to the Grantee a performance share award as of January 1, 1997 (the "Date of Award"), covering 100,000 shares of Common Stock (the "Performance Shares"), subject to the terms, conditions and restrictions set forth in this Agreement. This Performance Share award is subject to approval by the stockholders of the Company at the 1997 Annual Meeting of Stockholders of an amendment to the Plan to permit issuances and grants to an executive covering up to a maximum of 150,000 shares per annum. 2. Restrictions. Until a Performance Share vests, it may not be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner whatsoever. 2 3. Vesting of Performance Shares. Subject to accelerated vesting in accordance with the provisions of Sections 4 and 5 hereof and subject to forfeiture in accordance with the provisions of Section 6 hereof, the Performance Shares shall vest one-quarter on the first anniversary of the Date of Award, one-quarter on the second anniversary of the Date of Award, one-quarter on the third anniversary of the Date of Award, and one-quarter on the fourth anniversary of the Date of Award. 4. Acceleration of Vesting upon Death, Disability. If the employment of the Grantee shall terminate by reason of the Grantee's death or Disability (as hereinafter defined), all of the Performance Shares granted hereunder and not previously vested hereunder shall vest in full upon such termination. For purposes of this Agreement, Disability shall have the meaning set forth in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. 5. Acceleration of Vesting upon Change of Control. Upon a Change of Control (as hereinafter defined), all Performance Shares granted hereunder shall immediately vest in full. For purposes hereof, a Change of Control shall be deemed to have taken place upon the occurrence of any of the following events: (i) any person (which shall mean and include any individual, corporation, partnership, group, association or other "person", as such term is used in Sections 13 and 14 of the Securities Exchange Act of 1934, as amended) is, becomes, or has the right to become the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the shares of Common Stock then outstanding, whether or not such person continues to be the beneficial owner of securities representing 20% or more of the outstanding shares of Common Stock; or (ii) as the result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election, any announcement of an intention to make any of the foregoing transactions, or any combination of the foregoing transactions (a "Transaction"), those persons who were directors of the Company before the Transaction and were otherwise unaffiliated with any other party to the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company (a "Change in the Board"); or (iii) the stockholders of the Company approve any merger, consolidation, reorganization, liquidation, dissolution, or sale of all or substantially all of the Company's assets in which neither the Company nor a successor resulting from a change in domicile or form of organization will survive as an independent, publicly-owned corporation. 2 3 Notwithstanding anything herein to the contrary, no Change of Control shall be deemed to have occurred by virtue of any event which results in any of the following: (i) the acquisition, directly or indirectly, of 20% or more of the outstanding shares of Common Stock by (A) the Grantee or a person including the Grantee, (B) the Company, (C) a subsidiary of the Company, or (D) any employee benefit plan of the Company or of a subsidiary, or any entity holding securities of the Company recognized, appointed, or established by the Company or by a subsidiary for or pursuant to the terms of such plan; or (ii) a Change in the Board resulting from any Transaction in which the Grantee or a person including the Grantee participates, directly or indirectly, with any party to the Transaction other than the Company. 6. Forfeiture of Performance Shares. Except as otherwise provided in Section 4 or 5 hereof, in the event the Grantee shall cease to be an employee of the Company or any of its subsidiaries for any reason, or for no reason, then, the then unvested portion of the award of Performance Shares shall be forfeited, the Grantee shall have no further rights under this Agreement and the Common Stock covered by the Performance Shares shall revert to the Company. 7. Change in Common Stock or Corporate Structure. In the event of any stock dividend, stock split, combination or exchange of shares of Common Stock, recapitalization or other change in the capital structure of the Company, corporate separation or division (including, but not limited to, split-up, spin-off or distribution to Company shareholders other than a normal cash dividend), sale by the Company of all or a substantial portion of its assets, rights offering, merger, consolidation, reorganization or partial or complete liquidation, or any other corporate transaction or event having an effect similar to any of the foregoing, the number of Performance Shares subject to the award granted hereunder shall be equitably and appropriately adjusted, as determined by the Compensation Committee in its discretion. Any such adjustment made by the Compensation Committee shall be conclusive and binding upon the Grantee, the Company and all other interested persons. 8. Payment of Withholding Taxes. If the Company becomes obligated to withhold an amount of any federal, state or local tax imposed as a result of the issuance of the Performance Shares to the Grantee pursuant to this Agreement or the vesting of Performance Shares hereunder, including without limitation, any federal, state or other income tax, or any F.I.C.A., state disability insurance tax or other employment tax (the date upon which the Company becomes so obligated shall be referred to herein as the "Withholding Date"), then the Grantee shall pay such amount (the "Withholding Liability") to the Company on the Withholding Date in 3 4 cash or by check payable to the Company. The Grantee hereby consents to the Company withholding the full amount of the Withholding Liability from any compensation or other amounts otherwise payable to the Grantee if the Grantee does not pay the Withholding Liability to the Company on the Withholding Date, and the Grantee agrees that the withholding and payment of any such amount by the Company to the relevant taxing authority shall constitute full satisfaction of the Company's obligation to pay such compensation or other amounts to the Grantee. The Grantee shall be entitled to elect to have the Company withhold from any vested Performance Shares to be delivered to the Grantee a sufficient number of such shares to satisfy the Withholding Liability. 9. Stock Certificates. Upon the vesting of any part of the Performance Shares (and subject to payment by the Grantee of the Withholding Liability pursuant to Section 8 hereof), the Company shall cause a stock certificate covering the appropriate number of shares registered on the Company's books in the name of the Grantee to be delivered to the Grantee. All Performance Shares which vest under this Agreement shall be fully paid and non-assessable. 10. Voting, Dividends. The Grantee shall have no rights as a stockholder (including no rights to vote or receive dividends or distributions) with respect to any Performance Shares until such Performance Shares vest in accordance with the terms and provisions of this Agreement. Notwithstanding the foregoing, the Grantee will be entitled to receive dividend equivalents with respect to the Performance Shares as provided in this Section 10. In the event of an ordinary cash dividend on the shares of Common Stock of the Company the record date of which is prior to the vesting or forfeiture of any Performance Shares, the Company shall allocate for the Grantee an amount equal to the amount of such ordinary cash dividend multiplied by the number of Performance Shares, and the Grantee shall become entitled to receive any such amounts upon the vesting of the corresponding Performance Shares, provided that any rights to receive such amounts shall be forfeited upon the forfeiture of the corresponding Performance Shares. 11. Deferral. Grantee may elect to defer all or part of his Performance Shares upon vesting, in accordance with the provisions of the Company's Deferred Compensation Plan. Any such deferral shall be made in writing in accordance with the provisions of the Deferred Compensation Plan. In cases of deferral, shares otherwise issuable to Grantee shall be issued to the Trust established pursuant to the Deferred Compensation Plan. 12. Employment Rights. Nothing in this Agreement shall be deemed to confer on the Grantee the right to continue in the employ of the Company 4 5 or any of its subsidiaries or affect the right of the Company to terminate the employment of the Grantee at any time with or without cause. 13. Nontransferability. The rights of the Grantee with respect to the Performance Shares may not be assigned or transferred, otherwise than by will or the laws of descent and distribution. 14. Impact on Other Benefits. The value of the Performance Shares awarded hereunder (either on the Date of Award or at the time of vesting) shall not be includable as compensation or earnings for purposes of any other benefit plan offered by the Company. 15. Interpretation. This Agreement and the Performance Shares awarded hereunder are subject to all of the terms and provisions of the Plan. In the event of any conflict or inconsistency between the terms and provisions of this Agreement and the Plan, the terms and provisions of the Plan shall govern. The Compensation Committee shall have the sole and complete authority and discretion to decide any questions concerning the application, interpretation or scope of any of the terms and conditions of this Agreement and the Plan, and its decisions shall be binding and conclusive upon all interested parties. 16. Amendment. This Agreement shall be subject to the terms of the Plan, as amended, except that the award of Performance Shares that is the subject of this Agreement may not in any way be restricted or limited by any Plan amendment or termination approved after the Date of Award without the Grantee's written consent. 17. Force and Effect. The various provisions of this Agreement are severable in their entirety. Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions. 18. Governing Law. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware. 19. Successors. This Agreement shall be binding upon and inure to the benefit of the successors, assigns and heirs of the respective parties. 5 6 20. Entire Agreement. This Agreement contains the entire understanding of the parties and shall not be modified or amended except by written instrument duly signed by the parties. No waiver by either party of any default under this Agreement shall be deemed a waiver of any later default. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the Date of Award stated above. THE DII GROUP, INC. By: ----------------------------------- ----------------------------------- GRANTEE 6 EX-10.5 6 EMPLOYMENT AGREEMENT - BUDACZ 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT Agreement, made as of the 1st day of January 1997, by and between The DII Group, Inc., a Delaware corporation (the "Company"), and Ronald R. Budacz (the "Executive"). RECITALS A. The Company desires to continue to employ Executive as Chairman of the Board and Chief Executive Officer; and B. Executive is willing to accept such employment on the terms and conditions set forth in this Agreement. THE PARTIES AGREE as follows: 1. Position and Term of Employment. Executive's employment hereunder shall commence as of January 1, 1997 and shall end December 31, 2000, unless terminated sooner pursuant to Section 7 of this Agreement or extended by the mutual agreement of the parties. During the term hereof, Executive shall be employed as Chairman of the Board and Chief Executive Officer of the Company and shall devote his full business time, skill, attention and best efforts in carrying out his duties and promoting the best interests of the Company. Executive shall also serve as a director and/or officer of one or more of the Company's subsidiaries as may be requested from time to time by the Board of Directors. Subject always to the instructions and control of the Board of Directors of the Company, Executive shall report to the Board of Directors of the Company and shall be responsible for the control, supervision and management of the Company and its business affairs. 2 Executive shall not at any time while employed by the Company or any of its affiliates or for a period of one (1) year following the later of (i) termination of employment for any reason or (ii) the date on which the last payment is required to be made under Section 2.1(a)(ii) hereof, without the prior consent of the Board of Directors, knowingly acquire any financial interests, directly or indirectly, in or perform any services for or on behalf of any business, person or enterprise which undertakes any business in competition with the business of the Company and its affiliates or sells to or buys from or otherwise transacts business with the Company and its affiliates; provided that Executive may acquire and own not more than five percent (5%) of the outstanding capital stock of any public corporation or mutual fund. Executive shall not at any time while employed by the Company or any of its affiliates or for a period of two (2) years following termination of employment for any reason, directly or indirectly, solicit for employment, employ or enter into any business or contractual relationship with any employee of the Company or any of its affiliates. 2.1 Base Salary. (a) (i) Executive shall be paid an initial salary at the monthly rate of Thirty-Five Thousand Eight Hundred Thirty-Four Dollars ($35,834), which shall be paid in accordance with the Company's normal payroll practice with respect to salaried employees, subject to applicable payroll taxes and deductions (the "Base Salary"). Executive's Base Salary shall be subject to review and possible change in accordance with the usual practices and policies of the Company. However, Executive's base annual salary shall not be reduced unless such reduction is part of a Company-wide reduction in pay scale and such reduction is proportionate to reductions imposed on the Company's and its subsidiaries' employees; however, in no event may Executive's then current Base Salary be reduced by more than 10%. -2- 3 (ii) If for any reason other than Executive's voluntary resignation or termination pursuant to Sections 7(a), (b) or (c) hereof, Executive does not continue to be employed by the Company, Executive shall continue to receive an amount equal to his then current Base Salary plus an annual performance bonus equal to the highest annual bonus payment Executive has received in the previous three years for the then remaining balance of the term of this Agreement. In no event shall such payment be less than one year's base salary plus such highest annual bonus. The foregoing amounts shall be paid to Executive over the remaining term of this Agreement or one year (whichever is applicable) in accordance with the Company's payroll and bonus payment policies. Notwithstanding the foregoing, no payments under this subparagraph (ii) shall be made if the Company makes all payments to Executive required to be made under the Executive's Senior Executive Severance Agreement (the "Severance Agreement") in the event of a Change in Control. For purposes of this Agreement, a Change in Control shall be deemed to have taken place upon the occurrence of any of the following events: (A) any corporation, person, other entity or group (other than the trustee of any qualified retirement plan maintained by the Company) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of twenty-four consecutive months, individuals who at the beginning of such consecutive twenty-four month period constitute the Board of Directors cease for any reason (other than retirement upon reaching normal retirement age, disability or death) to constitute at least a majority thereof, unless the election or the nomination -3- 4 for election by the Company's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such twenty-four month period; or (C) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; or (D) there shall occur a transaction or series of transactions which the Board of Directors shall determine to have the effect of a Change in Control. (b) If Executive resigns voluntarily or ceases to be employed by the Company (or any affiliate) for any reason described in Section 7(a) or (c) of this Agreement, all benefits described in Sections 2 and 4 hereof shall terminate (except to the extent previously earned or vested). (c) If Executive's employment shall have been terminated pursuant to Section 7(b), the Company shall pay in equal monthly installments for the then remaining balance of the term of this Agreement to Executive (or his beneficiaries or personal representatives, as the case -4- 5 may be) disability benefits at a rate per annum equal to one hundred percent (100%) of his then current Base Salary, plus amounts equal to the highest annual bonus as provided in clause (ii) of Section 2.1(a), less payments and benefits, if any, received under any disability plan or insurance provided by the Company and less any "sick leave" payments received from the Company for the applicable period. 2.2 Bonuses. Executive shall be eligible for an annual performance bonus for calendar years beginning after December 31, 1996, in accordance with the Company's Senior Executive Performance Bonus Plan. The Company shall administer such bonus plan on a basis consistent with the past. 2.3 Expenses. During the term hereof, the Company shall pay or reimburse Executive in accordance with the Company's normal practices any travel, hotel and other expenses or disbursements reasonably incurred or paid by Executive in connection with the services performed by Executive hereunder, in each case upon presentation by Executive of itemized accounts of such expenditures or such other supporting information as the Company may require. 3.1 Stock Options; Performance Shares. Executive shall be eligible for grants of stock options and performance share awards under the Company's 1994 Stock Incentive Plan (the "Plan"), as may hereafter be determined by the Compensation Committee of the Board of Directors of the Company under the Plan. 3.2 Restricted Share Awards. The Company hereby grants to Executive, effective as of the date hereof, 100,000 restricted shares representing shares of Company Common Stock, $.01 par value, as evidenced by the Performance Share Award dated of even date herewith. The restricted shares shall vest one quarter on each of the first, second, third and -5- 6 fourth anniversary dates of the date hereof, subject to the terms and provisions of the Performance Share Award. The grant of restricted shares provided herein is subject to approval by the stockholders of the Company at the 1997 Annual Meeting of Stockholders of an amendment to the Plan to permit issuances and grants to an executive covering up to a maximum of 150,000 shares per annum. 3.3 Forgiveness of Indebtedness. The Company agrees to forgive the outstanding indebtedness of Executive to the Company in the principal amount of $274,812, together with interest accrued and accruing thereon (collectively, the "Aggregate Indebtedness"), subject to the following terms. On the first anniversary of the date hereof, 25% of the Aggregate Indebtedness then outstanding shall be forgiven; on the second anniversary of the date hereof, 33-1/3% of the Aggregate Indebtedness then outstanding shall be forgiven; on the third anniversary of the date hereof, 50% of the Aggregate Indebtedness then outstanding shall be forgiven; and any remaining Aggregate Indebtedness shall be forgiven on the fourth anniversary of the date hereof. In addition, the Company shall make certain payments on an After-Tax Basis to Executive on each of the first, second, third and fourth anniversary dates equal to Executive's actual federal, state and local tax liability resulting from the forgiveness of the Aggregate Indebtedness on any such date. Further, in the event that Executive's employment is terminated as a result of death, disability, or for any reason other than Executive's voluntary resignation or termination pursuant to Section 7(c), the amount of the Aggregate Indebtedness then outstanding shall be forgiven in full and the Company shall make additional payments on an After-Tax Basis to Executive equal to Executive's actual federal, state and local tax liability resulting from the forgiveness of the Aggregate Indebtedness. Further, if at any time during the term of employment there is a Change in Control, the amount of the Aggregate Indebtedness then -6- 7 outstanding shall be forgiven in full effective immediately upon the Change in Control and the Company shall immediately make additional payments on an After-Tax Basis to Executive equal to Executive's actual federal, state and local tax liability resulting from the forgiveness of the Aggregate Indebtedness. For purposes of this Section 3.3, After-Tax Basis shall mean with respect to any payment to be received or deemed to be received by Executive, the amount of such payment (the "Base Payment") supplemented by a further payment (the "Additional Payment") to Executive so that the sum of the Base Payment plus the Additional Payment shall, after deducting all taxes imposed on such Executive as a result of the receipt or accrual of the Base Payment and such Additional Payment, be equal to the Base Payment. If at any time during the term of employment, Executive voluntarily resigns or is terminated pursuant to Section 7(c), Executive shall forfeit any benefits not yet then realized under this Section 3.3. For example, if Executive voluntarily resigns in December 1998, Executive shall not realize any of the forgiveness which would have occurred on January 1, 1999. 3.4 Effect of Termination of Employment; Change in Control. (a) Notwithstanding the provisions of Executive's options, if Executive shall resign voluntarily or cease to be employed by the Company (or an affiliate) other than as a result of death or disability, Executive shall be entitled to exercise such options to the extent such options could otherwise have been exercised immediately prior to the time of termination at any time up to and including 90 days after the date of termination, but not beyond the expiration date of an option. This provision is not intended to limit any other rights that Executive may have with respect to the vesting or exercise of options. (b) If Executive shall die or become disabled, all options and performance shares (including the Performance Share Award under Section 3.2) which have not -7- 8 vested will accelerate and vest immediately, and, in the event of Executive's death, all option rights will transfer to Executive's representative. All then unexercised options will be cancelled one year after Executive dies or becomes disabled. (c) If there is a Change in Control, all options and performance shares (including the Performance Share Award under Section 3.2) which have not vested will accelerate and vest immediately. 4. Other Benefits. Executive shall be entitled to (i) participate in medical, dental, hospitalization, disability and life insurance benefit plans made available by the Company to its senior executives and shall also be eligible to participate in existing retirement or pension plans offered by the Company to its senior executives, subject in each case to the terms and requirements of each such plan or program, (ii) reimbursement for country club dues at Boulder Country Club and up to one additional country club, (iii) reimbursement for automobile lease payments up to $1,000 per month and non-routine maintenance costs, (iv) Company payment of premiums for a split dollar life insurance policy with a face value of $2 million providing for repayment of paid-in premiums to the Company and the balance to the estate, and (v) an annual financial and tax-planning allowance up to 1% of base salary. 5. Confidential Information. Except as specifically permitted by this Section 5, and except as required in the course of his employment with the Company, while in the employ of the Company or thereafter, Executive will not communicate or divulge to or use for the benefit of himself or any other person, firm, association, or corporation without the prior written consent of the Company, any Confidential Information (as defined herein) owned, or used by the Company or any of its affiliates that may be communicated to, acquired by or learned of by Executive in the course of, or as a result of, Executive's employment with the Company or -8- 9 any of its affiliates. All Confidential Information relating to the business of the Company or any of its affiliates which Executive shall use or prepare or come into contact with shall become and remain the sole property of the Company or its affiliates. "Confidential Information" means information not generally known about the Company and its affiliates, services and products, whether written or not, including information relating to research, development, purchasing, marketing plans, computer software or programs, any copyrightable material, trade secrets and proprietary information, including, but not limited to, customer lists. Executive may disclose Confidential Information to the extent it (i) becomes part of the public domain otherwise than as a result of Executive's breach hereof or (ii) is required to be disclosed by law. If Executive is required by applicable law or regulation or by legal process to disclose any Confidential Information, Executive will provide the Company with prompt notice thereof so as to enable the Company to seek an appropriate protective order. Upon request by the Company, Executive agrees to deliver to the Company at the termination of Executive's employment, or at such other times as the Company may request, all memoranda, notes, plans, records, reports and other documents (and all copies thereof) containing Confidential Information that Executive may then possess or have under his control. 6. Assignment of Patents and Copyrights. Executive shall assign to the Company all inventions and improvements within the existing or contemplated scope of the Company's business made by Executive while in the Company's employ, together with any such patents or copyrights as may be obtained thereon, both domestic and foreign. Upon request by the Company and at the Company's expense, Executive will at any time during his employment with the Company and after termination regardless of the reason therefor, execute all proper -9- 10 papers for use in applying for, obtaining and maintaining such domestic and foreign patents and/or copyrights as the Company may desire, and will execute and deliver all proper assignments therefor. 7. Termination. (a) This Agreement shall terminate upon Executive's death. (b) The Company may terminate Executive's employment hereunder upon fifteen (15) days' written notice if in the opinion of the Board of Directors, Executive's physical or mental disability has continued or is expected to continue for one hundred and eighty (180) consecutive days and as a result thereof, Executive will be unable to continue the proper performance of his duties hereunder. For the purpose of determining disability, Executive agrees to submit to such reasonable physical and mental examinations, if any, as the Board of Directors may request and hereby authorizes the examining person to disclose his findings to the Board of Directors of the Company. (c) The Company may terminate Executive's employment hereunder "for cause" (as hereinafter defined). If Executive's employment is terminated for cause, Executive's salary and all other rights not then vested under this Agreement shall terminate upon written notice of termination being given to Executive. As used herein, the term "for cause" means the occurrence of any of the following: (i) Executive having willfully and continually failed to perform substantially his duties with the Company (other than such failure resulting from incapacity due to physical or mental illness, death or disability) after a written demand for substantial performance has been delivered to the Executive by the Board or the President of the Company which specifically identifies the manner in which the Executive is not substantially performing his duties; or (ii) Executive having willfully engaged in conduct which is materially demonstrably injurious to the Company. For purposes of this section, no act, or failure to act, on the part -10- 11 of the Executive shall be considered "willful" unless done, or omitted to be done, by the Executive in bad faith and without reasonable belief that such action or omission was in, or not opposed to, the best interests of the Company. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel to the Company shall be conclusively presumed to be done or omitted to be done by the Executive in good faith and in the best interests of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for cause unless and until there shall have been delivered to the Executive a copy of a written resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting called and held for that purpose after reasonable notice to and opportunity for the Executive and the executive's counsel to be heard by the Board, finding that in the good faith opinion of the Board the Executive was guilty of the conduct set forth above in (i) or (ii) and specifying the particulars thereof in detail. 8. Additional Remedies. Executive recognizes that irreparable injury will result to the Company and to its business and properties in the event of any breach by Executive of the non-compete or non-solicitation provisions of Section 1, the confidentiality provisions of Section 5 or the assignment provisions of Section 6 and that Executive's continued employment is predicated on the covenants made by him pursuant to such Sections. In the event of any breach by Executive of his obligations under said provisions, the Company shall be entitled, in addition to any other remedies and damages available, to injunctive relief to restrain any such breach by Executive or by any person or persons acting for or with Executive in any capacity whatsoever and other equitable relief. 9. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company and their respective legal representatives, successors and assigns. Neither this Agreement nor any of the duties or obligations hereunder shall be assignable by Executive. -11- 12 10. Governing Law; Jurisdiction. This Agreement shall be interpreted and construed in accordance with the laws of the State of Colorado. Each of the Company and Executive consents to the jurisdiction of any state or federal court sitting in Colorado, in any action or proceeding arising out of or relating to this Agreement. 11. Headings. The paragraph headings used in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement for any purpose or in any way affect the interpretation of this Agreement. 12. Severability. If any provision, paragraph or subparagraph of this Agreement is adjudged by any court to be void or unenforceable in whole or in part, this adjudication shall not affect the validity of the remainder of this Agreement. In addition, to the extent possible, a like valid term which meets the objective of the void or unenforceable term shall be substituted for any such void or unenforceable term. 13. Complete Agreement. This document embodies the complete agreement and understanding among the parties, written or oral, which may have related to the subject matter hereof in any way and shall not be amended orally, but only by the mutual agreement of the parties hereto in writing, specifically referencing this Agreement. 14. Counterparts. This Agreement may be executed in one or more separate counterparts, all of which taken together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THE DII GROUP, INC. By: ------------------------------- Title: ---------------------------- RONALD R. BUDACZ -12- EX-10.6 7 EMPLOYMENT AGREEMENT - CARL R. VERTUCA JR. 1 EXHIBIT 10.6 EMPLOYMENT AGREEMENT Agreement, made as of the 1st day of January 1997, by and between The DII Group, Inc., a Delaware corporation (the "Company"), and Carl R. Vertuca, Jr. (the "Executive"). RECITALS A. The Company desires to continue to employ Executive as Senior Vice President and Chief Financial Officer; and B. Executive is willing to accept such employment on the terms and conditions set forth in this Agreement. THE PARTIES AGREE as follows: 1. Position and Term of Employment. Executive's employment hereunder shall commence as of January 1, 1997 and shall end December 31, 2000, unless terminated sooner pursuant to Section 7 of this Agreement or extended by the mutual agreement of the parties. During the term hereof, Executive shall be employed as Senior Vice President and Chief Financial Officer of the Company and shall devote his full business time, skill, attention and best efforts in carrying out his duties and promoting the best interests of the Company. Executive shall also serve as a director and/or officer of one or more of the Company's subsidiaries as may be requested from time to time by the Board of Directors. Subject always to the instructions and control of the Board of Directors of the Company, Executive shall report to the Chief Executive Officer of the Company and shall be responsible for the duties of the Senior Vice President and Chief Financial Officer. 2 Executive shall not at any time while employed by the Company or any of its affiliates or for a period of one (1) year following the later of (i) termination of employment for any reason or (ii) the date on which the last payment is required to be made under Section 2.1(a)(ii) hereof, without the prior consent of the Board of Directors, knowingly acquire any financial interests, directly or indirectly, in or perform any services for or on behalf of any business, person or enterprise which undertakes any business in competition with the business of the Company and its affiliates or sells to or buys from or otherwise transacts business with the Company and its affiliates; provided that Executive may acquire and own not more than five percent (5%) of the outstanding capital stock of any public corporation or mutual fund. Executive shall not at any time while employed by the Company or any of its affiliates or for a period of two (2) years following termination of employment for any reason, directly or indirectly, solicit for employment, employ or enter into any business or contractual relationship with any employee of the Company or any of its affiliates. 2.1 Base Salary. (a) (i) Executive shall be paid an initial salary at the monthly rate of Twenty Thousand Eight Hundred Thirty-Four Dollars ($20,834), which shall be paid in accordance with the Company's normal payroll practice with respect to salaried employees, subject to applicable payroll taxes and deductions (the "Base Salary"). Executive's Base Salary shall be subject to review and possible change in accordance with the usual practices and policies of the Company. However, Executive's base annual salary shall not be reduced unless such reduction is part of a Company-wide reduction in pay scale and such reduction is proportionate to reductions imposed on the Company's and its subsidiaries' employees; however, in no event may Executive's then current Base Salary be reduced by more than 10%. -2- 3 (ii) If for any reason other than Executive's voluntary resignation or termination pursuant to Sections 7(a), (b) or (c) hereof, Executive does not continue to be employed by the Company, Executive shall continue to receive an amount equal to his then current Base Salary plus an annual performance bonus equal to the highest annual bonus payment Executive has received in the previous three years for the then remaining balance of the term of this Agreement. In no event shall such payment be less than one year's base salary plus such highest annual bonus. The foregoing amounts shall be paid to Executive over the remaining term of this Agreement or one year (whichever is applicable) in accordance with the Company's payroll and bonus payment policies. Notwithstanding the foregoing, no payments under this subparagraph (ii) shall be made if the Company makes all payments to Executive required to be made under the Executive's Senior Executive Severance Agreement (the "Severance Agreement") in the event of a Change in Control. For purposes of this Agreement, a Change in Control shall be deemed to have taken place upon the occurrence of any of the following events: (A) any corporation, person, other entity or group (other than the trustee of any qualified retirement plan maintained by the Company) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of twenty-four consecutive months, individuals who at the beginning of such consecutive twenty-four month period constitute the Board of Directors cease for any reason (other than retirement upon reaching normal retirement age, disability or death) to constitute at least a majority thereof, unless the election or the nomination -3- 4 for election by the Company's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such twenty-four month period; or (C) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; or (D) there shall occur a transaction or series of transactions which the Board of Directors shall determine to have the effect of a Change in Control. (b) If Executive resigns voluntarily or ceases to be employed by the Company (or any affiliate) for any reason described in Section 7(a) or (c) of this Agreement, all benefits described in Sections 2 and 4 hereof shall terminate (except to the extent previously earned or vested). (c) If Executive's employment shall have been terminated pursuant to Section 7(b), the Company shall pay in equal monthly installments for the then remaining balance of the term of this Agreement to Executive (or his beneficiaries or personal representatives, as the case -4- 5 may be) disability benefits at a rate per annum equal to one hundred percent (100%) of his then current Base Salary, plus amounts equal to the highest annual bonus as provided in clause (ii) of Section 2.1(a), less payments and benefits, if any, received under any disability plan or insurance provided by the Company and less any "sick leave" payments received from the Company for the applicable period. 2.2 Bonuses. Executive shall be eligible for an annual performance bonus for calendar years beginning after December 31, 1996, in accordance with the Company's Senior Executive Performance Bonus Plan. The Company shall administer such bonus plan on a basis consistent with the past. 2.3 Expenses. During the term hereof, the Company shall pay or reimburse Executive in accordance with the Company's normal practices any travel, hotel and other expenses or disbursements reasonably incurred or paid by Executive in connection with the services performed by Executive hereunder, in each case upon presentation by Executive of itemized accounts of such expenditures or such other supporting information as the Company may require. 3.1 Stock Options; Performance Shares. Executive shall be eligible for grants of stock options and performance share awards under the Company's 1994 Stock Incentive Plan (the "Plan"), as may hereafter be determined by the Compensation Committee of the Board of Directors of the Company under the Plan. 3.2 Forgiveness of Indebtedness. The Company agrees to forgive the outstanding indebtedness of Executive to the Company in the principal amount of $185,862, together with interest accrued and accruing thereon (collectively, the "Aggregate Indebtedness"), subject to the following terms. On the first anniversary of the date hereof, 25% of the Aggregate -5- 6 Indebtedness then outstanding shall be forgiven; on the second anniversary of the date hereof, 33-1/3% of the Aggregate Indebtedness then outstanding shall be forgiven; on the third anniversary of the date hereof, 50% of the Aggregate Indebtedness then outstanding shall be forgiven; and any remaining Aggregate Indebtedness shall be forgiven on the fourth anniversary of the date hereof. In addition, the Company shall make certain payments on an After-Tax Basis to Executive on each of the first, second, third and fourth anniversary dates equal to Executive's actual federal, state and local tax liability resulting from the forgiveness of the Aggregate Indebtedness on any such date. Further, in the event that Executive's employment is terminated as a result of death, disability, or for any reason other than Executive's voluntary resignation or termination pursuant to Section 7(c), the amount of the Aggregate Indebtedness then outstanding shall be forgiven in full and the Company shall make additional payments on an After-Tax Basis to Executive equal to Executive's actual federal, state and local tax liability resulting from the forgiveness of the Aggregate Indebtedness. Further, if at any time during the term of employment there is a Change in Control, the amount of the Aggregate Indebtedness then outstanding shall be forgiven in full effective immediately upon the Change in Control and the Company shall immediately make additional payments on an After-Tax Basis to Executive equal to Executive's actual federal, state and local tax liability resulting from the forgiveness of the Aggregate Indebtedness. For purposes of this Section 3.2, After-Tax Basis shall mean with respect to any payment to be received or deemed to be received by Executive, the amount of such payment (the "Base Payment") supplemented by a further payment (the "Additional Payment") to Executive so that the sum of the Base Payment plus the Additional Payment shall, after deducting all taxes imposed on such Executive as a result of the receipt or accrual of the Base -6- 7 Payment Additional Payment, be equal to the Base Payment. If at any time during the term of employment, Executive voluntarily resigns or is terminated pursuant to Section 7(c), Executive shall forfeit any benefits not yet then realized under this Section 3.2. For example, if Executive voluntarily resigns in December 1998, Executive shall not realize any of the forgiveness which would have occurred on January 1, 1999. 3.3 Effect of Termination of Employment; Change in Control. (a) Notwithstanding the provisions of Executive's options, if Executive shall resign voluntarily or cease to be employed by the Company (or an affiliate) other than as a result of death or disability, Executive shall be entitled to exercise such options to the extent such options could otherwise have been exercised immediately prior to the time of termination at any time up to and including 90 days after the date of termination, but not beyond the expiration date of an option. This provision is not intended to limit any other rights that Executive may have with respect to the vesting or exercise of options. (b) If Executive shall die or become disabled, all options and performance shares which have not vested will accelerate and vest immediately, and, in the event of Executive's death, all option rights will transfer to Executive's representative. All then unexercised options will be cancelled one year after Executive dies or becomes disabled. (c) If there is a Change in Control, all options and performance shares which have not vested will accelerate and vest immediately. 4. Other Benefits. Executive shall be entitled to (i) participate in medical, dental, hospitalization, disability and life insurance benefit plans made available by the Company to its senior executives and shall also be eligible to participate in existing retirement or pension plans offered by the Company to its senior executives, subject in each case to the terms and -7- 8 requirements of each such plan or program, (ii) reimbursement for country club dues at Boulder Country Club and up to one additional country club, (iii) reimbursement for automobile lease payments up to $700 per month and non-routine maintenance costs, and (iv) an annual financial and tax-planning allowance up to 1% of base salary. 5. Confidential Information. Except as specifically permitted by this Section 5, and except as required in the course of his employment with the Company, while in the employ of the Company or thereafter, Executive will not communicate or divulge to or use for the benefit of himself or any other person, firm, association, or corporation without the prior written consent of the Company, any Confidential Information (as defined herein) owned, or used by the Company or any of its affiliates that may be communicated to, acquired by or learned of by Executive in the course of, or as a result of, Executive's employment with the Company or any of its affiliates. All Confidential Information relating to the business of the Company or any of its affiliates which Executive shall use or prepare or come into contact with shall become and remain the sole property of the Company or its affiliates. "Confidential Information" means information not generally known about the Company and its affiliates, services and products, whether written or not, including information relating to research, development, purchasing, marketing plans, computer software or programs, any copyrightable material, trade secrets and proprietary information, including, but not limited to, customer lists. Executive may disclose Confidential Information to the extent it (i) becomes part of the public domain otherwise than as a result of Executive's breach hereof or (ii) is required to be disclosed by law. If Executive is required by applicable law or regulation or by legal process -8- 9 to disclose any Confidential Information, Executive will provide the Company with prompt notice thereof so as to enable the Company to seek an appropriate protective order. Upon request by the Company, Executive agrees to deliver to the Company at the termination of Executive's employment, or at such other times as the Company may request, all memoranda, notes, plans, records, reports and other documents (and all copies thereof) containing Confidential Information that Executive may then possess or have under his control. 6. Assignment of Patents and Copyrights. Executive shall assign to the Company all inventions and improvements within the existing or contemplated scope of the Company's business made by Executive while in the Company's employ, together with any such patents or copyrights as may be obtained thereon, both domestic and foreign. Upon request by the Company and at the Company's expense, Executive will at any time during his employment with the Company and after termination regardless of the reason therefor, execute all proper papers for use in applying for, obtaining and maintaining such domestic and foreign patents and/or copyrights as the Company may desire, and will execute and deliver all proper assignments therefor. 7. Termination. (a) This Agreement shall terminate upon Executive's death. (b) The Company may terminate Executive's employment hereunder upon fifteen (15) days' written notice if in the opinion of the Board of Directors, Executive's physical or mental disability has continued or is expected to continue for one hundred and eighty (180) consecutive days and as a result thereof, Executive will be unable to continue the proper performance of his duties hereunder. For the purpose of determining disability, Executive agrees to submit to such reasonable physical and mental examinations, if any, as the Board of Directors -9- 10 may request and hereby authorizes the examining person to disclose his findings to the Board of Directors of the Company. (c) The Company may terminate Executive's employment hereunder "for cause" (as hereinafter defined). If Executive's employment is terminated for cause, Executive's salary and all other rights not then vested under this Agreement shall terminate upon written notice of termination being given to Executive. As used herein, the term "for cause" means the occurrence of any of the following: (i) Executive having willfully and continually failed to perform substantially his duties with the Company (other than such failure resulting from incapacity due to physical or mental illness, death or disability) after a written demand for substantial performance has been delivered to the Executive by the Board or the President of the Company which specifically identifies the manner in which the Executive is not substantially performing his duties; or (ii) Executive having willfully engaged in conduct which is materially demonstrably injurious to the Company. For purposes of this section, no act, or failure to act, on the part of the Executive shall be considered "willful" unless done, or omitted to be done, by the Executive in bad faith and without reasonable belief that such action or omission was in, or not opposed to, the best interests of the Company. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel to the Company shall be conclusively presumed to be done or omitted to be done by the Executive in good faith and in the best interests of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for cause unless and until there shall have been delivered to the Executive a copy of a written resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting called and held for that purpose after reasonable notice to and opportunity for the Executive and the executive's counsel to be heard by the Board, finding that in the good faith opinion of the Board the Executive was guilty of the conduct set forth above in (i) or (ii) and specifying the particulars thereof in detail. 8. Additional Remedies. Executive recognizes that irreparable injury will result to the Company and to its business and properties in the event of any breach by Executive of the non-compete or non-solicitation provisions of Section 1, the confidentiality provisions of -10- 11 Section 5 or the assignment provisions of Section 6 and that Executive's continued employment is predicated on the covenants made by him pursuant to such Sections. In the event of any breach by Executive of his obligations under said provisions, the Company shall be entitled, in addition to any other remedies and damages available, to injunctive relief to restrain any such breach by Executive or by any person or persons acting for or with Executive in any capacity whatsoever and other equitable relief. 9. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company and their respective legal representatives, successors and assigns. Neither this Agreement nor any of the duties or obligations hereunder shall be assignable by Executive. 10. Governing Law; Jurisdiction. This Agreement shall be interpreted and construed in accordance with the laws of the State of Colorado. Each of the Company and Executive consents to the jurisdiction of any state or federal court sitting in Colorado, in any action or proceeding arising out of or relating to this Agreement. 11. Headings. The paragraph headings used in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement for any purpose or in any way affect the interpretation of this Agreement. 12. Severability. If any provision, paragraph or subparagraph of this Agreement is adjudged by any court to be void or unenforceable in whole or in part, this adjudication shall not affect the validity of the remainder of this Agreement. In addition, to the extent possible, a like valid term which meets the objective of the void or unenforceable term shall be substituted for any such void or unenforceable term. -11- 12 13. Complete Agreement. This document embodies the complete agreement and understanding among the parties, written or oral, which may have related to the subject matter hereof in any way and shall not be amended orally, but only by the mutual agreement of the parties hereto in writing, specifically referencing this Agreement. 14. Counterparts. This Agreement may be executed in one or more separate counterparts, all of which taken together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THE DII GROUP, INC. By: -------------------------------- Title: -------------------------------- ----------------------------------- CARL R. VERTUCA, JR. -12- EX-10.7 8 EMPLOYMENT AGREEMENT - SNYDER 1 EXHIBIT 10.7 EMPLOYMENT AGREEMENT Agreement, made as of the 1st day of January 1997, by and between The DII Group, Inc., a Delaware corporation (the "Company"), and Ronald R. Snyder (the "Executive"). RECITALS A. The Company desires to continue to employ Executive as Senior Vice President of Sales and Marketing; and B. Executive is willing to accept such employment on the terms and conditions set forth in this Agreement. THE PARTIES AGREE as follows: 1. Position and Term of Employment. Executive's employment hereunder shall commence as of January 1, 1997 and shall end December 31, 2000, unless terminated sooner pursuant to Section 7 of this Agreement or extended by the mutual agreement of the parties. During the term hereof, Executive shall be employed as Senior Vice President of Sales and Marketing of the Company and shall devote his full business time, skill, attention and best efforts in carrying out his duties and promoting the best interests of the Company. Executive shall also serve as a director and/or officer of one or more of the Company's subsidiaries as may be requested from time to time by the Board of Directors. Subject always to the instructions and control of the Board of Directors of the Company, Executive shall report to the Chief Executive Officer of the Company and shall be responsible for the duties of the Senior Vice President of Sales and Marketing. 2 Executive shall not at any time while employed by the Company or any of its affiliates or for a period of one (1) year following the later of (i) termination of employment for any reason or (ii) the date on which the last payment is required to be made under Section 2.1(a)(ii) hereof, without the prior consent of the Board of Directors, knowingly acquire any financial interests, directly or indirectly, in or perform any services for or on behalf of any business, person or enterprise which undertakes any business in competition with the business of the Company and its affiliates or sells to or buys from or otherwise transacts business with the Company and its affiliates; provided that Executive may acquire and own not more than five percent (5%) of the outstanding capital stock of any public corporation or mutual fund. Executive shall not at any time while employed by the Company or any of its affiliates or for a period of two (2) years following termination of employment for any reason, directly or indirectly, solicit for employment, employ or enter into any business or contractual relationship with any employee of the Company or any of its affiliates. 2.1 Base Salary. (a) (i) Executive shall be paid an initial salary at the monthly rate of Fourteen Thousand One Hundred Sixty-Seven Dollars ($14,167), which shall be paid in accordance with the Company's normal payroll practice with respect to salaried employees, subject to applicable payroll taxes and deductions (the "Base Salary"). Executive's Base Salary shall be subject to review and possible change in accordance with the usual practices and policies of the Company. However, Executive's base annual salary shall not be reduced unless such reduction is part of a Company-wide reduction in pay scale and such reduction is proportionate to reductions imposed on the Company's and its subsidiaries' employees; however, in no event may Executive's then current Base Salary be reduced by more than 10%. -2- 3 (ii) If for any reason other than Executive's voluntary resignation or termination pursuant to Sections 7(a), (b) or (c) hereof, Executive does not continue to be employed by the Company, Executive shall continue to receive an amount equal to his then current Base Salary plus an annual performance bonus equal to the highest annual bonus payment Executive has received in the previous three years for the then remaining balance of the term of this Agreement. In no event shall such payment be less than one year's base salary plus such highest annual bonus. The foregoing amounts shall be paid to Executive over the remaining term of this Agreement or one year (whichever is applicable) in accordance with the Company's payroll and bonus payment policies. Notwithstanding the foregoing, no payments under this subparagraph (ii) shall be made if the Company makes all payments to Executive required to be made under the Executive's Senior Executive Severance Agreement (the "Severance Agreement") in the event of a Change in Control. For purposes of this Agreement, a Change in Control shall be deemed to have taken place upon the occurrence of any of the following events: (A) any corporation, person, other entity or group (other than the trustee of any qualified retirement plan maintained by the Company) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of twenty-four consecutive months, individuals who at the beginning of such consecutive twenty-four month period constitute the Board of Directors cease for any reason (other than retirement upon reaching normal retirement age, disability or death) to constitute at least a majority thereof, unless the election or the nomination -3- 4 for election by the Company's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such twenty-four month period; or (C) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; or (D) there shall occur a transaction or series of transactions which the Board of Directors shall determine to have the effect of a Change in Control. (b) If Executive resigns voluntarily or ceases to be employed by the Company (or any affiliate) for any reason described in Section 7(a) or (c) of this Agreement, all benefits described in Sections 2 and 4 hereof shall terminate (except to the extent previously earned or vested). (c) If Executive's employment shall have been terminated pursuant to Section 7(b), the Company shall pay in equal monthly installments for the then remaining balance of the term of this Agreement to Executive (or his beneficiaries or personal representatives, as the case -4- 5 may be) disability benefits at a rate per annum equal to one hundred percent (100%) of his then current Base Salary, plus amounts equal to the highest annual bonus as provided in clause (ii) of Section 2.1(a), less payments and benefits, if any, received under any disability plan or insurance provided by the Company and less any "sick leave" payments received from the Company for the applicable period. 2.2 Bonuses. Executive shall be eligible for an annual performance bonus for calendar years beginning after December 31, 1996, in accordance with the Company's Senior Executive Performance Bonus Plan. The Company shall administer such bonus plan on a basis consistent with the past. 2.3 Expenses. During the term hereof, the Company shall pay or reimburse Executive in accordance with the Company's normal practices any travel, hotel and other expenses or disbursements reasonably incurred or paid by Executive in connection with the services performed by Executive hereunder, in each case upon presentation by Executive of itemized accounts of such expenditures or such other supporting information as the Company may require. 3.1 Stock Options; Performance Shares. Executive shall be eligible for grants of stock options and performance share awards under the Company's 1994 Stock Incentive Plan (the "Plan"), as may hereafter be determined by the Compensation Committee of the Board of Directors of the Company under the Plan. 3.2 Forgiveness of Indebtedness. The Company agrees to forgive the outstanding indebtedness of Executive to the Company in the principal amount of $100,531, together with interest accrued and accruing thereon (collectively, the "Aggregate Indebtedness"), subject to the following terms. On the first anniversary of the date hereof, 25% of the Aggregate -5- 6 Indebtedness then outstanding shall be forgiven; on the second anniversary of the date hereof, 33-1/3% of the Aggregate Indebtedness then outstanding shall be forgiven; on the third anniversary of the date hereof, 50% of the Aggregate Indebtedness then outstanding shall be forgiven; and any remaining Aggregate Indebtedness shall be forgiven on the fourth anniversary of the date hereof. In addition, the Company shall make certain payments on an After-Tax Basis to Executive on each of the first, second, third and fourth anniversary dates equal to Executive's actual federal, state and local tax liability resulting from the forgiveness of the Aggregate Indebtedness on any such date. Further, in the event that Executive's employment is terminated as a result of death, disability, or for any reason other than Executive's voluntary resignation or termination pursuant to Section 7(c), the amount of the Aggregate Indebtedness then outstanding shall be forgiven in full and the Company shall make additional payments on an After-Tax Basis to Executive equal to Executive's actual federal, state and local tax liability resulting from the forgiveness of the Aggregate Indebtedness. Further, if at any time during the term of employment there is a Change in Control, the amount of the Aggregate Indebtedness then outstanding shall be forgiven in full effective immediately upon the Change in Control and the Company shall immediately make additional payments on an After-Tax Basis to Executive equal to Executive's actual federal, state and local tax liability resulting from the forgiveness of the Aggregate Indebtedness. For purposes of this Section 3.2, After-Tax Basis shall mean with respect to any payment to be received or deemed to be received by Executive, the amount of such payment (the "Base Payment") supplemented by a further payment (the "Additional Payment") to Executive so that the sum of the Base Payment plus the Additional Payment shall, after deducting all taxes imposed on such Executive as a result of the receipt or accrual of the Base -6- 7 Payment and such Additional Payment, be equal to the Base Payment. If at any time during the term of employment, Executive voluntarily resigns or is terminated pursuant to Section 7(c), Executive shall forfeit any benefits not yet then realized under this Section 3.2. For example, if Executive voluntarily resigns in December 1998, Executive shall not realize any of the forgiveness which would have occurred on January 1, 1999. 3.3 Effect of Termination of Employment; Change in Control. (a) Notwithstanding the provisions of Executive's options, if Executive shall resign voluntarily or cease to be employed by the Company (or an affiliate) other than as a result of death or disability, Executive shall be entitled to exercise such options to the extent such options could otherwise have been exercised immediately prior to the time of termination at any time up to and including 90 days after the date of termination, but not beyond the expiration date of an option. This provision is not intended to limit any other rights that Executive may have with respect to the vesting or exercise of options. (b) If Executive shall die or become disabled, all options and performance shares which have not vested will accelerate and vest immediately, and, in the event of Executive's death, all option rights will transfer to Executive's representative. All then unexercised options will be cancelled one year after Executive dies or becomes disabled. (c) If there is a Change in Control, all options and performance shares which have not vested will accelerate and vest immediately. 4. Other Benefits. Executive shall be entitled to (i) participate in medical, dental, hospitalization, disability and life insurance benefit plans made available by the Company to its senior executives and shall also be eligible to participate in existing retirement or pension plans offered by the Company to its senior executives, subject in each case to the terms and -7- 8 requirements of each such plan or program, (ii) reimbursement for country club dues at one country club, (iii) reimbursement for automobile lease payments up to $700 per month and non-routine maintenance costs, and (iv) an annual financial and tax-planning allowance up to 1% of base salary. 5. Confidential Information. Except as specifically permitted by this Section 5, and except as required in the course of his employment with the Company, while in the employ of the Company or thereafter, Executive will not communicate or divulge to or use for the benefit of himself or any other person, firm, association, or corporation without the prior written consent of the Company, any Confidential Information (as defined herein) owned, or used by the Company or any of its affiliates that may be communicated to, acquired by or learned of by Executive in the course of, or as a result of, Executive's employment with the Company or any of its affiliates. All Confidential Information relating to the business of the Company or any of its affiliates which Executive shall use or prepare or come into contact with shall become and remain the sole property of the Company or its affiliates. "Confidential Information" means information not generally known about the Company and its affiliates, services and products, whether written or not, including information relating to research, development, purchasing, marketing plans, computer software or programs, any copyrightable material, trade secrets and proprietary information, including, but not limited to, customer lists. Executive may disclose Confidential Information to the extent it (i) becomes part of the public domain otherwise than as a result of Executive's breach hereof or (ii) is required to be disclosed by law. If Executive is required by applicable law or regulation or by legal process -8- 9 to disclose any Confidential Information, Executive will provide the Company with prompt notice thereof so as to enable the Company to seek an appropriate protective order. Upon request by the Company, Executive agrees to deliver to the Company at the termination of Executive's employment, or at such other times as the Company may request, all memoranda, notes, plans, records, reports and other documents (and all copies thereof) containing Confidential Information that Executive may then possess or have under his control. 6. Assignment of Patents and Copyrights. Executive shall assign to the Company all inventions and improvements within the existing or contemplated scope of the Company's business made by Executive while in the Company's employ, together with any such patents or copyrights as may be obtained thereon, both domestic and foreign. Upon request by the Company and at the Company's expense, Executive will at any time during his employment with the Company and after termination regardless of the reason therefor, execute all proper papers for use in applying for, obtaining and maintaining such domestic and foreign patents and/or copyrights as the Company may desire, and will execute and deliver all proper assignments therefor. 7. Termination. (a) This Agreement shall terminate upon Executive's death. (b) The Company may terminate Executive's employment hereunder upon fifteen (15) days' written notice if in the opinion of the Board of Directors, Executive's physical or mental disability has continued or is expected to continue for one hundred and eighty (180) consecutive days and as a result thereof, Executive will be unable to continue the proper performance of his duties hereunder. For the purpose of determining disability, Executive agrees to submit to such reasonable physical and mental examinations, if any, as the Board of Directors -9- 10 may request and hereby authorizes the examining person to disclose his findings to the Board of Directors of the Company. (c) The Company may terminate Executive's employment hereunder "for cause" (as hereinafter defined). If Executive's employment is terminated for cause, Executive's salary and all other rights not then vested under this Agreement shall terminate upon written notice of termination being given to Executive. As used herein, the term "for cause" means the occurrence of any of the following: (i) Executive having willfully and continually failed to perform substantially his duties with the Company (other than such failure resulting from incapacity due to physical or mental illness, death or disability) after a written demand for substantial performance has been delivered to the Executive by the Board or the President of the Company which specifically identifies the manner in which the Executive is not substantially performing his duties; or (ii) Executive having willfully engaged in conduct which is materially demonstrably injurious to the Company. For purposes of this section, no act, or failure to act, on the part of the Executive shall be considered "willful" unless done, or omitted to be done, by the Executive in bad faith and without reasonable belief that such action or omission was in, or not opposed to, the best interests of the Company. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel to the Company shall be conclusively presumed to be done or omitted to be done by the Executive in good faith and in the best interests of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for cause unless and until there shall have been delivered to the Executive a copy of a written resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting called and held for that purpose after reasonable notice to and opportunity for the Executive and the executive's counsel to be heard by the Board, finding that in the good faith opinion of the Board the Executive was guilty of the conduct set forth above in (i) or (ii) and specifying the particulars thereof in detail. 8. Additional Remedies. Executive recognizes that irreparable injury will result to the Company and to its business and properties in the event of any breach by Executive of the non-compete or non-solicitation provisions of Section 1, the confidentiality provisions of -10- 11 Section 5 or the assignment provisions of Section 6 and that Executive's continued employment is predicated on the covenants made by him pursuant to such Sections. In the event of any breach by Executive of his obligations under said provisions, the Company shall be entitled, in addition to any other remedies and damages available, to injunctive relief to restrain any such breach by Executive or by any person or persons acting for or with Executive in any capacity whatsoever and other equitable relief. 9. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company and their respective legal representatives, successors and assigns. Neither this Agreement nor any of the duties or obligations hereunder shall be assignable by Executive. 10. Governing Law; Jurisdiction. This Agreement shall be interpreted and construed in accordance with the laws of the State of Colorado. Each of the Company and Executive consents to the jurisdiction of any state or federal court sitting in Colorado, in any action or proceeding arising out of or relating to this Agreement. 11. Headings. The paragraph headings used in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement for any purpose or in any way affect the interpretation of this Agreement. 12. Severability. If any provision, paragraph or subparagraph of this Agreement is adjudged by any court to be void or unenforceable in whole or in part, this adjudication shall not affect the validity of the remainder of this Agreement. In addition, to the extent possible, a like valid term which meets the objective of the void or unenforceable term shall be substituted for any such void or unenforceable term. -11- 12 13. Complete Agreement. This document embodies the complete agreement and understanding among the parties, written or oral, which may have related to the subject matter hereof in any way and shall not be amended orally, but only by the mutual agreement of the parties hereto in writing, specifically referencing this Agreement. 14. Counterparts. This Agreement may be executed in one or more separate counterparts, all of which taken together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THE DII GROUP, INC. By: ------------------------------- Title: ---------------------------- ---------------------------------- RONALD R. SNYDER -12- EX-10.8 9 EMPLOYMENT AGREEMENT - O'FLANAGAN 1 EXHIBIT 10.8 EMPLOYMENT AGREEMENT Agreement, made as of the 1st day of January 1997, by and between The DII Group, Inc., a Delaware corporation (the "Company"), and Dermott O'Flanagan (the "Executive"). RECITALS A. The Company desires to continue to employ Executive as Senior Vice President and President, DOVatron International, Inc.; and B. Executive is willing to accept such employment on the terms and conditions set forth in this Agreement. THE PARTIES AGREE as follows: 1. Position and Term of Employment. Executive's employment hereunder shall commence as of January 1, 1997 and shall end December 31, 2000, unless terminated sooner pursuant to Section 7 of this Agreement or extended by the mutual agreement of the parties. During the term hereof, Executive shall be employed as Senior Vice President (and President, DOVatron International, Inc.) of the Company and shall devote his full business time, skill, attention and best efforts in carrying out his duties and promoting the best interests of the Company. Executive shall also serve as a director and/or officer of one or more of the Company's subsidiaries as may be requested from time to time by the Board of Directors. Subject always to the instructions and control of the Board of Directors of the Company, 2 Executive shall report to the Chief Executive Officer of the Company and shall be responsible for the duties of the Senior Vice President and President, DOVatron International, Inc. Executive shall not at any time while employed by the Company or any of its affiliates or for a period of one (1) year following the later of (i) termination of employment for any reason or (ii) the date on which the last payment is required to be made under Section 2.1(a)(ii) hereof, without the prior consent of the Board of Directors, knowingly acquire any financial interests, directly or indirectly, in or perform any services for or on behalf of any business, person or enterprise which undertakes any business in competition with the business of the Company and its affiliates or sells to or buys from or otherwise transacts business with the Company and its affiliates; provided that Executive may acquire and own not more than five percent (5%) of the outstanding capital stock of any public corporation or mutual fund. Executive shall not at any time while employed by the Company or any of its affiliates or for a period of two (2) years following termination of employment for any reason, directly or indirectly, solicit for employment, employ or enter into any business or contractual relationship with any employee of the Company or any of its affiliates. 2.1 Base Salary. (a) (i) Executive shall be paid an initial salary at the monthly rate of Nineteen Thousand One Hundred Sixty-Seven Dollars ($19,167), which shall be paid in accordance with the Company's normal payroll practice with respect to salaried employees, subject to applicable payroll taxes and deductions (the "Base Salary"). Executive's Base Salary shall be subject to review and possible change in accordance with the usual practices and policies of the Company. However, Executive's base annual salary shall not be reduced unless such reduction is part of a Company-wide reduction in pay scale and such reduction is -2- 3 proportionate to reductions imposed on the Company's and its subsidiaries' employees; however, in no event may Executive's then current Base Salary be reduced by more than 10%. (ii) If for any reason other than Executive's voluntary resignation or termination pursuant to Sections 7(a), (b) or (c) hereof, Executive does not continue to be employed by the Company, Executive shall continue to receive an amount equal to his then current Base Salary plus an annual performance bonus equal to the highest annual bonus payment Executive has received in the previous three years for the then remaining balance of the term of this Agreement. In no event shall such payment be less than one year's base salary plus such highest annual bonus. The foregoing amounts shall be paid to Executive over the remaining term of this Agreement or one year (whichever is applicable) in accordance with the Company's payroll and bonus payment policies. Notwithstanding the foregoing, no payments under this subparagraph (ii) shall be made if the Company makes all payments to Executive required to be made under the Executive's Senior Executive Severance Agreement (the "Severance Agreement") in the event of a Change in Control. For purposes of this Agreement, a Change in Control shall be deemed to have taken place upon the occurrence of any of the following events: (A) any corporation, person, other entity or group (other than the trustee of any qualified retirement plan maintained by the Company) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of twenty-four consecutive months, individuals who at the beginning of such consecutive twenty-four month period constitute the Board of -3- 4 Directors cease for any reason (other than retirement upon reaching normal retirement age, disability or death) to constitute at least a majority thereof, unless the election or the nomination for election by the Company's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such twenty-four month period; or (C) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; or (D) there shall occur a transaction or series of transactions which the Board of Directors shall determine to have the effect of a Change in Control. (b) If Executive resigns voluntarily or ceases to be employed by the Company (or any affiliate) for any reason described in Section 7(a) or (c) of this Agreement, all benefits described in Sections 2 and 4 hereof shall terminate (except to the extent previously earned or vested). -4- 5 (c) If Executive's employment shall have been terminated pursuant to Section 7(b), the Company shall pay in equal monthly installments for the then remaining balance of the term of this Agreement to Executive (or his beneficiaries or personal representatives, as the case may be) disability benefits at a rate per annum equal to one hundred percent (100%) of his then current Base Salary, plus amounts equal to the highest annual bonus as provided in clause (ii) of Section 2.1(a), less payments and benefits, if any, received under any disability plan or insurance provided by the Company and less any "sick leave" payments received from the Company for the applicable period. 2.2 Bonuses. Executive shall be eligible for an annual performance bonus for calendar years beginning after December 31, 1996, in accordance with the Company's Senior Executive Performance Bonus Plan. The Company shall administer such bonus plan on a basis consistent with the past. 2.3 Expenses. During the term hereof, the Company shall pay or reimburse Executive in accordance with the Company's normal practices any travel, hotel and other expenses or disbursements reasonably incurred or paid by Executive in connection with the services performed by Executive hereunder, in each case upon presentation by Executive of itemized accounts of such expenditures or such other supporting information as the Company may require. 3.1 Stock Options; Performance Shares. Executive shall be eligible for grants of stock options and performance share awards under the Company's 1994 Stock Incentive Plan -5- 6 (the "Plan"), as may hereafter be determined by the Compensation Committee of the Board of Directors of the Company under the Plan. 3.2 Effect of Termination of Employment; Change in Control. (a) Notwithstanding the provisions of Executive's options, if Executive shall resign voluntarily or cease to be employed by the Company (or an affiliate) other than as a result of death or disability, Executive shall be entitled to exercise such options to the extent such options could otherwise have been exercised immediately prior to the time of termination at any time up to and including 90 days after the date of termination, but not beyond the expiration date of an option. This provision is not intended to limit any other rights that Executive may have with respect to the vesting or exercise of options. (b) If Executive shall die or become disabled, all options and performance shares which have not vested will accelerate and vest immediately, and, in the event of Executive's death, all option rights will transfer to Executive's representative. All then unexercised options will be cancelled one year after Executive dies or becomes disabled. (c) If there is a Change in Control, all options and performance shares which have not vested will accelerate and vest immediately. 4. Other Benefits. Executive shall be entitled to (i) participate in medical, dental, hospitalization, disability and life insurance benefit plans made available by the Company to its senior executives and shall also be eligible to participate in existing retirement or pension plans offered by the Company to its senior executives, subject in each case to the terms and requirements of each such plan or program, (ii) reimbursement for country club dues at one country club, (iii) reimbursement for automobile lease payments up to $700 per month and -6- 7 non-routine maintenance costs, and (iv) an annual financial and tax-planning allowance up to 1% of base salary. 5. Confidential Information. Except as specifically permitted by this Section 5, and except as required in the course of his employment with the Company, while in the employ of the Company or thereafter, Executive will not communicate or divulge to or use for the benefit of himself or any other person, firm, association, or corporation without the prior written consent of the Company, any Confidential Information (as defined herein) owned, or used by the Company or any of its affiliates that may be communicated to, acquired by or learned of by Executive in the course of, or as a result of, Executive's employment with the Company or any of its affiliates. All Confidential Information relating to the business of the Company or any of its affiliates which Executive shall use or prepare or come into contact with shall become and remain the sole property of the Company or its affiliates. "Confidential Information" means information not generally known about the Company and its affiliates, services and products, whether written or not, including information relating to research, development, purchasing, marketing plans, computer software or programs, any copyrightable material, trade secrets and proprietary information, including, but not limited to, customer lists. Executive may disclose Confidential Information to the extent it (i) becomes part of the public domain otherwise than as a result of Executive's breach hereof or (ii) is required to be disclosed by law. If Executive is required by applicable law or regulation or by legal process to disclose any Confidential Information, Executive will provide the Company with prompt notice thereof so as to enable the Company to seek an appropriate protective order. -7- 8 Upon request by the Company, Executive agrees to deliver to the Company at the termination of Executive's employment, or at such other times as the Company may request, all memoranda, notes, plans, records, reports and other documents (and all copies thereof) containing Confidential Information that Executive may then possess or have under his control. 6. Assignment of Patents and Copyrights. Executive shall assign to the Company all inventions and improvements within the existing or contemplated scope of the Company's business made by Executive while in the Company's employ, together with any such patents or copyrights as may be obtained thereon, both domestic and foreign. Upon request by the Company and at the Company's expense, Executive will at any time during his employment with the Company and after termination regardless of the reason therefor, execute all proper papers for use in applying for, obtaining and maintaining such domestic and foreign patents and/or copyrights as the Company may desire, and will execute and deliver all proper assignments therefor. 7. Termination. (a) This Agreement shall terminate upon Executive's death. (b) The Company may terminate Executive's employment hereunder upon fifteen (15) days' written notice if in the opinion of the Board of Directors, Executive's physical or mental disability has continued or is expected to continue for one hundred and eighty (180) consecutive days and as a result thereof, Executive will be unable to continue the proper performance of his duties hereunder. For the purpose of determining disability, Executive agrees to submit to such reasonable physical and mental examinations, if any, as the Board of Directors -8- 9 may request and hereby authorizes the examining person to disclose his findings to the Board of Directors of the Company. (c) The Company may terminate Executive's employment hereunder "for cause" (as hereinafter defined). If Executive's employment is terminated for cause, Executive's salary and all other rights not then vested under this Agreement shall terminate upon written notice of termination being given to Executive. As used herein, the term "for cause" means the occurrence of any of the following: (i) Executive having willfully and continually failed to perform substantially his duties with the Company (other than such failure resulting from incapacity due to physical or mental illness, death or disability) after a written demand for substantial performance has been delivered to the Executive by the Board or the President of the Company which specifically identifies the manner in which the Executive is not substantially performing his duties; or (ii) Executive having willfully engaged in conduct which is materially demonstrably injurious to the Company. For purposes of this section, no act, or failure to act, on the part of the Executive shall be considered "willful" unless done, or omitted to be done, by the Executive in bad faith and without reasonable belief that such action or omission was in, or not opposed to, the best interests of the Company. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel to the Company shall be conclusively presumed to be done or omitted to be done by the Executive in good faith and in the best interests of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for cause unless and until there shall have been delivered to the Executive a copy of a written resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting called and held for that purpose after reasonable notice to and opportunity for the Executive and the executive's counsel to be heard by the Board, finding that in the good faith opinion of the Board the Executive was guilty of the conduct set forth above in (i) or (ii) and specifying the particulars thereof in detail. 8. Additional Remedies. Executive recognizes that irreparable injury will result to the Company and to its business and properties in the event of any breach by Executive of the non-compete or non-solicitation provisions of Section 1, the confidentiality provisions of -9- 10 Section 5 or the assignment provisions of Section 6 and that Executive's continued employment is predicated on the covenants made by him pursuant to such Sections. In the event of any breach by Executive of his obligations under said provisions, the Company shall be entitled, in addition to any other remedies and damages available, to injunctive relief to restrain any such breach by Executive or by any person or persons acting for or with Executive in any capacity whatsoever and other equitable relief. 9. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company and their respective legal representatives, successors and assigns. Neither this Agreement nor any of the duties or obligations hereunder shall be assignable by Executive. 10. Governing Law; Jurisdiction. This Agreement shall be interpreted and construed in accordance with the laws of the State of Colorado. Each of the Company and Executive consents to the jurisdiction of any state or federal court sitting in Colorado, in any action or proceeding arising out of or relating to this Agreement. 11. Headings. The paragraph headings used in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement for any purpose or in any way affect the interpretation of this Agreement. 12. Severability. If any provision, paragraph or subparagraph of this Agreement is adjudged by any court to be void or unenforceable in whole or in part, this adjudication shall not affect the validity of the remainder of this Agreement. In addition, to the -10- 11 extent possible, a like valid term which meets the objective of the void or unenforceable term shall be substituted for any such void or unenforceable term. 13. Complete Agreement. This document embodies the complete agreement and understanding among the parties, written or oral, which may have related to the subject matter hereof in any way and shall not be amended orally, but only by the mutual agreement of the parties hereto in writing, specifically referencing this Agreement. 14. Counterparts. This Agreement may be executed in one or more separate counterparts, all of which taken together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THE DII GROUP, INC. By: ------------------------------------- Title: ------------------------------------- ---------------------------------------- DERMOTT O'FLANAGAN -11- EX-10.9 10 SEVERANCE AGREEMENT - BUDACZ 1 EXHIBIT 10.9 AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT, made and entered into as of the first day of January, 1997 by and between The DII Group, Inc., a Delaware corporation (the "Corporation") and Ronald R. Budacz (the "Executive"). W I T N E S S E T H WHEREAS, the Corporation and Executive are parties to that certain Senior Executive Severance Agreement, dated May 21, 1993 (the "Severance Agreement") and wish to amend the Severance Agreement as herein set forth: and WHEREAS, the Board of Directors of the Corporation has approved the following amendments to the Severance Agreement at a meeting of the Board of Directors duly held on May 9, 1995 and has further ratified the following amendments by Unanimous Written Consent of the Board of Directors dated February 28, 1997. NOW, THEREFORE, the parties hereto agree as follows: 1. Section 4(a) of the Severance Agreement is hereby amended so that said Section 4(a) shall be and read as follows: "a) Payment to the Executive as compensation for services rendered to the Corporation a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld) equal to twice (two times) the sum of (i) the highest annual base salary received by the Executive during the five-year period prior to the Change of Control (or such shorter period that the Executive was employed by the Corporation or a Subsidiary) or, if the amount would be greater, the highest annualized base salary that the Executive would have received based on the highest base annual salary rate in effect during such period and (ii) the highest annual bonus received by the Executive during such five-year period, in each case calculated without regard to amounts deferred under the qualified and non-qualified plans of the Corporation. In the event that there are fewer than 12 whole or partial months remaining from the date of Termination to the Executive's normal retirement date, the amount to be paid hereunder will be reduced by multiplying it by a fraction the numerator of which is the number of whole or partial months so remaining and the denominator of which is 12." 2 2. Section 5 of the Severance Agreement is hereby amended by replacing the word "options" appearing in the second line thereof with the word "option" and inserting the words "stock incentive," immediately after the word "option" in the second line thereof. 3. Section 6 of the Severance Agreement is hereby amended by adding the words "and each anniversary thereafter" immediately after the word "anniversary" in the third line thereof. 4. Section 9 of the Severance Agreement is hereby amended so that said Section 9 shall be and read as follows: 9. Taxes. "(a) Notwithstanding anything herein to the contrary, if any of the payments provided for under Section 4 of this Agreement, calculated without regard to any other payments or benefits which the Executive has the right to receive from the Corporation (including acceleration of vesting of options and performance shares), would constitute a "parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), the payments pursuant to Section 4 of this Agreement shall be reduced to the largest amount as would result in no payments or portions thereof being nondeductible by the Corporation under Section 280G of the Code, calculated without regard to any other payments which the Executive has the right to receive from the Corporation (including acceleration of vesting of options and performance shares). In the event that the Executive and the Corporation dispute whether there should be any reduction in payments pursuant to this Section 9, the determination of whether such reduction is necessary shall be made by an independent accounting firm or law firm mutually acceptable to the Executive and the Corporation and such determination shall be conclusive and binding on the Corporation and the Executive. (b) In the event that any payment or benefit to the Executive or for his benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Corporation or a change in ownership or effective control of the Corporation or of a substantial portion of its assets (each a "Payment" and collectively, the "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive will be entitled to receive an additional payment (a "Gross-Up Payment"), such that the net amount retained by the Executive, after deduction and/or payment of any Excise Tax on the Payments and the Gross-Up Payment and any federal, state and local -2- 3 income tax on the Gross-Up Payment (including any interest or penalties, other than interest and penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes shown due on his return, imposed with respect to such taxes), shall be equal to the Payments. Notwithstanding the foregoing, the amount of the Gross-Up Payment otherwise required pursuant to Section 9(b) of this Agreement shall be reduced by an amount equal to the Gross-Up Payment (if any) that would have been required under the preceding portion of Section 9(b) of this Agreement if no payments or benefits arising from or relating to the acceleration, vesting or lapsing of restrictions on incentive awards (including, without limitation, stock options, performance shares and restricted stock) had been made. (c) An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at the Corporation's expense by an accounting firm selected by the Corporation and reasonably acceptable to the Executive which is designated as one of the five largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to the Corporation and the Executive within five days of the termination date if applicable, or such other time as requested by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by the Executive as provided in Section 9(b) above, it shall furnish the Executive with an opinion reasonably acceptable to the Executive to such effect. Within ten days of the delivery of the Determination to the Executive, the Executive shall have the right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as determined pursuant to this Paragraph 9(c) shall be paid by the Corporation to the Executive within five days of the receipt of the Accounting Firm's determination. The existence of the Dispute shall not in any way affect the Executive's right to receive the Gross-Up Payment in accordance with the Determination. Upon the final resolution of a Dispute, the Corporation shall promptly pay to the Executive any additional amount required by such resolution. If there is no Dispute, the Determination shall be binding, final and conclusive upon the Corporation and the Executive subject to the application of Section 9(d) below. (d) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Excess Payment") or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an "Underpayment"). An Underpayment shall be deemed to have occurred (i) upon notice (formal or informal) to the Executive from any governmental taxing authority that the -3- 4 Executive's tax liability (whether in respect of the Executive's current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Corporation has failed to make a sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by reason of a determination by the Corporation (which shall include the position taken by the Corporation, together with its consolidated group, on its federal income tax return) or (iv) upon the resolution of the Dispute to the Executive's satisfaction. If an Underpayment occurs, the Executive shall promptly notify the Corporation and the Corporation shall promptly, but in any event, at least five days prior to the date on which the applicable government taxing authority has requested payment, pay to the Executive an additional Gross-Up Payment equal to the amount of the Underpayment plus an amount that, net of federal, state and local income taxes, is equal to any interest and penalties (other than interest and penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes shown due on the Executive's return) imposed on the Underpayment. An Excess Payment shall be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Executive had previously received a Gross-Up Payment. A "Final Determination" shall be deemed to have occurred when the Executive has received from the applicable government taxing authority a refund of taxes or other reduction in the Executive's tax liability by reason of the Excess Payment and upon either (x) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (y) the statute of limitations period with respect to the Executive's applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment shall be treated as a loan by the Corporation to the Executive and the Executive shall pay to the Corporation on demand (but not less than 10 days after the determination of such Excess Payment and written notice has been delivered to the Executive) the amount of the Excess Payment plus interest at an annual rate equal to the Applicable Federal Rate provided for in Section 1274(d) of the Code from the date the Gross-Up Payment (to which the Excess Payment relates) was paid to the Executive until the date of repayment to the Corporation. (e) Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or Payments, the Corporation shall pay to the applicable government taxing authorities as Excise Tax -4- 5 withholding, the amount of the Excise Tax that the Corporation has actually withheld from the Payment or Payments." 5. Section 10(f) of the Severance Agreement is hereby amended to change the addresses to which notices and other communications hereunder shall be sent as follows: If to the Executive: Ronald R. Budacz 6529 Daylilly Court Niwot, Colorado 80503 If to the Corporation: The DII Group, Inc. 6273 Monarch Park Place Suite 200 Niwot, Colorado 80503 Attention: Chief Executive Officer 6. Except as otherwise expressly provided herein, the Severance Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. --------------------------------------- Ronald R. Budacz THE DII GROUP, INC. --------------------------------------- Name: Title: -5- EX-10.10 11 SEVERANCE AGREEMENT - CARL R. VERTUCA JR. 1 EXHIBIT 10.10 AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT, made and entered into as of the first day of January, 1997 by and between The DII Group, Inc., a Delaware corporation (the "Corporation") and Carl R. Vertuca, Jr. (the "Executive"). W I T N E S S E T H WHEREAS, the Corporation and Executive are parties to that certain Senior Executive Severance Agreement, dated May 21, 1993 (the "Severance Agreement") and wish to amend the Severance Agreement as herein set forth: and WHEREAS, the Board of Directors of the Corporation has approved the following amendments to the Severance Agreement at a meeting of the Board of Directors duly held on May 9, 1995 and has further ratified the following amendments by Unanimous Written Consent of the Board of Directors dated February 28, 1997. NOW, THEREFORE, the parties hereto agree as follows: 1. Section 4(a) of the Severance Agreement is hereby amended so that said Section 4(a) shall be and read as follows: "a) Payment to the Executive as compensation for services rendered to the Corporation a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld) equal to twice (two times) the sum of (i) the highest annual base salary received by the Executive during the five-year period prior to the Change of Control (or such shorter period that the Executive was employed by the Corporation or a Subsidiary) or, if the amount would be greater, the highest annualized base salary that the Executive would have received based on the highest base annual salary rate in effect during such period and (ii) the highest annual bonus received by the Executive during such five-year period, in each case calculated without regard to amounts deferred under the qualified and non-qualified plans of the Corporation. In the event that there are fewer than 12 whole or partial months remaining from the date of Termination to the Executive's normal retirement date, the amount to be paid hereunder will be reduced by multiplying it by a fraction the numerator of which is the number of whole or partial months so remaining and the denominator of which is 12." 2 2. Section 5 of the Severance Agreement is hereby amended by replacing the word "options" appearing in the second line thereof with the word "option" and inserting the words "stock incentive," immediately after the word "option" in the second line thereof. 3. Section 6 of the Severance Agreement is hereby amended by adding the words "and each anniversary thereafter" immediately after the word "anniversary" in the third line thereof. 4. Section 9 of the Severance Agreement is hereby amended so that said Section 9 shall be and read as follows: 9. Taxes. "(a) Notwithstanding anything herein to the contrary, if any of the payments provided for under Section 4 of this Agreement, calculated without regard to any other payments or benefits which the Executive has the right to receive from the Corporation (including acceleration of vesting of options and performance shares), would constitute a "parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), the payments pursuant to Section 4 of this Agreement shall be reduced to the largest amount as would result in no payments or portions thereof being nondeductible by the Corporation under Section 280G of the Code, calculated without regard to any other payments which the Executive has the right to receive from the Corporation (including acceleration of vesting of options and performance shares). In the event that the Executive and the Corporation dispute whether there should be any reduction in payments pursuant to this Section 9, the determination of whether such reduction is necessary shall be made by an independent accounting firm or law firm mutually acceptable to the Executive and the Corporation and such determination shall be conclusive and binding on the Corporation and the Executive. (b) In the event that any payment or benefit to the Executive or for his benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Corporation or a change in ownership or effective control of the Corporation or of a substantial portion of its assets (each a "Payment" and collectively, the "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive will be entitled to receive an additional payment (a "Gross-Up Payment"), such that the net amount retained by the Executive, after deduction and/or payment of any Excise Tax on the Payments and the Gross-Up Payment and any federal, state and local -2- 3 income tax on the Gross-Up Payment (including any interest or penalties, other than interest and penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes shown due on his return, imposed with respect to such taxes), shall be equal to the Payments. Notwithstanding the foregoing, the amount of the Gross-Up Payment otherwise required pursuant to Section 9(b) of this Agreement shall be reduced by an amount equal to the Gross-Up Payment (if any) that would have been required under the preceding portion of Section 9(b) of this Agreement if no payments or benefits arising from or relating to the acceleration, vesting or lapsing of restrictions on incentive awards (including, without limitation, stock options, performance shares and restricted stock) had been made. (c) An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at the Corporation's expense by an accounting firm selected by the Corporation and reasonably acceptable to the Executive which is designated as one of the five largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to the Corporation and the Executive within five days of the termination date if applicable, or such other time as requested by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by the Executive as provided in Section 9(b) above, it shall furnish the Executive with an opinion reasonably acceptable to the Executive to such effect. Within ten days of the delivery of the Determination to the Executive, the Executive shall have the right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as determined pursuant to this Paragraph 9(c) shall be paid by the Corporation to the Executive within five days of the receipt of the Accounting Firm's determination. The existence of the Dispute shall not in any way affect the Executive's right to receive the Gross-Up Payment in accordance with the Determination. Upon the final resolution of a Dispute, the Corporation shall promptly pay to the Executive any additional amount required by such resolution. If there is no Dispute, the Determination shall be binding, final and conclusive upon the Corporation and the Executive subject to the application of Section 9(d) below. (d) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Excess Payment") or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an "Underpayment"). An Underpayment shall be deemed to have occurred (i) upon notice (formal or informal) to the Executive from any governmental taxing authority that the -3- 4 Executive's tax liability (whether in respect of the Executive's current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Corporation has failed to make a sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by reason of a determination by the Corporation (which shall include the position taken by the Corporation, together with its consolidated group, on its federal income tax return) or (iv) upon the resolution of the Dispute to the Executive's satisfaction. If an Underpayment occurs, the Executive shall promptly notify the Corporation and the Corporation shall promptly, but in any event, at least five days prior to the date on which the applicable government taxing authority has requested payment, pay to the Executive an additional Gross-Up Payment equal to the amount of the Underpayment plus an amount that, net of federal, state and local income taxes, is equal to any interest and penalties (other than interest and penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes shown due on the Executive's return) imposed on the Underpayment. An Excess Payment shall be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Executive had previously received a Gross-Up Payment. A "Final Determination" shall be deemed to have occurred when the Executive has received from the applicable government taxing authority a refund of taxes or other reduction in the Executive's tax liability by reason of the Excess Payment and upon either (x) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (y) the statute of limitations period with respect to the Executive's applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment shall be treated as a loan by the Corporation to the Executive and the Executive shall pay to the Corporation on demand (but not less than 10 days after the determination of such Excess Payment and written notice has been delivered to the Executive) the amount of the Excess Payment plus interest at an annual rate equal to the Applicable Federal Rate provided for in Section 1274(d) of the Code from the date the Gross-Up Payment (to which the Excess Payment relates) was paid to the Executive until the date of repayment to the Corporation. (e) Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or Payments, the Corporation shall pay to the applicable government taxing authorities as Excise Tax -4- 5 withholding, the amount of the Excise Tax that the Corporation has actually withheld from the Payment or Payments." 5. Section 10(f) of the Severance Agreement is hereby amended to change the addresses to which notices and other communications hereunder shall be sent as follows: If to the Executive: Carl R. Vertuca, Jr. 6955 Cordwood Court Boulder, Colorado 80301 If to the Corporation: The DII Group, Inc. 6273 Monarch Park Place Suite 200 Niwot, Colorado 80503 Attention: Chief Executive Officer 6. Except as otherwise expressly provided herein, the Severance Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. --------------------------------------- Carl R. Vertuca, Jr. THE DII GROUP, INC. --------------------------------------- Name: Title: -5- EX-10.11 12 SEVERANCE AGREEMENT - SNYDER 1 EXHIBIT 10.11 AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT, made and entered into as of the first day of January, 1997 by and between The DII Group, Inc., a Delaware corporation (the "Corporation") and Ronald R. Snyder (the "Executive"). W I T N E S S E T H WHEREAS, the Corporation and Executive are parties to that certain Senior Executive Severance Agreement, dated May 21, 1993 (the "Severance Agreement") and wish to amend the Severance Agreement as herein set forth: and WHEREAS, the Board of Directors of the Corporation has approved the following amendments to the Severance Agreement at a meeting of the Board of Directors duly held on May 9, 1995 and has further ratified the following amendments by Unanimous Written Consent of the Board of Directors dated February 28, 1997. NOW, THEREFORE, the parties hereto agree as follows: 1. Section 4(a) of the Severance Agreement is hereby amended so that said Section 4(a) shall be and read as follows: "a) Payment to the Executive as compensation for services rendered to the Corporation a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld) equal to the sum of (i) the highest annual base salary received by the Executive during the five-year period prior to the Change of Control (or such shorter period that the Executive was employed by the Corporation or a Subsidiary) or, if the amount would be greater, the highest annualized base salary that the Executive would have received based on the highest base annual salary rate in effect during such period and (ii) the highest annual bonus received by the Executive during such five-year period, in each case calculated without regard to amounts deferred under the qualified and non-qualified plans of the Corporation. In the event that there are fewer than 12 whole or partial months remaining from the date of Termination to the Executive's normal retirement date, the amount to be paid hereunder will be reduced by multiplying it by a fraction the numerator of which is the number of whole or partial months so remaining and the denominator of which is 12." 2 2. Section 5 of the Severance Agreement is hereby amended by replacing the word "options" appearing in the second line thereof with the word "option" and inserting the words "stock incentive," immediately after the word "option" in the second line thereof. 3. Section 6 of the Severance Agreement is hereby amended by adding the words "and each anniversary thereafter" immediately after the word "anniversary" in the third line thereof. 4. Section 9 of the Severance Agreement is hereby amended so that said Section 9 shall be and read as follows: 9. Taxes. "(a) Notwithstanding anything herein to the contrary, if any of the payments provided for under Section 4 of this Agreement, calculated without regard to any other payments or benefits which the Executive has the right to receive from the Corporation (including acceleration of vesting of options and performance shares), would constitute a "parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), the payments pursuant to Section 4 of this Agreement shall be reduced to the largest amount as would result in no payments or portions thereof being nondeductible by the Corporation under Section 280G of the Code, calculated without regard to any other payments which the Executive has the right to receive from the Corporation (including acceleration of vesting of options and peformance shares). In the event that the Executive and the Corporation dispute whether there should be any reduction in payments pursuant to this Section 9, the determination of whether such reduction is necessary shall be made by an independent accounting firm or law firm mutually acceptable to the Executive and the Corporation and such determination shall be conclusive and binding on the Corporation and the Executive. (b) In the event that any payment or benefit to the Executive or for his benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Corporation or a change in ownership or effective control of the Corporation or of a substantial portion of its assets (each a "Payment" and collectively, the "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive will be entitled to receive an additional payment (a "Gross-Up Payment"), such that the net amount retained by the Executive, after deduction and/or payment of any Excise Tax on the Payments and the Gross-Up Payment and any federal, state and local -2- 3 income tax on the Gross-Up Payment (including any interest or penalties, other than interest and penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes shown due on his return, imposed with respect to such taxes), shall be equal to the Payments. Notwithstanding the foregoing, the amount of the Gross-Up Payment otherwise required pursuant to Section 9(b) of this Agreement shall be reduced by an amount equal to the Gross-Up Payment (if any) that would have been required under the preceding portion of Section 9(b) of this Agreement if no payments or benefits arising from or relating to the acceleration, vesting or lapsing of restrictions on incentive awards (including, without limitation, stock options, performance shares and restricted stock) had been made. (c) An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at the Corporation's expense by an accounting firm selected by the Corporation and reasonably acceptable to the Executive which is designated as one of the five largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to the Corporation and the Executive within five days of the termination date if applicable, or such other time as requested by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by the Executive as provided in Section 9(b) above, it shall furnish the Executive with an opinion reasonably acceptable to the Executive to such effect. Within ten days of the delivery of the Determination to the Executive, the Executive shall have the right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as determined pursuant to this Paragraph 9(c) shall be paid by the Corporation to the Executive within five days of the receipt of the Accounting Firm's determination. The existence of the Dispute shall not in any way affect the Executive's right to receive the Gross-Up Payment in accordance with the Determination. Upon the final resolution of a Dispute, the Corporation shall promptly pay to the Executive any additional amount required by such resolution. If there is no Dispute, the Determination shall be binding, final and conclusive upon the Corporation and the Executive subject to the application of Section 9(d) below. (d) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Excess Payment") or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an "Underpayment"). An Underpayment shall be deemed to have occurred (i) upon notice (formal or informal) to the Executive from any governmental taxing authority that the -3- 4 Executive's tax liability (whether in respect of the Executive's current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Corporation has failed to make a sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by reason of a determination by the Corporation (which shall include the position taken by the Corporation, together with its consolidated group, on its federal income tax return) or (iv) upon the resolution of the Dispute to the Executive's satisfaction. If an Underpayment occurs, the Executive shall promptly notify the Corporation and the Corporation shall promptly, but in any event, at least five days prior to the date on which the applicable government taxing authority has requested payment, pay to the Executive an additional Gross-Up Payment equal to the amount of the Underpayment plus an amount that, net of federal, state and local income taxes, is equal to any interest and penalties (other than interest and penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes shown due on the Executive's return) imposed on the Underpayment. An Excess Payment shall be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Executive had previously received a Gross-Up Payment. A "Final Determination" shall be deemed to have occurred when the Executive has received from the applicable government taxing authority a refund of taxes or other reduction in the Executive's tax liability by reason of the Excess Payment and upon either (x) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (y) the statute of limitations period with respect to the Executive's applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment shall be treated as a loan by the Corporation to the Executive and the Executive shall pay to the Corporation on demand (but not less than 10 days after the determination of such Excess Payment and written notice has been delivered to the Executive) the amount of the Excess Payment plus interest at an annual rate equal to the Applicable Federal Rate provided for in Section 1274(d) of the Code from the date the Gross-Up Payment (to which the Excess Payment relates) was paid to the Executive until the date of repayment to the Corporation. (e) Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or Payments, the Corporation shall pay to the applicable government taxing authorities as Excise Tax -4- 5 withholding, the amount of the Excise Tax that the Corporation has actually withheld from the Payment or Payments." 5. Section 10(f) of the Severance Agreement is hereby amended to change the addresses to which notices and other communications hereunder shall be sent as follows: If to the Executive: Ronald R. Snyder 4962 Sundance Square Boulder, Colorado 80301 If to the Corporation: The DII Group, Inc. 6273 Monarch Park Place Suite 200 Niwot, Colorado 80503 Attention: Chief Executive Officer 6. Except as otherwise expressly provided herein, the Severance Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. ---------------------------------------- Ronald R. Snyder THE DII GROUP, INC. ---------------------------------------- Name: Title: -5- EX-10.12 13 SEVERANCE AGREEMENT - O'FLANAGAN 1 EXHIBIT 10.12 AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT AMENDMENT TO SENIOR EXECUTIVE SEVERANCE AGREEMENT, made and entered into as of the first day of January, 1997 by and between The DII Group, Inc., a Delaware corporation (the "Corporation") and Dermott O'Flanagan. (the "Executive"). W I T N E S S E T H WHEREAS, the Corporation and Executive are parties to that certain Senior Executive Severance Agreement, dated May 21, 1993 (the "Severance Agreement") and wish to amend the Severance Agreement as herein set forth: and WHEREAS, the Board of Directors of the Corporation has approved the following amendments to the Severance Agreement at a meeting of the Board of Directors duly held on May 9, 1995 and has further ratified the following amendments by Unanimous Written Consent of the Board of Directors dated February 28, 1997. NOW, THEREFORE, the parties hereto agree as follows: 1. Section 4(a) of the Severance Agreement is hereby amended so that said Section 4(a) shall be and read as follows: "a) Payment to the Executive as compensation for services rendered to the Corporation a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld) equal to the sum of (i) the highest annual base salary received by the Executive during the five-year period prior to the Change of Control (or such shorter period that the Executive was employed by the Corporation or a Subsidiary) or, if the amount would be greater, the highest annualized base salary that the Executive would have received based on the highest base annual salary rate in effect during such period and (ii) the highest annual bonus received by the Executive during such five-year period, in each case calculated without regard to amounts deferred under the qualified and non-qualified plans of the Corporation. In the event that there are fewer than 12 whole or partial months remaining from the date of Termination to the Executive's normal retirement date, the amount to be paid hereunder will be reduced by multiplying it by a fraction the numerator of which is the number of whole or partial months so remaining and the denominator of which is 12." 2 2. Section 5 of the Severance Agreement is hereby amended by replacing the word "options" appearing in the second line thereof with the word "option" and inserting the words "stock incentive," immediately after the word "option" in the second line thereof. 3. Section 6 of the Severance Agreement is hereby amended by adding the words "and each anniversary thereafter" immediately after the word "anniversary" in the third line thereof. 4. Section 9 of the Severance Agreement is hereby amended so that said Section 9 shall be and read as follows: 9. Taxes. "(a) Notwithstanding anything herein to the contrary, if any of the payments provided for under Section 4 of this Agreement, calculated without regard to any other payments or benefits which the Executive has the right to receive from the Corporation (including acceleration of vesting of options and performance shares), would constitute a "parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), the payments pursuant to Section 4 of this Agreement shall be reduced to the largest amount as would result in no payments or portions thereof being nondeductible by the Corporation under Section 280G of the Code, calculated without regard to any other payments which the Executive has the right to receive from the Corporation (including acceleration of vesting of options and peformance shares). In the event that the Executive and the Corporation dispute whether there should be any reduction in payments pursuant to this Section 9, the determination of whether such reduction is necessary shall be made by an independent accounting firm or law firm mutually acceptable to the Executive and the Corporation and such determination shall be conclusive and binding on the Corporation and the Executive. (b) In the event that any payment or benefit to the Executive or for his benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Corporation or a change in ownership or effective control of the Corporation or of a substantial portion of its assets (each a "Payment" and collectively, the "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive will be entitled to receive an additional payment (a "Gross-Up Payment"), such that the net amount retained by the Executive, after deduction and/or payment of any Excise Tax on the Payments and the Gross-Up Payment and any federal, state and local -2- 3 income tax on the Gross-Up Payment (including any interest or penalties, other than interest and penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes shown due on his return, imposed with respect to such taxes), shall be equal to the Payments. Notwithstanding the foregoing, the amount of the Gross-Up Payment otherwise required pursuant to Section 9(b) of this Agreement shall be reduced by an amount equal to the Gross-Up Payment (if any) that would have been required under the preceding portion of Section 9(b) of this Agreement if no payments or benefits arising from or relating to the acceleration, vesting or lapsing of restrictions on incentive awards (including, without limitation, stock options, performance shares and restricted stock) had been made. (c) An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at the Corporation's expense by an accounting firm selected by the Corporation and reasonably acceptable to the Executive which is designated as one of the five largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to the Corporation and the Executive within five days of the termination date if applicable, or such other time as requested by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by the Executive as provided in Section 9(b) above, it shall furnish the Executive with an opinion reasonably acceptable to the Executive to such effect. Within ten days of the delivery of the Determination to the Executive, the Executive shall have the right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as determined pursuant to this Paragraph 9(c) shall be paid by the Corporation to the Executive within five days of the receipt of the Accounting Firm's determination. The existence of the Dispute shall not in any way affect the Executive's right to receive the Gross-Up Payment in accordance with the Determination. Upon the final resolution of a Dispute, the Corporation shall promptly pay to the Executive any additional amount required by such resolution. If there is no Dispute, the Determination shall be binding, final and conclusive upon the Corporation and the Executive subject to the application of Section 9(d) below. (d) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Excess Payment") or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an "Underpayment"). An Underpayment shall be deemed to have occurred (i) upon notice (formal or informal) to the Executive from any governmental taxing authority that the -3- 4 Executive's tax liability (whether in respect of the Executive's current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Corporation has failed to make a sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by reason of a determination by the Corporation (which shall include the position taken by the Corporation, together with its consolidated group, on its federal income tax return) or (iv) upon the resolution of the Dispute to the Executive's satisfaction. If an Underpayment occurs, the Executive shall promptly notify the Corporation and the Corporation shall promptly, but in any event, at least five days prior to the date on which the applicable government taxing authority has requested payment, pay to the Executive an additional Gross-Up Payment equal to the amount of the Underpayment plus an amount that, net of federal, state and local income taxes, is equal to any interest and penalties (other than interest and penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes shown due on the Executive's return) imposed on the Underpayment. An Excess Payment shall be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Executive had previously received a Gross-Up Payment. A "Final Determination" shall be deemed to have occurred when the Executive has received from the applicable government taxing authority a refund of taxes or other reduction in the Executive's tax liability by reason of the Excess Payment and upon either (x) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (y) the statute of limitations period with respect to the Executive's applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment shall be treated as a loan by the Corporation to the Executive and the Executive shall pay to the Corporation on demand (but not less than 10 days after the determination of such Excess Payment and written notice has been delivered to the Executive) the amount of the Excess Payment plus interest at an annual rate equal to the Applicable Federal Rate provided for in Section 1274(d) of the Code from the date the Gross-Up Payment (to which the Excess Payment relates) was paid to the Executive until the date of repayment to the Corporation. (e) Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or Payments, the Corporation shall pay to the applicable government taxing authorities as Excise Tax -4- 5 withholding, the amount of the Excise Tax that the Corporation has actually withheld from the Payment or Payments." 5. Section 10(f) of the Severance Agreement is hereby amended to change the addresses to which notices and other communications hereunder shall be sent as follows: If to the Executive: Dermott O'Flanagan 7388 Windsor Drive Boulder, Colorado 80301 If to the Corporation: The DII Group, Inc. 6273 Monarch Park Place Suite 200 Niwot, Colorado 80503 Attention: Chief Executive Officer 6. Except as otherwise expressly provided herein, the Severance Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. ---------------------------------------- Dermott O'Flanagan THE DII GROUP, INC. ---------------------------------------- Name: Title: -5- EX-11.1 14 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 THE DII GROUP, INC. AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE FIRST QUARTER ENDED ----------------------------- MAR. 30, 1997 MAR. 31, 1996 ------------- ------------- PRIMARY EARNINGS PER SHARE: Earnings Available for Primary Earnings Per Share: Net income $ 5,077 5,067 ======= ======= Shares Used in Computation: Weighted average common shares outstanding 12,030 11,748 Common share equivalents outstanding: Stock options 500 425 Deferred stock compensation 31 -- ======= ======= 12,561 12,173 ======= ======= Primary Earnings Per Share $ 0.40 0.42 ======= ======= FULLY DILUTED EARNINGS PER SHARE: Earnings Available for Fully Diluted Earnings Per Share: Net income $ 5,077 5,067 Interest expense (net of tax) on 6% convertible subordinated notes 776 776 Amortization (net of tax) of debt issuance cost on convertible subordinated notes 65 62 ------- ------- Earnings available for fully diluted earnings per share $ 5,918 5,905 ======= ======= Shares Used in Computation: Weighted average common shares outstanding 12,030 11,748 Additional potentially dilutive securities (equivalent in common stock): Stock options 504 586 Deferred stock compensation 31 42 Convertible subordinated notes 2,300 2,300 ------- ------- 14,865 14,676 ======= ======= Fully Diluted Earnings Per Share $ 0.40 0.40 ======= =======
EX-27 15 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-28-1997 DEC-30-1997 MAR-30-1997 17,447 0 92,366 1,923 55,285 171,840 167,124 50,071 356,538 89,474 86,250 0 0 121 165,759 356,538 137,080 137,080 110,900 110,900 16,609 179 1,700 7,692 2,615 5,077 0 0 0 5,077 0.40 0.40
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