-----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, Bg1lNt3TgEFWRjTivkY4GOkaeNsvCkRpMupdIK80ZHBWagazBsm6b8QrNCNCdKdM QK9BAL6asd6iV0ysQMjfmw== 0001035704-99-000142.txt : 19990322 0001035704-99-000142.hdr.sgml : 19990322 ACCESSION NUMBER: 0001035704-99-000142 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990103 FILED AS OF DATE: 19990319 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-K SEC ACT: SEC FILE NUMBER: 000-21374 FILM NUMBER: 99569252 BUSINESS ADDRESS: STREET 1: 6273 MONARCH PARK PLACE STREET 2: STE 200 CITY: NIWOT STATE: CO ZIP: 80503 BUSINESS PHONE: 3036522221 FORMER COMPANY: FORMER CONFORMED NAME: DOVATRON INTERNATIONAL INC DATE OF NAME CHANGE: 19930319 10-K 1 FORM 10-K FOR FISCAL YEAR END JANUARY 3, 1999 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 3, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ 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 incorporation (I.R.S. Employer Identification No.) or organization) 6273 MONARCH PARK PLACE, NIWOT, COLORADO 80503 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 303-652-2221 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS ------------------- Common Stock, $0.01 par value Series A Junior Participating Preferred Stock Purchase Rights
- -------------------------------------------------------------------------------- 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of voting common stock held by non-affiliates based upon the closing price at March 1, 1999: $728,160,893 Shares of common stock outstanding at March 1, 1999: 30,659,406 DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's 1998 Annual Report to Stockholders are incorporated by reference into Part II of this Form 10-K. Portions of the Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 6, 1999 (to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year covered by this report on Form 10-K) are incorporated by reference into Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I FORWARD-LOOKING STATEMENTS -- CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words such as "expects," "anticipates," "forecasts," "intends," "plans," "believes," "projects," and "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements include, but are not limited to, statements regarding expected industry growth, prospective sales growth, new customers, integration of acquired businesses, contingencies, Year 2000 readiness, environmental matters and liquidity under "Part I, Item 1 -- Business," "Part II, Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Part II, Item 8 -- Financial Statements and Supplementary Data." These statements are not guarantees of future performance and involve risks and uncertainties and are based on a number of assumptions that could ultimately prove to be wrong. Actual results and outcomes may vary materially from what is expressed or forecast in such statements. Among the factors that could cause actual results to differ materially are: general economic and business conditions; the Company's dependence on the electronics industry; changes in demand for the Company's products and services or the products of the Company's customers; the risk of delays or cancellations of customer orders; fixed asset utilization; the timing of orders and product mix; availability of components; competition; the risk of technological changes and of the Company's competitors developing more competitive technologies; the Company's dependence on certain important customers; the Company's ability to integrate acquired businesses; the Company's ability to manage growth; risks associated with international operations; the availability and terms of needed capital; risks of loss from environmental liabilities; and other risks detailed in this report. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 1. BUSINESS OVERVIEW The Company is a leading provider of electronics design and manufacturing services that operates through a global network of independent business units in North America, Europe, and Asia. These business units are uniquely linked to provide the following related core products and services to original equipment manufacturers ("OEMs"): custom semiconductor design; design and manufacture of printed wiring boards; assembly of printed circuit boards; final systems assembly ("box build"); and distribution. By offering comprehensive and integrated design and manufacturing services, the Company believes that it is better able to differentiate its product and service offerings from those of its competitors, develop long-term relationships with its customers and enhance its profitability. Key customers of the Company include: 3Com Corporation, EMC Corporation, Hewlett-Packard Company ("Hewlett-Packard" or "HP"), International Business Machines Corporation ("IBM"), Lifescan, Inc. (a subsidiary of Johnson & Johnson), Motorola, Inc., Silicon Graphics, Inc., Symbios Logic, Inc., The Foxboro Company, Pace Micro Technology, Siemens Medical Systems, Inc., Mylex Corporation, Matrox Graphics, Inc., and The Square D Company. In addition, the Company offers the following products and services through its non-core business unit known as Process Technologies International ("PTI"): process tooling; machines tools; and process automation equipment. In March 1999, the Company sold the assets and business of its subsidiary, TTI Testron, Inc., a manufacturer of functional and in-circuit test fixtures. The Company is continuing with its initiative to divest this non-core business unit, in order to sharpen its focus on the Company's core businesses of design and semiconductor services, design and fabrication of printed wiring boards, and systems assembly and distribution. The Company does not believe that the sale of TTI Testron and other PTI businesses will result in any adverse impact on the Company's 1999 consolidated financial position. However, the Company's consolidated revenues and operating results will be adversely impacted (by less than 10%) until such time as the proceeds are reinvested back into the Company's core businesses of design and semiconductor services, design and fabrication of printed wiring boards, and systems assembly and distribution. 3 ACQUISITIONS AND PURCHASES OF MANUFACTURING FACILITIES The Company has actively pursued acquisitions and purchases of manufacturing facilities in furtherance of its strategy to be the fastest and most comprehensive global provider of custom electronics design and manufacturing services, ranging from microelectronics design through the fabrication, final assembly and distribution of printed circuits and finished products for customers. These acquisitions and manufacturing facility purchases have enabled the Company to provide more integrated outsourcing technology solutions with time-to-market and lower cost advantages. Acquisitions and manufacturing facility purchases have also played an important part in expanding the Company's presence in the global electronics marketplace. Since 1994, the Company has made the following acquisitions and manufacturing facility purchases to expand its geographic presence and enhance its value-added design and manufacturing capabilities:
TRANSACTION DATE PRODUCTS OR SERVICES ----------- ---- -------------------- Design and Semiconductor Services Orbit Semiconductor, Inc. August 1996 Design and fabrication of custom microelectronics products Design Solutions, Inc. June 1997 Design and engineering of printed circuit boards Printed Wiring Boards Printed wiring board manufacturing of HP October 1998 High volume printed wiring board in Boeblingen, Germany fabrication Greatsino Electronic Technology (China) August 1998 High volume printed wiring board fabrication Printed wiring board manufacturing assets August 1997 High volume printed wiring board of IBM in Austin, TX fabrication Printed wiring board manufacturing assets December 1995 Oversize complex multilayer printed of Unisys Corporation in Roseville, MN wiring boards and backpanel fabrication Multilayer Technology, Inc. September 1994 Quick-turn prototype complex multilayer printed wiring board fabrication Systems Assembly and Distribution Greatsino Electronic Technology (China) August 1998 Assembly of printed circuit boards Utes Electronika A.S. (Czech Republic) July 1998 Assembly of printed circuit boards and final systems assembly CEM assets of The Square D Company November 1995 Assembly of printed circuit boards Sistemas Inteligentes Ceretronik, S.A. de July 1994 Assembly of printed circuit boards C.V. (Mexico) CEM business of The Thielen Group, Inc. May 1994 Assembly of printed circuit boards Process Technologies Process Control Technologies, Inc. April 1997 Process automation equipment for printed circuit board assembly Chemtech (UK) Limited April 1996 Quick-turn stencils
By enhancing the Company's capability to provide a wide range of related electronics design and manufacturing services to a global market that is increasingly dependent on outsourcing providers, these acquisitions have enabled the Company to enhance its competitive position as a leading provider of comprehensive outsourcing technology solutions. 2 4 INDUSTRY BACKGROUND As a result of the growing capital-intensive nature of the manufacturing process, coupled with the greater need for more sophisticated design, engineering and manufacturing processes, OEMs continue to increasingly outsource a broad range of manufacturing and related engineering services. OEMs utilize electronics outsourcing providers to: Reduce Time to Market. In an environment characterized by compressed product life cycles and rapid technological advances, OEMs must accelerate the time to bring products to market in order to remain competitive. By providing engineering, design and manufacturing expertise, electronics outsourcing providers can assist OEMs in the reduction of their time-to-market. Reduce Production Cost. The competitive technology environment requires OEMs to achieve low-cost manufacturing solutions. Due to their established manufacturing expertise and infrastructure, electronics outsourcing providers can provide OEMs with lower overall production costs and increased flexibility compared with in-house manufacturing. Access Leading-edge Manufacturing, Design and Engineering Capabilities. As electronic products have become more technologically advanced, the related manufacturing processes have become increasingly sophisticated and complex, making it difficult for OEMs to maintain the necessary manufacturing, engineering and design expertise necessary to manufacture products internally. Electronics outsourcing providers enable OEMs to gain access to design and manufacturing expertise and advanced manufacturing capabilities. Access Worldwide Manufacturing Capabilities. In an effort to lower costs and access foreign markets, OEMs are continuously increasing their international activities. Electronics outsourcing providers, with an expanded international manufacturing presence, are able to offer OEMs a variety of options of manufacturing locations to better address their objectives regarding costs, shipment location, frequency of interaction with electronics outsourcing providers and local content requirements of end-market countries. Reduce Capital Investment. As electronic products have become more technologically advanced, the design and manufacturing processes have become increasingly automated, requiring significantly higher levels of investment in capital equipment, systems and infrastructure. Electronics outsourcing providers enable OEMs to gain access to advanced, leading-edge design and manufacturing expertise and technology, thereby reducing OEMs capital investment requirements. Focus Resources. As the electronics industry continues to experience increased competition and rapid technological change, many OEMs are seeking to focus their resources on activities and technologies where they add the greatest value. The utilization of electronics outsourcing providers enables OEMs to focus their efforts on their core competencies of research, product design and development, and marketing. Improve Inventory Management and Purchasing Power. OEMs are faced with increasing difficulties in planning, procuring and managing their inventories efficiently due to frequent design changes, compressed product life cycles, high levels of investment in electronic components, component price fluctuations and the need to achieve economies of scale in materials procurement. By leveraging electronics outsourcing providers' inventory management expertise and volume procurement capabilities, OEMs can reduce production costs, improve control over inventory levels and increase their return on assets. The Company believes that many OEMs now view outsourcing as a strategic manufacturing solution, rather than a back-up source to in-house manufacturing capacity during peak periods. 3 5 Industry information regarding the Company's three primary products and service offerings follows: Design and Semiconductor Services Competitive pressures are requiring manufacturers of electronic products to bring increasingly complex products to market rapidly. Cost reductions in electronic products are increasingly due to designs utilizing technology advances to reduce board size and the number of components attached. Customer requirements for improved functionality, performance, reliability, and lower cost are provided by Dii Technologies Design (formerly Design Solutions). Design services include printed circuit board and backpanel layout, design for manufacturability and test, and total life cycle planning and management. Design services also provide value to customers that have already launched products into the marketplace. This is accomplished through a redesign to minimize part counts and cost, printed wiring board size, and layer count. Electronic systems are generally comprised of three major types of digital integrated circuits: microprocessor, memory and logic. Microprocessors are used for control and computing tasks; memory devices are used to store program instructions and data; and logic devices are used to customize these processing and storage capabilities to a specific application. Logic circuits are found in virtually every electronic system. Logic circuits are utilized in a wide range of business and consumer applications including medical devices, computers, calculators, communications equipment, instruments, watches, automotive parts and defense-related products. Unlike processing and memory functions, most logic functions must be custom designed for each application in order to meet unique design requirements and to allow for differentiation of the particular end-product to provide advantages over the products of competitors. Although application specific standard products are effective in providing rapid time-to-market advantages, they typically do not allow system designers to provide product differentiation. As a result, system designers typically utilize application specific integrated circuits ("ASIC") that provide the specific logic component required for a specific electronic system. Dii Semiconductor (formerly Orbit Semiconductor) participates in the ASIC market by providing cost-effective gate array conversion and mixed-signal and silicon integration design services. Dii Semiconductor provides reduced cost and increased speed-to-market advantages to its customers by offering the following application-specific integrated circuit design services: - Conversion services from field programmable gate arrays ("FPGAs") to ASICs. These services focus on designs that utilize primarily digital signals, with only a small amount of analog signals. - Design services for mixed-signal ASICs. These services focus on designs that utilize primarily analog signals, with only a small amount of digital signals. - Silicon integration design services. These services utilize silicon design modules that are used to accelerate complex ASIC designs, including system-on-a-chip. Dii Semiconductor utilizes external foundry suppliers for its customers' silicon manufacturing requirements, thereby using a "fabless" manufacturing approach. By integrating the combined capabilities of design and semiconductor services, the Company can compress the time from product concept to market introduction and minimize product development costs. Printed Wiring Boards Printed wiring boards are the platforms used to interconnect the microprocessors, integrated circuits, capacitors, resistors, and other components critical to the operation of electronic products. Printed wiring boards are generally made of rigid fiberglass, rigid paper or thin flexible plastic. In recent years, the trend in the electronics industry has generally been to increase the speed and performance of components, while reducing their size. This advancement in component technology has driven the change in printed circuit board design to higher density printed circuits. Multek has invested in the advanced engineering systems and process equipment needed to meet these density requirements. 4 6 Systems Assembly and Distribution The assembly of printed circuit boards involves the attachment of various electronic components, such as integrated circuits, capacitors, resistors, and processors to printed wiring boards. Low price and high quality are now considered to be entry level standards for companies in the industry. World class contract manufacturers have expanded their services beyond printed circuit board assembly and test to include both front-end services, such as design and engineering, materials management and fabrication; and back-end services, such as system assembly, integration and distribution/fulfillment. Successful contract manufacturers are becoming increasingly important in helping OEMs introduce new products faster, more frequently and with a greater number of features than in previous product generations. As a result, some production volumes are smaller and have shorter lead times for products targeted at specialized niche markets. The ability to provide OEMs with product design capabilities, quick-turn prototyping and complete high-volume solutions with distribution capabilities is critical to the success of the contract manufacturers' relationships with OEMs. STRATEGY The Company's strategy is to capitalize on the growth in the electronics outsourcing industry by being the fastest and most comprehensive global provider of custom electronics design and manufacturing services. Key elements of the Company's strategy include: Acquisitions and Manufacturing Facility Purchases: The Company has actively pursued acquisitions and manufacturing facility purchases to expand its worldwide operations, enhance its technology offerings, increase its volume production capabilities, and diversify its customer base. The Company will selectively review the increasing number of opportunities to acquire manufacturing operations being sold by OEMs and aggressively pursue these opportunities where the Company's acquisition criteria are satisfied. Offer Comprehensive and Integrated Design and Manufacturing Solutions: The Dii Group leverages the technology capabilities of its three core business units to offer comprehensive and integrated design and manufacturing solutions to its customers. By offering a broad range of integrated products and services that extends from custom microelectronics design and outsourced production, through printed wiring board design and fabrication, to final systems assembly and in-circuit and functional testing, the Company is able to secure more fully integrated projects, which provide opportunities to enhance volume and profitability. Linked Marketing Strategies: The Company markets its products and services to customers through its individual business units and through linked marketing in order to provide fully integrated, custom design and manufacturing solutions to its customers. Through the integration of design and manufacturing solutions offered by the Company's network of business units, the Company provides customer-specific products and services to reduce customer time-to-market and decrease total manufacturing costs. Customer Relationships: The Company seeks to establish "partnerships" with its customers through involvement in the early stages of their product development by providing integrated design and manufacturing services. The Dii Group companies target customers in fast-growing industry sectors that require complex outsourcing solutions together with minimum time-to-market. This enhances the Company's ability to realize higher margins on its products and services. Global Presence: The Company offers design and manufacturing capabilities in the three major electronics markets of the world (North America, Europe and Asia). Through the Company's 1998 acquisition of Greatsino Electronic Technology, a printed wiring board fabricator and contract electronics manufacturer with operations in the People's Republic of China, and through the Company's purchase of Hewlett-Packard's fabrication facility located in Boeblingen, Germany, the Company expanded significantly its worldwide manufacturing capabilities. The Company believes that by offering its products and services in diverse geographic locations, the Company is better able to address its customers' needs of low cost, coordination of worldwide manufacturing requirements, shipping costs, and local content requirements. 5 7 Technology and Manufacturing Leadership: The Company seeks to maintain technological leadership in order to secure partnerships with customers in the early stages of their product development and to support their design and manufacturing requirements. In addition, the Company continues to invest in high-technology equipment, enabling the Dii Group companies to accept increasingly complex orders, which provide opportunities to enhance volume and profitability. PRODUCTS AND SERVICES The Company provides the following related products and services to customers in the global electronics manufacturing industry: Design and Semiconductor Services -- Through Dii Technologies, the Company provides printed circuit board and backpanel design services, as well as design for manufacturability and test and total life cycle planning. Through Dii Semiconductor, the Company provides the following application specific integrated circuit design services to its OEM customers: - Conversion services from field programmable gate arrays ("FPGAs") to ASICs. These services focus on designs that utilize primarily digital signals, with only a small amount of analog signals. - Design services for mixed-signal ASICs. These services focus on designs that utilize primarily analog signals, with only a small amount of digital signals. - Silicon integration design services. These services utilize silicon design modules that are used to accelerate complex ASIC designs, including system-on-a-chip. Dii Semiconductor utilizes external foundry suppliers for its customers' silicon manufacturing requirements, thereby using a "fabless" manufacturing approach. By integrating the combined capabilities of design and semiconductor services, the Company can compress the time from product concept to market introduction and minimize product development costs. The Company believes that its semiconductor design expertise provides it with a competitive advantage by enabling the Company to offer its customers reduced costs through the consolidation of components onto silicon chips. Printed Wiring Boards -- The Company manufactures high density, complex multilayer printed wiring boards and back panels through Multek. Systems Assembly and Distribution -- The Company assembles complex electronic circuits and provides final system assembly and distribution services on a high and low volume contract basis through Dovatron International ("Dovatron"). With the above core competencies, the Company has the ability to provide customers with total design and manufacturing outsourcing solutions. The Company's ability to offer fully integrated solutions with value-added front-and back-end product and process development capabilities coupled with global volume assembly capabilities provides customers with significant speed-to-market and product cost improvements. In addition, the Company has a non-core business unit known as Process Technologies International ("PTI"). Through this business unit, the Company manufactures surface mount printed wiring board solder cream stencils through IRI International and Chemtech; and manufactures depaneling equipment and automated handling systems used in the printed circuit board assembly process through Cencorp Automation Systems. In March 1999, the Company sold the assets and business of its subsidiary, TTI Testron, Inc., a manufacturer of functional and in-circuit test fixtures. The Company is continuing with its initiative to divest this non-core business unit, in order to sharpen its focus on the Company's core businesses of design and semiconductor services, design and fabrication of printed wiring boards, and systems assembly and distribution. The Company does not believe that the sale of TTI Testron and other PTI businesses will result in any adverse impact on the Company's 1999 consolidated financial position. However, the Company's consolidated 6 8 revenues and operating results will be adversely impacted (by less than 10%) until such time as the proceeds are reinvested back into the Company's core businesses of custom semiconductor design, design and fabrication of printed wiring boards, and systems assembly and distribution. See Note 13 of the Company's 1998 Consolidated Financial Statements included in Exhibit 13 of this Form 10-K for details concerning financial information regarding the Company's business segments. MANUFACTURING The Company provides initial prototype and follow-on high volume manufacturing services primarily on a turnkey basis, where the Company purchases materials, and occasionally on a consignment basis, where the customer provides materials. The level of the Company's sales revenue is subject to significant shifting, based on whether orders are being filled on a turnkey or on a consignment basis. Because the Company obtains firm purchase orders from its customers, the customers typically bear the inventory cost risk associated with purchases of materials by the Company in connection with orders to be filled on a turnkey basis. Manufacturing information regarding the Company's core competencies follows: Design and Semiconductor Services The Company provides the electronics industry with complete printed circuit board design and layout services through Dii Technologies Design. Through its early involvement with product development, Dii Technologies Design's comprehensive review of design aspects assures that both mechanical and electrical considerations are integrated to achieve a high quality, cost effective product. In addition, Dii Technologies Design assesses customer designs for manufacturability and testability and provides engineering and design automation productivity software and advanced packaging solution consulting. By working closely with its customers, Dii Technologies Design gains an understanding as to the future requirements of OEMs. By integrating the design expertise of Dii Technologies Design with the Dii Group companies' other design and manufacturing services, the Dii Group offers its customers the ability to both minimize costs and shorten the time from development of the prototype design to volume manufacturing. The Company believes that the coordination of the various design and manufacturing stages under one "virtual" roof offers time and cost advantages that the customer could not achieve by coordinating these activities among different service providers. Additionally, the Company designs both in-circuit and functional test solutions for its customers through Dii Technologies Test. In-circuit test ensures that there is a proper electrical connection between the printed wiring board and each electronic component. Functional test verifies that the assembly will perform as designed in the field. Dii Technologies Test provides a key design component - one that ensures the Company's customers' requirements can be consistently met in the fabrication and assembly process. Dii Semiconductor provides ASIC design services but does not manufacture its products. The Company's products are manufactured using various semiconductor foundry wafer fabrication service providers. This enables the Company to take advantage of these suppliers' high volume economies of scale and access to advanced process technology. The Company believes that its semiconductor design expertise provides it with a competitive advantage by enabling the Company to offer its customers reduced costs through the consolidation of components onto silicon chips. Printed Wiring Boards Through Multek, the Company manufactures high density, complex multilayer printed wiring boards and back panels on either a quick-turn, pre-production or high-volume production basis. Quick-turn production typically requires lead times of three to seven days, and as short as 24 hours. This quick-turn prototype service is able to provide small test quantities to the product development groups of customers. Pre-production is the manufacture of limited quantities of printed wiring boards during the transition period from prototype to volume production. High-volume production is characterized by longer lead times and increased emphasis on lower cost as the product transitions to full-scale commercial production. Multek is one of only a few 7 9 independent manufacturers that can respond to its customers' demands for an accelerated transition from prototype to volume production. The manufacture of multilayer printed wiring boards involves several steps: etching the circuit image on copper-clad epoxy laminate, pressing the laminates together to form a panel, drilling holes and depositing copper or other conductive material into the holes to form the inter-layer electrical connections, and machining the panels to shape. Certain advanced interconnect products require additional application specific steps, including multiple imaging processes, cavity formation, and a higher level testing of impedance, capacitance, resistivity and inductance. Multilayering, which involves the placing of multiple layers of electrical circuitry on a single printed wiring board, expands the number of circuits and components that can be contained on the interconnect product and increases the operating speed of the system by reducing the distance the electrical signal must travel. The manufacture of complex multilayer interconnect products often requires the use of sophisticated circuit interconnections between layers (called "blind or buried vias") and adherence to strict electrical characteristics to maintain consistent circuit transmission speeds (referred to as "controlled impedance"). These technologies require very tight lamination and etching tolerances. During 1997, Multek gained a key technology with the acquisition of the printed wiring board manufacturing assets of IBM in Austin, Texas. This technology, Surface Laminar Circuit (SLC), is a photo generated micro via capability that was licensed as a part of the transaction. This technology can be further developed to provide alternative packaging solutions to Multek's current and future customers, as well as providing entry into the wireless markets. Through the acquisition of Hewlett-Packard's printed wiring board fabrication facility located in Boeblingen, Germany in fiscal 1998, Multek acquired the technology to produce micro vias by laser ablation. This capability, in addition to Multek's photo micro via technology (SLC) in Austin, Texas, provides Multek's customers with proven high volume production capacity in both of the major high density interconnect (HDI) process solutions. The Company believes that it is the only interconnect provider with this level of experience and the potential for interchangeability of these leading micro via applications. Through the use of specialized materials such as polyimide, teflon, teflon hybrids, and low dielectric constant substrates, Multek achieves multilayer circuit counts to 68 layers. Multek employs state-of-the-art manufacturing processes by working closely with equipment suppliers, many of which use Multek as a beta site for new technologies being introduced to the marketplace. Each Multek facility is ISO 9002 certified. Systems Assembly and Distribution Through Dovatron, the Company produces complex printed circuit board assemblies using both surface mount ("SMT") and pin through-hole ("PTH") interconnection technologies. The assembly of printed circuit boards involves the attachment of various electronic components, such as integrated circuits, capacitors, resistors, and processors, to printed circuit boards. SMT is a method of assembling printed circuit boards whereby components are fixed directly onto the surface of the board instead of being inserted and soldered into plated holes on the board (the latter method being PTH). SMT offers the advantages of miniaturization and significant cost reductions. The higher density achieved through SMT also allows for shorter signal lengths, with resulting increases in signal speed potential and thermal performance. Dovatron's manufacturing processes also include the more advanced assembly process technology of ball grid array ("BGA"). BGA technology utilizes packaged semiconductor die where the electrical connection from within the package is terminated on the outer surface of the package using solder alloy in the shape of a partial sphere. A BGA package, rather than using pins for leads, mounts to the printed circuit board using the balls located on the underside of the package. BGA technology can provide higher interconnect density and improved assembly yields and reliability through its use of an array of solder balls, rather than pin leads. In conjunction with its assembly activities, Dovatron also provides computer-aided testing of printed circuit boards, sub-systems and systems, which contributes significantly to the Company's ability to deliver high-quality products on a consistent basis. Dovatron's test capabilities include management defect analysis, 8 10 environmental stress screening, in-circuit tests and functional tests. In-circuit tests verify that all components have been properly inserted and that the electrical circuits are complete. Functional tests determine if the board or system assembly is performing to customer specifications. Dovatron also provides environmental stress tests of the board or system assembly. Dovatron employs a multi-disciplined engineering team, which provides design and manufacturing support to customers. In addition, Dovatron conducts design-for-manufacturability and design-for-testability reviews. When appropriate, Dovatron recommends design changes to reduce manufacturing costs and/or lead times, improve manufacturing yields, and enhance the ability to automate assembly. Dovatron offers sophisticated materials management and logistic capabilities. Materials management and logistics consists of the planning, procuring and warehousing of the components and materials used in the manufacturing process. The Company's worldwide volume procurement capabilities combined with negotiated commodity agreements ensure maximum leverage in reducing material costs. Actual procurement and scheduling is done at the manufacturing site level to ensure attentiveness to customer demands and satisfaction. Dovatron uses sophisticated automated MRP (Manufacturing Resources Planning) systems and enhanced EDI (Electronic Data Interchange) capabilities to ensure inventory control and optimization. Through its MRP system, Dovatron is provided instantaneous visibility to material availability and real-time tracking of work in process. The Company utilizes EDI with its customers and suppliers to implement a variety of supply chain management programs. EDI allows customers to share demand and product forecasts and deliver purchase orders while also assisting suppliers with just-in-time delivery and supplier-managed inventory. Dovatron's use of internal automated materials management systems and strategic relationships with key suppliers all ensure timely interface and responsiveness and overall customer satisfaction. Additionally, Dovatron offers systems assembly and distribution services to its customers. Systems assembly or box build, involves the assembly of higher level sub-systems and systems incorporating printed circuit boards into finished products. Distribution services include direct order fulfillment, which involves the direct shipment to the customers' distribution channels or in some cases, directly to the end user. Dovatron continues to expand its services beyond printed circuit board assembly and test to include both front-end services, such as engineering, materials management and fabrication, and back-end services, such as system assembly, integration and distribution/fulfillment. Quality remains a key focus and is critical to Dovatron's success. All of Dovatron's global manufacturing facilities are ISO 9002 certified. MARKETING AND CUSTOMER PROFILE The Company markets its products and services through advertisements, technical articles and press releases that appear regularly in a variety of trade publications, as well as through the dissemination of Company brochures, data sheets and technical information. Additionally, the Company participates in various industry trade shows on a regular basis. Individual products and services are marketed to customers though direct sales personnel and independent manufacturers' representatives. The Dii Group's sales and marketing functions link the Dii Group companies to provide fully integrated custom design and manufacturing solutions to its customers. Through the integration of design and manufacturing solutions offered by the Company's network of business units, the Dii Group companies provide customer-specific products and services that enable customers to compress the time from product concept to market introduction and minimize total manufacturing costs. The Company dedicates project managers to tailor the Dii Group companies' comprehensive spectrum of products and services around customers' specific requirements. By providing comprehensive and integrated design and manufacturing services, the Company believes that it is better able to differentiate its product and service offerings from those of its competitors, develop long-term relationships with its customers, and enhance profitability. The Company has established Dii Technology Centers in order to ensure a coordinated evolution of technology across the various Dii Group companies. The Company offers manufacturing capabilities in three major electronics markets of the world (North America, Europe and Asia). The Company's operations located outside of the United States generated approximately 43%, 42%, and 25% of total net sales in fiscal 1998, 1997, and 1996, respectively. The Company's international operations subject the Company to the risks of doing business abroad, including 9 11 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 and economic instability. See Note 14 to the Company's 1998 Consolidated Financial Statements included in Exhibit 13 of this Form 10-K regarding financial information by geographic area. The Company seeks a well-balanced customer profile across most sectors of the electronics industry in order to reduce exposure to a downturn in any particular sector. The primary sectors within the electronics industry served by the Company are office automation, mainframes and mass storage, data communications, computers and peripherals, telecommunications, industrial and instrumentation, and medical. The Company seeks to participate in the early stages of high velocity product development with customers in targeted, fast- growing industry sectors. A majority of the Company's sales are to customers in the electronics industry, which is subject to rapid technological change, product obsolescence, and price competition. The factors affecting the electronics industry, in general, or any of the Company's major customers, in particular, could have a material adverse effect on the Company's operating results. The electronics industry has historically been cyclical and subject to significant economic downturns at various times, which have been characterized by diminished product demand, accelerated erosion of average selling prices, and over-capacity. The Company's customers also are subject to short product life cycles and pricing and margin pressures, which risks are in turn borne by the Company. At any given time, certain customers may account for significant portions of the Company's business. Hewlett-Packard accounted for 10% and 17% of net sales in fiscal 1998 and 1997, respectively. IBM accounted for 10% of net sales in fiscal 1998. No other customer accounted for more than 10% of net sales during fiscal 1998, 1997, or 1996. The Company's top ten customers accounted for 48%, 50%, and 43% of net sales in fiscal 1998, 1997, and 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 would have a material adverse effect on the Company's operating results. Although management believes that the Company has a broad diversification of customers and markets, the Company has few material, firm, long-term commitments or volume guarantees from its customers. In addition, customer orders can be canceled and volume levels can be changed or delayed. From time to time, some of the Company's customers have terminated their manufacturing arrangements with the Company, and other customers have reduced or delayed the volume of design and manufacturing services performed by the Company. The timely replacement of canceled, delayed or reduced contracts with new business cannot be assured, and termination of a manufacturing relationship or change, reduction or delay in orders could have a material adverse effect on the Company's operating results. In the past, changes in customer orders have had a significant impact on the Company's results of operations due to corresponding changes in the level of overhead absorption. BACKLOG Although the Company obtains firm purchase orders from its customers, OEM customers typically do not make firm orders for delivery of products more than 30 to 90 days in advance. The Company does not believe that the backlog of expected product sales covered by firm purchase orders is a meaningful measure of future sales since orders may be rescheduled or canceled. SUPPLIERS The Company works with customers and suppliers to minimize the impact of component shortages. The Company orders raw materials and components based on purchase orders received and accepted, and maintains minimal levels of inventory that are not identified for use in filling specific orders. Raw material and component shortages have had, and are expected to have, from time to time, short-term adverse effects on the Company's business, including impact due to price fluctuations and delayed shipments. Significant shortages of raw materials or components used by the Company's operating units would have a material adverse effect on the Company's results of operations. In addition, the Company's operating units depend on a limited 10 12 number of suppliers for many of the raw materials used in their products and services. The interruption of supply from such suppliers could adversely affect the Company's operations. COMPETITION Today's technology marketplace is more competitive than ever. In an environment characterized by compressed product life cycles, global competition, rapid technological change, increasingly stringent quality and service expectations, and constant profit margin pressure due to unrelenting price pressure, OEMs have a growing need to limit asset risks, improve returns on invested capital, and most importantly, focus their resources on their own core competencies of product development and marketing. These factors place corresponding competitive pressures on the outsourcing industry. The Company competes against numerous domestic and foreign companies. The Company also faces competition from current and prospective customers who evaluate the Company's capabilities against the merits of manufacturing their products internally. Because of the Company's wide range of products and services, some of the Company's CEM competitors are also customers of the Company. As the Company continues to expand its operations, some of its CEM competitors may decide to place orders with companies with which they are in less direct competition. Certain of the Company's competitors have substantially greater design, engineering and manufacturing services, and financial, research and development, and marketing resources than the Company. To remain competitive, the Company will be required to continue to make substantial capital outlays to develop and provide technologically advanced design, engineering and manufacturing services, maintain quality levels, offer flexible delivery schedules, deliver finished products on a reliable basis, compete favorably on the basis of price and provide access to worldwide manufacturing locations. In addition, the market for the Company's products and services is characterized by rapidly changing technology and continuing process development. Consequently, the Company's success depends upon its ability to develop and provide manufacturing services which meet its customers' changing requirements, maintain technological leadership, and successfully anticipate or respond to technological changes on a cost-effective and timely basis. Competition in the electronics outsourcing industry is based upon technology, service, design, engineering and manufacturing capability, quality, price, and the ability to deliver finished products on an expeditious and reliable basis. In order to differentiate itself in this intensely competitive market, the Company has adopted and pursues a strategy to be the fastest and most comprehensive global provider of custom electronics design and manufacturing services, ranging from microelectronics design through the fabrication, assembly and distribution of printed circuits and finished products for customers. ENVIRONMENTAL REGULATION 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 their 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, operating results or competitive position. The Company has joined together with other potentially responsible parties ("PRPs") to negotiate with the New York Department of Environmental Conservation ("NYDEC") concerning the performance of a remedial investigation/feasibility study ("RI/FS") at the Roblin Steel Site. In connection therewith, the Company executed the Roblin Steel Site Deminimus Contributors (PRP) Participation Agreement. The Company's share of the agreement is less than 2%. A Consent Order concerning the performance of a RI/FS was reached with the NYDEC in July of 1997. In April 1998, the Company entered into Consent Orders with the NYDEC concerning the performance of a RI/FS with respect to environmental matters at a formerly owned facility in Kirkwood, New York, and a facility that is owned and leased out to a third party in Binghamton, New York. 11 13 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 the above environmental matters. The Company has accrued the minimum estimated costs, which amounts are immaterial, associated with these matters in its 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. EMPLOYEES The Company employs approximately 7,900 employees worldwide, the majority of whom are engaged in manufacturing operations. Approximately 900 employees at the Cork, Ireland, Boeblingen, Germany, and Puebla, Mexico facilities are subject to collective bargaining agreements. The Company believes that its relations with its employees are good. PATENTS AND TRADEMARKS The Company holds patents and also owns certain registered trademarks. The Company does not believe that such patents and trademarks are material to its business. The Company has devoted significant resources to develop its current level of expertise, and believes that its unpatented proprietary know-how and processes are valuable assets that have been and will continue to be important to the Company's business. The Company relies primarily on a combination of nondisclosure agreements and other contractual provisions, as well as the confidentiality and loyalty of its employees, to protect its know-how processes. The failure of the Company to protect its material know-how and processes could have a material adverse effect on the Company's business and results of operations. Furthermore, there can be no assurance that the steps taken by the Company will be adequate to protect its proprietary rights or that a competitor will not independently develop know-how or processes similar or superior to those of the Company. Although the Company does not believe that its manufacturing processes infringe on the intellectual property rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company. If any such claims arise, the Company will evaluate its merits, and may seek a license from the claimant. There can be no assurance that licenses, if needed by the Company, could be obtained on acceptable terms, that litigation would not occur or that damages for past infringement by the Company, if any, would not be material. Litigation, which could result in substantial cost and diversion of resources of the Company, may be necessary to enforce intellectual property rights of the Company or to defend the Company against infringement claims. The failure to obtain necessary licenses or the advent of litigation could have a material adverse effect on the Company's business, financial condition and results of operations. 12 14 ITEM 2. PROPERTIES The Company currently occupies the following facilities:
SQUARE OWNED/ LOCATION BY BUSINESS UNIT FOOTAGE LEASED ------------------------- --------- ------ Design and Semiconductor Services San Jose, California........................................ 61,800 Leased(1) Sunnyvale, California....................................... 50,300 Leased --------- 112,100 --------- Printed Wiring Boards: Austin, Texas............................................... 696,000 Leased Boeblingen, Germany......................................... 340,000 Owned Fremont, California......................................... 3,200 Leased Irvine, California.......................................... 60,000 Owned Roseville, Minnesota........................................ 68,000 Leased Santa Barbara, California................................... 5,000 Leased Zhuhai, Guandong Province, China............................ 144,000 Owned --------- 1,316,200 --------- Systems Assembly and Distribution: Anaheim, California......................................... 63,000 Leased Binghamton, New York........................................ 110,000 Owned Boulder, Colorado (Dovatron Corporate Headquarters)......... 9,000 Leased Brno, Czech Republic........................................ 117,000 Owned Clearwater, Florida......................................... 60,000 Owned Clearwater, Florida......................................... 128,000 Owned(2) Cork, Ireland............................................... 20,000 Leased Cork, Ireland............................................... 100,000 Owned Guadalajara, Mexico......................................... 127,000 Leased Longmont, Colorado.......................................... 70,000 Owned Malacca, Malaysia........................................... 40,000 Leased Puebla, Mexico.............................................. 43,000 Owned Puebla, Mexico.............................................. 10,000 Leased Zhuhai, Guandong Province, China............................ 360,000 Owned(2) Zhuhai, Guandong Province, China............................ 76,000 Owned --------- 1,333,000 --------- Process Technologies: Addison, Illinois........................................... 25,000 Leased Buffalo Grove, Illinois..................................... 10,000 Leased Essex, United Kingdom....................................... 14,000 Leased Gardena, California......................................... 9,000 Leased Johnson City, New York...................................... 20,000 Leased Lincoln, Rhode Island....................................... 5,400 Leased Longmont, Colorado.......................................... 31,400 Leased Penang, Malaysia............................................ 1,200 Leased Singapore................................................... 12,700 Leased --------- 128,700 --------- Corporate Headquarters: Niwot, Colorado............................................. 11,000 Owned --------- Total............................................. 2,901,000 =========
13 15 - --------------- (1) The Company terminated its lease of this facility in conjunction with the sale of its wafer fabrication facility in January 1999. (2) Facilities are currently under construction. An additional facility of 50,000 square feet is located in Binghamton, New York and is being leased to a third party. The Company also leases small amounts of office space in Atlanta, Georgia and Philadelphia, Pennsylvania. The Company believes that its facilities are well maintained and suitable for their respective operations and have sufficient capacity to accommodate the expected growth of the Company in the foreseeable future. ITEM 3. LEGAL PROCEEDINGS In 1997 two related complaints, as amended, were filed in the District Court of Boulder, Colorado and the U.S. District Court for the District of Colorado against the Company and certain of its officers. The lawsuits purport to be brought on behalf of a class of persons who purchased the Company's common stock during the period from April, 1996, through September 8, 1996, and claim violations of Colorado and federal laws based on allegedly false and misleading statements made in connection with the offer, sale or purchase of the Company's common stock at allegedly artificially inflated prices, including statements made prior to the Company's acquisition of Orbit. The complaints seek compensatory and other damages, as well as equitable relief. The Company filed motions to dismiss both amended complaints. The motion to dismiss the state court complaint has been denied, and the Company has filed its answer denying that it misled the securities market. The motion to dismiss the federal court complaint is still pending. Both actions were brought by the same plaintiffs' law firm as the Orbit action discussed below. A May 1999 trial date for the state court action has been vacated, and a new trial date has not been set. No trial date has been set for the federal court action. Discovery has commenced in the state court action. The Company believes that the claims asserted in both actions are without merit and intends to defend vigorously against such claims. A class action complaint (as amended in March 1996) for violations of federal securities law was filed against Orbit and three of its officers in 1995 in the U.S. District Court for the Northern District of California. The amended complaint was dismissed on November 12, 1996, with leave to amend only as to certain specified claims relating to statements made by securities analysts. In January 1997, a second amended complaint was filed. The second amended complaint alleges that Orbit and three of its officers are responsible for actions of securities analysts that allegedly misled the market for Orbit's then existing public common stock. The second amended complaint seeks relief under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The second amended complaint seeks compensatory and other damages, as well as equitable relief. In September 1997, Orbit filed its answer to the second amended complaint denying responsibility for the actions of securities analysts and further denying that it misled the securities market. The parties have entered into a Memorandum of Understanding reflecting a proposed settlement of the action subject to the final terms, which are being negotiated. In addition to the above matters, the Company is involved in certain other litigation arising in the ordinary course of business. Although management is of the opinion that these matters will not have a material adverse effect on the consolidated financial position or results of operations of the Company, the ultimate outcome of these matters cannot, at this time, be predicted in light of the uncertainties inherent in litigation. 14 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this Form 10-K, there were no matters submitted to a vote of security holders. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning the executive officers of the Company. Each of such persons serves at the discretion of the Board of Directors.
BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AGE DURING THE PAST 5 YEARS; POSITIONS HELD WITH THE COMPANY ---- --- ---------------------------------------------------------- Ronald R. Budacz.................. 52 Chairman of the Board and Chief Executive Officer of the Company since March 1993. C.Y. Cheong....................... 43 Senior Vice President of the Company and President, The Dii Group Asia operations since May 1995; Managing Director of Dovatron Singapore from May 1993 until April 1995. Micheal Corkery................... 35 Senior Vice President of the Company and President, The Dii Group Europe since September 1997; Vice President and General Manager of Dovatron Ireland from January 1996 until September 1997; Director of Operations of Dovatron Ireland, December 1993 until January 1996. Mark D. Herbst.................... 38 Senior Vice President of the Company and Senior Vice President of Corporate Sales and Marketing since May 1998, Vice President of the Company from February 1997 until May 1998; Group Vice President of Process Technologies from May 1995 until May 1998; Vice President/General Manager of IRI International from September 1990 until May 1995. Dermott O'Flanagan................ 47 Senior Vice President of the Company since March 1993; President of Dovatron International, Inc. since January 1995; Managing Director of Dovatron Ireland Limited from March 1993 until January 1995. Carl A. Plichta................... 48 Senior Vice President of the Company since March 1993; Senior Vice President of Materials and IS for Dovatron International, Inc. since January 1995; President of Dovatron Manufacturing New York (division of Dovatron International, Inc.) from March 1993 until January 1995. Steven C. Schlepp................. 42 Senior Vice President of the Company and President of Multilayer Technology, Inc. since June 1996; President of Toppan West Incorporated, a wholly owned subsidiary of Toppan Printing Ltd., from January 1991 until June 1996. Thomas J. Smach................... 38 Senior Vice President, Chief Financial Officer, and Treasurer since August 1997; Corporate Controller and Vice President of the Company from March 1994 until August 1997; Certified Public Accountant with KPMG Peat Marwick LLP from 1982 until March 1994. Ronald R. Snyder.................. 42 Senior Vice President; President, Dii Semiconductor since May 1998; Senior Vice President of Sales and Marketing of the Company from March 1994 until May 1998; President of Dovatron Manufacturing Colorado (division of Dovatron International, Inc.) from March 1993 until March 1994. Carl R. Vertuca, Jr. ............. 52 Director since May 1993; Executive Vice President -- Finance, Administration and Corporate Development since August 1997; Chief Financial Officer of the Company from March 1993 until August 1997.
15 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on The Nasdaq Stock Market under the symbol "DIIG." The following table sets forth the high and low sale prices on the Nasdaq Stock Market for the shares of Common Stock traded for the following periods (adjusted to reflect two-for-one stock split effective September 2, 1997).
HIGH LOW ------ ------ 1998 Fourth Quarter............................................. $24.13 9.88 Third Quarter.............................................. 18.75 11.88 Second Quarter............................................. 23.81 14.38 First Quarter.............................................. 29.88 20.13 1997 Fourth Quarter............................................. $33.50 18.00 Third Quarter.............................................. 32.78 21.00 Second Quarter............................................. 22.13 11.09 First Quarter.............................................. 14.75 10.19
As of January 3, 1999, there were 1,901 record holders of the common stock. This figure does not reflect beneficial ownership of shares held in nominee name. The Company has never paid a cash dividend on its common stock and is restricted from paying dividends under the terms of its existing credit facility. The Company presently intends to retain earnings for use in its business and does not anticipate paying cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA Information with respect to this item is incorporated by reference to Selected Financial Data in the Company's 1998 Annual Report to Shareholders included in Exhibit 13 of this Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information with respect to this item is incorporated by reference to Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 1998 Annual Report to Shareholders included in Exhibit 13 of this Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information with respect to this item is incorporated by reference to Quantitative and Qualitative Disclosures About Market Risk in the Company's 1998 Annual Report to Shareholders included in Exhibit 13 of this Form 10-K. 16 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements and supplementary data (included in Note 14 of the Notes to Consolidated Financial Statements), included in the Company's 1998 Annual Report to Stockholders, are hereby incorporated by reference, and are included in Exhibit 13 hereto: Independent Auditors' Reports Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE KPMG Peat Marwick LLP was previously the principal accountants for The DII Group, Inc. On September 4, 1997, that firm's appointment as principal accountants was terminated and Deloitte & Touche LLP was engaged as principal accountants. The decision to change accountants was approved by the Audit Committee of the Board of Directors. During the registrant's two most recent fiscal years and the subsequent interim periods preceding such dismissal, there were no disagreements with KPMG Peat Marwick LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which disagreements if not resolved to their satisfaction would have caused them to make reference thereof in connection with their reports. None of the "reportable events" described under Item 304 (a)(l)(v) of Regulation S-K occurred within the registrant's two most recent fiscal years and the subsequent interim periods preceding September 4, 1997. The audit reports of KPMG Peat Marwick LLP on the consolidated financial statements of The DII Group, Inc. and subsidiaries for the 52 weeks ended December 29, 1996 did not contain any adverse opinion, or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. A letter from KPMG Peat Marwick is attached as Exhibit 16.1. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "1. ELECTION OF DIRECTORS" and "Section 16(a) Beneficial Ownership Reporting Compliance" to be included in the Company's definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 6, 1999 and to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year covered by this report on Form 10-K, is incorporated herein by reference. The information regarding Executive Officers of the Registrant is included in Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The (i) information set forth under the caption "Board and Committee Meetings; Directors' Compensation" and (ii) information set forth under the captions "Executive Compensation," "Employment Agreements," "Severance Compensation Arrangements," "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions and Relationships" all to be included in the Company's definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 6, 1999 and to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year covered by this report on Form 10-K, is incorporated herein by reference. Notwithstanding the foregoing, (i) the information set forth in said Proxy Statement under the caption "Report of the Compensation Committee" and (ii) the information 17 19 set forth under the caption "Performance Graph" in said Proxy Statement, are not incorporated by reference herein or in any other filing of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" to be included in the Company's definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 6, 1999 and to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year covered by this report on Form 10-K, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Transactions and Relationships" to be included in the Company's definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 6, 1999 and to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year covered by this report on Form 10-K, is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) List of Financial Statements The following consolidated financial statements and Independent Auditors' Reports are incorporated by reference in Part II, Item 8 of this Annual Report on Form 10-K: - Independent Auditors' Reports - Consolidated Statements of Operations - Consolidated Balance Sheets - Consolidated Statements of Stockholders' Equity - Consolidated Statements of Cash Flows - Notes to Consolidated Financial Statements (a)(2) List of Financial Statement Schedule - Independent Auditors' Reports. - Schedule II -- Valuation and Qualifying Accounts - For the fiscal years ending 1998, 1997 and 1996. (a)(3) List of Exhibits:
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 -- Agreement and Plan of Merger by and among The DII Group, Inc., DII Merger Corp. and Orbit Semiconductor, Inc., dated as of June 9, 1996 (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus contained in the Registrant's Form S-4 Registration Statement, No. 333-6789) #2.2 -- Purchase Agreement, dated as of August 5, 1997, by and among International Business Machines Corporation, a New York corporation, Multilayer Tek, L.P., a Texas Limited partnership and The DII Group, Inc., a Delaware corporation (incorporated by reference to Exhibit 2.1 of the Registrant's Report on Form 8-K dated August 29, 1997)
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.3 -- Exhibit A to Purchase Agreement -- Assignment and Assumption Agreement (incorporated by reference to Exhibit 2.2 of the Registrant's Report on Form 8-K dated August 29, 1997) #2.4 -- Exhibit C to Purchase Agreement -- Lease (incorporated by reference to Exhibit 2.3 of the Registrant's Report on Form 8-K dated August 29, 1997). #2.5 -- Exhibit E to Purchase Agreement -- Project Operations Agreement (incorporated by reference to Exhibit 2.4 of the Registrant's Report on Form 8-K dated August 29, 1997) *2.6 -- Exhibit F to Purchase Agreement -- Supply Agreement (incorporated by reference to Exhibit 2.5 of the Registrant's Report on Form 8-K dated August 29, 1997) 2.7 -- Exhibit G to Purchase Agreement -- Bill of Sale (incorporated by reference to Exhibit 2.6 of the Registrant's Report on Form 8-K dated August 29, 1997). 2.8 -- Exhibit H to Purchase Agreement -- Special Warranty Deed (incorporated by reference to Exhibit 2.7 of the Registrant's Report on Form 8-K dated August 29, 1997) #2.9 -- Agreement relating to the sale and purchase of the share in Valenta Holdings Limited, dated as of August 22, 1998 (incorporated by reference to Exhibit 2.1 of the Registrant's Report on Form 8-K dated September 4, 1998) *#2.10 -- Master Asset Purchase Agreement, dated as of October 30, 1998, by and among Hewlett-Packard GmbH, a company registered and incorporated under the laws of Germany, Multilayer Technology GmbH & Co KG, a legal entity registered and organized under the laws of Germany and The DII Group, Inc., a Delaware corporation. (incorporated by reference to Exhibit 2.1 of the Registrant's Report on Form 8-K dated November 16, 1998) *2.11 -- Exhibit A to Master Asset Purchase Agreement -- Real Estate Purchase and Sale Agreement (incorporated by reference to Exhibit 2.2 of the Registrant's Report on Form 8-K dated November 16, 1998) *2.12 -- Exhibit B to Master Asset Purchase Agreement -- Lease (incorporated by reference to Exhibit 2.3 of the Registrant's Report on Form 8-K dated November 16, 1998) #2.13 -- Exhibit C to Master Asset Purchase Agreement -- Division Purchase Agreement (incorporated by reference to Exhibit 2.4 of the Registrant's Report on Form 8-K dated November 16, 1998) *2.14 -- Exhibit D to Master Asset Purchase Agreement -- Technology License Agreement (incorporated by reference to Exhibit 2.5 of the Registrant's Report on Form 8-K dated November 16, 1998) *2.15 -- Exhibit E to Master Asset Purchase Agreement -- Transition Services Agreement (incorporated by reference to Exhibit 2.6 of the Registrant's Report on Form 8-K dated November 16, 1998) 2.16 -- Exhibit F to Master Asset Purchase Agreement -- New Confidential Disclosure Agreement (incorporated by reference to Exhibit 2.7 of the Registrant's Report on Form 8-K dated November 16, 1998) 3.1 -- Restated Certificate of Incorporation of Registrant, together with the Certificate of Amendment of the Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Form 10-K Annual Report for fiscal year ended December 31, 1995, File No. 0-21374).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.2 -- Amendment to the Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 29, 1998, File No. 0-21374). 3.3 -- Restated Bylaws of Registrant, as amended (incorporated by reference to Exhibit 3.2 of the Registrant's Form 10-K Annual Report for fiscal year ended December 29, 1996, File No. 0-21374) 4.1 -- Indenture -- 8.50% Senior Subordinated Notes Due 2007 dated September 19, 1997 between the Registrant and The Chase Manhattan Bank and Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997, File No. 0-21374) 4.2 -- Purchase Agreement -- 8.50% Senior Subordinated Notes Due 2007 dated September 16, 1997 between the Registrant and Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation, and BT Alex. Brown Incorporated, as the initial purchasers (incorporated by reference to Exhibit 4.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997, File No. 0-21374) 4.3 -- Registration Rights Agreement, dated September 16, 1997 between the Registrant and Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation, and BT Alex. Brown Incorporated, as the initial purchasers (incorporated by reference to Exhibit 4.3 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997, File No. 0-21374) +10.1 -- Form of Severance Agreement (incorporated by reference to Exhibit 10.6 of the Registrant's Form 10 Registration Statement, as amended, File No. 0-21374). 10.2 -- Rights Agreement dated as of May 4, 1993, between The Company and Norwest Bank Minnesota, N.A., as Rights Agent (incorporated by reference to Exhibit 10.5 of the Registrant's Form S-1 Registration Statement, as amended, No. 33-71138) +10.3 -- 1993 Stock Option Plan (incorporated by reference to Exhibit 10.8 of the Registrant's Form S-1 Registration Statement, as amended, No. 33-71138). +10.4 -- 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.9 of the Registrant's Form 10-K Annual Report for fiscal year ended December 31, 1993, File No. 0-21374) +10.5 -- 1994 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.10 of the Registrant's Form 10-K Annual Report for fiscal year ended December 31, 1993, File No. 0-21374) +10.6 -- Savings and Deferred Profit Sharing Plan (incorporated by reference to Exhibit 10.4 of the Registrant's Form 10 Registration Statement, as amended, File No. 0-21374) +10.7 -- Amendments to the Savings and Deferred Profit Sharing Plan (incorporated by reference to Exhibit 10.11 of the Registrant's Form 10-K Annual Report for fiscal year ended December 29, 1996, File No. 0-21374). +10.8 -- Dovatron Ireland Limited Defined Contribution Plan (incorporated by reference to Exhibit 10.5 of the Registrant's Form 10 Registration Statement, as amended, File No. 0-21374) +10.9 -- Form of Performance Share Agreement pursuant to the 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.16 of the Registrant's Form 10-K Annual Report for fiscal year ended December 31, 1994, File No. 0-21374)
20 22
EXHIBIT NUMBER DESCRIPTION ------- ----------- +10.10 -- Non-Employee Directors' Stock Compensation Plan (incorporated by reference to Exhibit B of the Registrant's Proxy Statement for the Registrant's 1996 Annual Meeting of Stockholders, File No. 0-21374) +10.11 -- Senior Executive Performance Bonus Plan (incorporated by reference to Exhibit A of the Registrant's Proxy Statement for the Registrant's 1996 Annual Meeting of Stockholders, File No. 0-21374) *10.12 -- Agreement dated as of February 17, 1997, by and between Hewlett-Packard and Dovatron International, Inc. (incorporated by reference to Exhibit 10.2 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) 10.13 -- The DII Group, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) 10.14 -- The DII Group, Inc. Performance Share Agreement (incorporated by reference to Exhibit 10.4 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.15 -- Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Budacz (incorporated by reference to Exhibit 10.5 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.16 -- Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr. (incorporated by reference to Exhibit 10.6 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.17 -- Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Snyder (incorporated by reference to Exhibit 10.7 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.18 -- Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Budacz (incorporated by reference to Exhibit 10.9 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.19 -- Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr. (incorporated by reference to Exhibit 10.10 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.20 -- Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Snyder (incorporated by reference to Exhibit 10.11 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.21 -- Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Dermott O'Flanagan (incorporated by reference to Exhibit 10.12 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.22 -- First Amendment to Employment Agreement dated as of August 12, 1997 between The DII Group, Inc. and Ronald R. Budacz (incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1997, File No. 0-21374).
21 23
EXHIBIT NUMBER DESCRIPTION ------- ----------- +10.23 -- First Amendment to Employment Agreement dated as of August 12, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr. (incorporated by reference to Exhibit 10.4 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1997, File No. 0-21374). +10.24 -- First Amendment to Employment Agreement dated as of August 12, 1997 between The DII Group, Inc. and Ronald R. Snyder (incorporated by reference to Exhibit 10.5 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1997, File No. 0-21374). +10.25 -- Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Carl A. Plichta (incorporated by reference to Exhibit 10.6 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1997, File No. 0-21374) +10.26 -- First Amendment to Employment Agreement dated as of August 12, 1997 between The DII Group, Inc. and Carl A. Plichta (incorporated by reference to Exhibit 10.7 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1997, File No. 0-21374). +10.27 -- Employment Agreement dated as of January 1, 1998 between The DII Group, Inc. and Dermott O'Flanagan +10.28 -- Employment Agreement dated as of January 1, 1998 between Nortavod Corporation and Dermott O'Flanagan #10.29 -- $180,000,000 Credit Agreement dated as of October 30, 1998 among The DII Group, Inc. and Subsidiary Borrowers and The Chase Manhattan Bank, as Administrative Agent, and Chase Securities Inc. as Arranger #10.30 -- $90,000,000 Credit Agreement dated as of October 30, 1998 among Multilayer Technology GmbH & Co. KG, as Borrower and The Chase Manhattan Bank, as Administrative Agent, and Chase Securities Inc. as Arranger 13 -- Portions of the 1998 Annual Report to Shareholders is incorporated by reference in Part II of the Annual Report on Form 10-K. 16.1 -- Letter dated September 10, 1997 from KPMG Peat Marwick LLP to the Registrant (incorporated by reference to Exhibit 16.1 of the Registrant's Report on Form 8-K dated September 4, 1997) 21.1 -- Subsidiaries of the Registrant 23.1 -- Consent of Independent Auditors -- Deloitte & Touche LLP 23.2 -- Consent of Independent Auditors -- KPMG 27 -- Financial Data Schedule
- --------------- * Confidential treatment has been granted as to portions of this exhibit. + Management contract or compensatory plan. # Schedules were not included but will be furnished supplementally to the Commission upon request. 22 24 (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K with the Securities and Exchange Commission during the Quarter ended January 3, 1999. The following item was reported in the Form 8-K dated November 13, 1998: Item 2. Acquisition or Disposition of Assets -- The Company completed its acquisition of Hewlett-Packard Company's Printed Circuit Organization's fabrication facility located in Boeblingen, Germany pursuant to a Master Asset Purchase Agreement dated as of October 30, 1998. No financial statements were filed as part of such report. 23 25 INDEPENDENT AUDITORS' REPORT The Board of Directors The DII Group, Inc.: Under date of January 28, 1997, we reported on the consolidated statements of income, stockholders' equity and cash flows of The DII Group, Inc. and subsidiaries (the Company) for the 52 weeks ended December 29, 1996, as contained in the annual report on Form 10-K for the fiscal year 1996. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement Schedule II - Valuation and Qualifying Accounts, for the 52 weeks ended December 29, 1996. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit. In our opinion, such financial statement schedule for the 52 weeks ended December 29, 1996, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Denver, Colorado January 28, 1997 24 26 INDEPENDENT AUDITORS' REPORT The Board of Directors The DII Group, Inc. We have audited the consolidated financial statements of The DII Group, Inc. and subsidiaries (the "Company") as of January 3, 1999 and December 28, 1997, and for the 53 and 52 weeks then ended, and have issued our report thereon dated January 28, 1999 (February 18, 1999 as to the redemption of convertible subordinated notes described in Note 6); such report and financial statements are included elsewhere in this Form 10-K. Our audit also included the financial statement schedules of The DII Group, Inc. and subsidiaries for the 53 weeks ended January 3, 1999 and the 52 weeks ended December 28, 1997, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules for the 53 weeks ended January 3, 1999 and the 52 weeks ended December 28, 1997, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Denver, Colorado January 28, 1999 25 27 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS THE DII GROUP, INC. AND SUBSIDIARIES FOR THE FISCAL YEARS 1998, 1997 AND 1996 (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- COLUMN C COLUMN A COLUMN B ADDITIONS COLUMN D COLUMN E - ---------------------------------------------------------------------------------------------------------- (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD - ---------------------------------------------------------------------------------------------------------- Allowance deducted from assets to which it applies: Allowance for doubtful accounts receivable: Fiscal 1998 $2,893 2,657 2,086(2) 1,736(1) 5,900 Fiscal 1997 1,771 1,238 -- 116(1) 2,893 Fiscal 1996 1,685 519 -- 433(1) 1,771 Allowance for doubtful notes receivable: Fiscal 1998 -- -- -- -- -- Fiscal 1997 -- -- -- -- -- Fiscal 1996 -- 204 -- 204(1) -- Allowance for inventories: Fiscal 1998 5,472 7,962 3,095(4) 7,061(3) 9,468 Fiscal 1997 5,392 3,253 1,100(4) 4,273(3) 5,472 Fiscal 1996 4,533 3,042 -- 2,183(3) 5,392
- --------------- (1) Uncollectible receivables written-off, net of recoveries. (2) Reserves established for doubtful accounts receivable of acquired entities. (3) Inventory write-offs. (4) Reserves established for excess and obsolete inventory of acquired entities. 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. The DII Group, Inc. (Registrant) By: /s/ THOMAS J. SMACH ---------------------------------- Thomas J. Smach Chief Financial Officer Dated: March 18, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD R. BUDACZ Chairman and Chief Executive March 18, 1999 - ----------------------------------------------------- Officer (Principal Executive Ronald R. Budacz Officer) /s/ CARL R. VERTUCA, JR. Executive Vice President and March 18, 1999 - ----------------------------------------------------- Director (Principal Financial Carl R. Vertuca, Jr. Officer) /s/ THOMAS J. SMACH Chief Financial Officer and Senior March 18, 1999 - ----------------------------------------------------- Vice President Thomas J. Smach (Principal Accounting Officer) /s/ ROBERT L. BRUECK Director March 18, 1999 - ----------------------------------------------------- Robert L. Brueck /s/ CONSTANTINE S. MACRICOSTAS Director March 18, 1999 - ----------------------------------------------------- Constantine S. Macricostas /s/ GERARD T. WRIXON, PH.D. Director March 18, 1999 - ----------------------------------------------------- Gerard T. Wrixon, Ph.D. /s/ ALEXANDER W. YOUNG Director March 18, 1999 - ----------------------------------------------------- Alexander W. Young
29 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 -- Agreement and Plan of Merger by and among The DII Group, Inc., DII Merger Corp. and Orbit Semiconductor, Inc., dated as of June 9, 1996 (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus contained in the Registrant's Form S-4 Registration Statement, No. 333-6789) #2.2 -- Purchase Agreement, dated as of August 5, 1997, by and among International Business Machines Corporation, a New York corporation, Multilayer Tek, L.P., a Texas Limited partnership and The DII Group, Inc., a Delaware corporation (incorporated by reference to Exhibit 2.1 of the Registrant's Report on Form 8-K dated August 29, 1997) 2.3 -- Exhibit A to Purchase Agreement -- Assignment and Assumption Agreement (incorporated by reference to Exhibit 2.2 of the Registrant's Report on Form 8-K dated August 29, 1997) #2.4 -- Exhibit C to Purchase Agreement -- Lease (incorporated by reference to Exhibit 2.3 of the Registrant's Report on Form 8-K dated August 29, 1997). #2.5 -- Exhibit E to Purchase Agreement -- Project Operations Agreement (incorporated by reference to Exhibit 2.4 of the Registrant's Report on Form 8-K dated August 29, 1997) *2.6 -- Exhibit F to Purchase Agreement -- Supply Agreement (incorporated by reference to Exhibit 2.5 of the Registrant's Report on Form 8-K dated August 29, 1997) 2.7 -- Exhibit G to Purchase Agreement -- Bill of Sale (incorporated by reference to Exhibit 2.6 of the Registrant's Report on Form 8-K dated August 29, 1997). 2.8 -- Exhibit H to Purchase Agreement -- Special Warranty Deed (incorporated by reference to Exhibit 2.7 of the Registrant's Report on Form 8-K dated August 29, 1997) #2.9 -- Agreement relating to the sale and purchase of the share in Valenta Holdings Limited, dated as of August 22, 1998 (incorporated by reference to Exhibit 2.1 of the Registrant's Report on Form 8-K dated September 4, 1998) *#2.10 -- Master Asset Purchase Agreement, dated as of October 30, 1998, by and among Hewlett-Packard GmbH, a company registered and incorporated under the laws of Germany, Multilayer Technology GmbH & Co KG, a legal entity registered and organized under the laws of Germany and The DII Group, Inc., a Delaware corporation. (incorporated by reference to Exhibit 2.1 of the Registrant's Report on Form 8-K dated November 16, 1998) *2.11 -- Exhibit A to Master Asset Purchase Agreement -- Real Estate Purchase and Sale Agreement (incorporated by reference to Exhibit 2.2 of the Registrant's Report on Form 8-K dated November 16, 1998) *2.12 -- Exhibit B to Master Asset Purchase Agreement -- Lease (incorporated by reference to Exhibit 2.3 of the Registrant's Report on Form 8-K dated November 16, 1998) #2.13 -- Exhibit C to Master Asset Purchase Agreement -- Division Purchase Agreement (incorporated by reference to Exhibit 2.4 of the Registrant's Report on Form 8-K dated November 16, 1998) *2.14 -- Exhibit D to Master Asset Purchase Agreement -- Technology License Agreement (incorporated by reference to Exhibit 2.5 of the Registrant's Report on Form 8-K dated November 16, 1998)
30
EXHIBIT NUMBER DESCRIPTION ------- ----------- *2.15 -- Exhibit E to Master Asset Purchase Agreement -- Transition Services Agreement (incorporated by reference to Exhibit 2.6 of the Registrant's Report on Form 8-K dated November 16, 1998) 2.16 -- Exhibit F to Master Asset Purchase Agreement -- New Confidential Disclosure Agreement (incorporated by reference to Exhibit 2.7 of the Registrant's Report on Form 8-K dated November 16, 1998) 3.1 -- Restated Certificate of Incorporation of Registrant, together with the Certificate of Amendment of the Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Form 10-K Annual Report for fiscal year ended December 31, 1995, File No. 0-21374). 3.2 -- Amendment to the Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 29, 1998, File No. 0-21374). 3.3 -- Restated Bylaws of Registrant, as amended (incorporated by reference to Exhibit 3.2 of the Registrant's Form 10-K Annual Report for fiscal year ended December 29, 1996, File No. 0-21374) 4.1 -- Indenture -- 8.50% Senior Subordinated Notes Due 2007 dated September 19, 1997 between the Registrant and The Chase Manhattan Bank and Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997, File No. 0-21374) 4.2 -- Purchase Agreement -- 8.50% Senior Subordinated Notes Due 2007 dated September 16, 1997 between the Registrant and Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation, and BT Alex. Brown Incorporated, as the initial purchasers (incorporated by reference to Exhibit 4.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997, File No. 0-21374) 4.3 -- Registration Rights Agreement, dated September 16, 1997 between the Registrant and Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation, and BT Alex. Brown Incorporated, as the initial purchasers (incorporated by reference to Exhibit 4.3 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997, File No. 0-21374) +10.1 -- Form of Severance Agreement (incorporated by reference to Exhibit 10.6 of the Registrant's Form 10 Registration Statement, as amended, File No. 0-21374). 10.2 -- Rights Agreement dated as of May 4, 1993, between The Company and Norwest Bank Minnesota, N.A., as Rights Agent (incorporated by reference to Exhibit 10.5 of the Registrant's Form S-1 Registration Statement, as amended, No. 33-71138) +10.3 -- 1993 Stock Option Plan (incorporated by reference to Exhibit 10.8 of the Registrant's Form S-1 Registration Statement, as amended, No. 33-71138). +10.4 -- 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.9 of the Registrant's Form 10-K Annual Report for fiscal year ended December 31, 1993, File No. 0-21374) +10.5 -- 1994 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.10 of the Registrant's Form 10-K Annual Report for fiscal year ended December 31, 1993, File No. 0-21374) +10.6 -- Savings and Deferred Profit Sharing Plan (incorporated by reference to Exhibit 10.4 of the Registrant's Form 10 Registration Statement, as amended, File No. 0-21374)
31
EXHIBIT NUMBER DESCRIPTION ------- ----------- +10.7 -- Amendments to the Savings and Deferred Profit Sharing Plan (incorporated by reference to Exhibit 10.11 of the Registrant's Form 10-K Annual Report for fiscal year ended December 29, 1996, File No. 0-21374). +10.8 -- Dovatron Ireland Limited Defined Contribution Plan (incorporated by reference to Exhibit 10.5 of the Registrant's Form 10 Registration Statement, as amended, File No. 0-21374) +10.9 -- Form of Performance Share Agreement pursuant to the 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.16 of the Registrant's Form 10-K Annual Report for fiscal year ended December 31, 1994, File No. 0-21374) +10.10 -- Non-Employee Directors' Stock Compensation Plan (incorporated by reference to Exhibit B of the Registrant's Proxy Statement for the Registrant's 1996 Annual Meeting of Stockholders, File No. 0-21374) +10.11 -- Senior Executive Performance Bonus Plan (incorporated by reference to Exhibit A of the Registrant's Proxy Statement for the Registrant's 1996 Annual Meeting of Stockholders, File No. 0-21374) *10.12 -- Agreement dated as of February 17, 1997, by and between Hewlett-Packard and Dovatron International, Inc. (incorporated by reference to Exhibit 10.2 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) 10.13 -- The DII Group, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) 10.14 -- The DII Group, Inc. Performance Share Agreement (incorporated by reference to Exhibit 10.4 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.15 -- Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Budacz (incorporated by reference to Exhibit 10.5 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.16 -- Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr. (incorporated by reference to Exhibit 10.6 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.17 -- Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Snyder (incorporated by reference to Exhibit 10.7 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.18 -- Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Budacz (incorporated by reference to Exhibit 10.9 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.19 -- Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr. (incorporated by reference to Exhibit 10.10 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374)
32
EXHIBIT NUMBER DESCRIPTION ------- ----------- +10.20 -- Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Ronald R. Snyder (incorporated by reference to Exhibit 10.11 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.21 -- Amendment to the Senior Executive Severance Agreement dated as of January 1, 1997 between The DII Group, Inc. and Dermott O'Flanagan (incorporated by reference to Exhibit 10.12 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended March 30, 1997, File No. 0-21374) +10.22 -- First Amendment to Employment Agreement dated as of August 12, 1997 between The DII Group, Inc. and Ronald R. Budacz (incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1997, File No. 0-21374). +10.23 -- First Amendment to Employment Agreement dated as of August 12, 1997 between The DII Group, Inc. and Carl R. Vertuca, Jr. (incorporated by reference to Exhibit 10.4 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1997, File No. 0-21374). +10.24 -- First Amendment to Employment Agreement dated as of August 12, 1997 between The DII Group, Inc. and Ronald R. Snyder (incorporated by reference to Exhibit 10.5 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1997, File No. 0-21374). +10.25 -- Employment Agreement dated as of January 1, 1997 between The DII Group, Inc. and Carl A. Plichta (incorporated by reference to Exhibit 10.6 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1997, File No. 0-21374) +10.26 -- First Amendment to Employment Agreement dated as of August 12, 1997 between The DII Group, Inc. and Carl A. Plichta (incorporated by reference to Exhibit 10.7 of the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1997, File No. 0-21374). +10.27 -- Employment Agreement dated as of January 1, 1998 between The DII Group, Inc. and Dermott O'Flanagan +10.28 -- Employment Agreement dated as of January 1, 1998 between Nortavod Corporation and Dermott O'Flanagan #10.29 -- $180,000,000 Credit Agreement dated as of October 30, 1998 among The DII Group, Inc. and Subsidiary Borrowers and The Chase Manhattan Bank, as Administrative Agent, and Chase Securities Inc. as Arranger #10.30 -- $90,000,000 Credit Agreement dated as of October 30, 1998 among Multilayer Technology GmbH & Co. KG, as Borrower and The Chase Manhattan Bank, as Administrative Agent, and Chase Securities Inc. as Arranger 13 -- Portions of the 1998 Annual Report to Shareholders is incorporated by reference in Part II of the Annual Report on Form 10-K. 16.1 -- Letter dated September 10, 1997 from KPMG Peat Marwick LLP to the Registrant (incorporated by reference to Exhibit 16.1 of the Registrant's Report on Form 8-K dated September 4, 1997) 21.1 -- Subsidiaries of the Registrant 23.1 -- Consent of Independent Auditors -- Deloitte & Touche LLP 23.2 -- Consent of Independent Auditors -- KPMG 27 -- Financial Data Schedule
33 - --------------- * Confidential treatment has been granted as to portions of this exhibit. + Management contract or compensatory plan. # Schedules were not included but will be furnished supplementally to the Commission upon request. EX-10.27 2 EMPLOYMENT AGREEMENT BETWEEN DII & D. O'FLANAGAN 1 EMPLOYMENT AGREEMENT Agreement, made as of the 1st day of January 1998, by and between The DII Group, Inc., a Delaware corporation (the "Company"), and Dermott O'Flanagan ("Executive"). RECITALS A. The Company desires 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, 1998 and shall end December 31, 2000, unless terminated sooner pursuant to Section 6 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, 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. 2 Executive's duties under this Agreement shall be limited to those duties performed while present in the United States relating to the Company and the Company's subsidiaries. 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 Eight Hundred Thirty-Eight and 42/100 Dollars ($19,838.42), 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 -2- 3 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%. (ii) If for any reason other than Executive's voluntary resignation or termination pursuant to Sections 6(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 -3- 4 (B) during any period of twenty-four consecutive months, individuals who at the beginning of such consecutive twenty-four month period constitute the Board of Directors cease for any reason (other than retirement upon reaching normal retirement age, disability or death) to constitute at least a majority thereof, unless the election or the nomination for election by the Company's stockholders of each new director was approved by a vote of at 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 6(a) or (c) of this Agreement, all benefits described in Sections 2 and 3 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 6(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, 1997, 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. -5- 6 3. Other Benefits. Executive shall be entitled to receive the following benefits during the term of employment: (a) participation in medical, dental, hospitalization, disability and life insurance benefit plans made available by the Company to its senior executives and Executive also shall 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; (b) reimbursement for country club dues at one country club; (c) usage of a Company-furnished 1998 Audi A8 and reimbursement for non-routine maintenance costs; (d) due to the differences in education programs in the United States as compared with Ireland, educational allowances of (i) $12,000 per school year commencing in September 1997 for one of Executive's children for a period of five (5) years, and (ii) $12,000 per school year commencing September 1998 for a second child for a period of three (3) years. In addition, 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 such educational allowances. For purposes hereof, 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. In the event the Executive's employment is terminated pursuant to Section 6(a) or (b), the Company shall continue to provide the benefits -6- 7 under this paragraph (d) for the balance of the term provided that the Executive's children continue their education in the United States; (e) the Company agrees to loan Executive the sum of $550,000 to be applied towards the purchase of a residence. The term of such loan shall be for a period ending December 31, 2000 subject to automatic extension if the Company and the Executive extend this Employment Agreement (or enter into a new Employment Agreement) in which event the term of the loan shall be extended through the term of employment; provided that the loan shall be accelerated in the event that (i) Executive resigns voluntarily or is terminated pursuant to the provisions of Section 6(c) or (ii) Executive sells the residence . The loan shall be interest-free, evidenced by a promissory note and shall be secured by a second mortgage on the residence; (f) payment of an annual financial and tax-planning allowance in an amount up to 1% of base salary; and (g) in the event that the Executive incurs liability as a result of the vesting of performance shares in January 1996 and April 1997, the Company shall make equitable provision in order to provide the Executive with benefits on an equivalent basis as the Company's other senior executives, in particular in the form of a loan to discharge the liability and provision for the forgiveness of the indebtedness. 4. Confidential Information. Except as specifically permitted by this Section 4, 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 -7- 8 used by the Company or any of its affiliates that may be communicated to, acquired by or learned of by Executive in the course of, or as a result of, Executive's employment with the Company or any of its affiliates. All Confidential Information relating to the business of the Company or any of its affiliates which Executive shall use or prepare or come into contact with shall become and remain the sole property of the Company or its affiliates. "Confidential Information" means information not generally known about the Company and its affiliates, services and products, whether written or not, including information relating to research, development, purchasing, marketing plans, computer software or programs, any copyrightable material, trade secrets and proprietary information, including, but not limited to, customer lists. Executive may disclose Confidential Information to the extent it (i) becomes part of the public domain otherwise than as a result of Executive's breach hereof or (ii) is required to be disclosed by law. If Executive is required by applicable law or regulation or by legal process to disclose any Confidential Information, Executive will provide the Company with prompt notice thereof so as to enable the Company to seek an appropriate protective order. Upon request by the Company, Executive agrees to deliver to the Company at the termination of Executive's employment, or at such other times as the Company may request, all memoranda, notes, plans, records, reports and other documents (and all copies thereof) containing Confidential Information that Executive may then possess or have under his control. 5. 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 -8- 9 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. 6. 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 -9- 10 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. 7. 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 4 or the assignment provisions of Section 5 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. -10- 11 8. 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. 9. 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. 10 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. 11. 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. 12. 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. -11- 12 13. 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: /s/ Thomas J. Smach -------------------------------- Title: Chief Financial Officer ----------------------------- /s/ Dermott O'Flanagan ----------------------------------- DERMOTT O'FLANAGAN -12- EX-10.28 3 EMPLOYMENT AGREEMENT BETWEEN NORTA & D. O'FLANAGAN 1 EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENT Agreement, made as of the 1st day of January 1998, by and between NortaVOD Corporation., a Delaware corporation (the "Company"), and Dermott O'Flanagan ("Executive"). RECITALS A. The Company desires to employ Executive as Senior Vice President and Director of Overseas Operations; 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, 1998 and shall end December 31, 2000, unless terminated sooner pursuant to Section 6 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 Director of Overseas Operations 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 Director of Overseas Operations. Executive's 2 duties under this Agreement shall be limited to those duties performed while outside of the United States and shall be subject to the fulfillment by Executive of his duties under his Employment Agreement with The DII Group, Inc. ("DII"). 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 Eight Thousand Eight Hundred Seventy-Three and 50/100 Dollars ($8,873.50) 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 -2- 3 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%. (ii) If for any reason other than Executive's voluntary resignation or termination pursuant to Sections 6(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 under this Agreement plus an annual performance bonus equal to the highest annual bonus payment Executive has received under this Agreement 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 DII) 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 DII's then outstanding securities; or -3- 4 (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 of DII 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 DII'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 DII approve a merger or consolidation of DII with any other corporation, other than a merger or consolidation which would result in the voting securities of DII 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 DII or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of DII approve a plan of complete liquidation of DII or an agreement for the sale or disposition by DII of all or substantially all of DII'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 6(a) or (c) of this Agreement, all benefits described in Sections 2 and 3 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 6(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 under this Agreement, 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, 1997, in the discretion of the Company's Board of Directors 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 DII's 1994 Stock Incentive Plan (the "Plan"), as may hereafter be determined by the Compensation Committee of the Board of Directors of DII under the Plan. Stock options and performance share awards under this Section 3.1 shall be deemed to be granted exclusively for Executive's services under this Agreement. -5- 6 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. Confidential Information. Except as specifically permitted by this Section 4, 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 -6- 7 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. 5. 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- 8 6. Termination. (a) Subject to the provisions of Section 8, 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, subject to the provisions of Section 8. 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 -8- 9 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. 7. 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 4 or the assignment provisions of Section 5 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. 8. Deferred Compensation Account; Contributions to Trust. All compensation earned under this Agreement (other than stock option grants) shall be deferred in accordance with the provisions of this Section 8. -9- 10 (a) The Company shall credit to a book reserve (the "Deferred Compensation Account") established for this purpose an amount equal to all compensation earned under this Agreement (other than stock option grants). Any amounts represented by credits made to the Deferred Compensation Account in accordance with the preceding sentence shall be contributed by the Company to the trust (the "Trust") established under the Trust Agreement annexed as Exhibit A hereto. In the case of Performance Shares, the amount of the deferred Performance Shares shall be credited to the Deferred Compensation Account upon vesting in the form of Stock Units. A corresponding number of shares of Common Stock shall be transferred by the Company to the Trust, to be held in accordance with the provisions of the Trust Agreement. (b) The Deferred Compensation Account shall be credited with all amounts of cash compensation that are deferred pursuant to this Agreement, and shall be debited or credited with amounts representing all losses or earnings debited or credited to an account established in respect of the Executive under the Trust. The Deferred Compensation Account also shall be charged from time to time with all amounts that are distributed to the Executive. (c) With respect to Stock Units, in the event DII declares and pays a dividend, the Deferred Compensation 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 Deferred Compensation Account. 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 DII, corporate separation or division (including, but not limited to, split-up, spin-off or distribution to DII shareholders other than a normal cash dividend), sale by DII of all or a substantial portion of its assets, rights offering, merger, consolidation, reorganization or -10- 11 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 the Deferred Compensation Account shall be appropriately adjusted in an equitable manner or there shall be made such other equitable adjustments to the Deferred Compensation Account. (d) Amounts contributed to the Trust and credited to the Executive's account thereunder shall be invested and reinvested, at the direction of the Executive, in accordance with the provisions of the Trust Agreement. The assets of the Trust shall be considered part of the general assets of the Company subject to the claims of its general creditors. (e) The Executive agrees on behalf of himself and his designated beneficiary to assume all risk in connection with any debits or credits made to his account under the Trust by reason of losses or earnings on investments made in accordance with the provisions of the Trust Agreement. (f) If the Executive experiences an Unforeseeable Financial Emergency, the Executive may, with the approval of the Company, receive a partial or full distribution of his Deferred Compensation Account. The distribution shall not exceed the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. (g) The Executive may at any time elect to withdraw all of the balance then credited to his Deferred Compensation Account, less a ten (10) percent withdrawal penalty. Thereafter, the provisions of this Section 8 shall no longer continue in effect. (h) Upon the earlier of (i) a period of 30 days shall have elapsed after the Executive ceases to be a resident of the United States, and (ii) the earliest date reasonably -11- 12 practicable following the Executive's Termination of Employment, the Company shall pay (or cause to be paid from the Trust) to the Executive or to the Executive's beneficiary or estate (in the event of his death) a lump sum amount equal to his Deferred Compensation Account. All payments shall be made in cash, except that distributions representing Stock Units shall be made in shares of Common Stock. (i) The beneficiary referred to in paragraph (h) above may be designated or changed by the Executive on a form provided by the Company and delivered to the Company before his death. If no such beneficiary shall have been designated, or if no designated beneficiary shall survive the Executive, the lump sum payment payable under paragraph (h) above shall be payable to the Executive's surviving spouse or, if none, his estate. (j) For purposes of this Agreement: "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 DII) 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 DII'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 -12- 13 of Directors of DII 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 DII approve a merger or consolidation of DII with any other corporation, other than a merger or consolidation which would result in the voting securities of DII 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 DII or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of DII approve a plan or complete liquidation of DII or an agreement for the sale or disposition by DII of all or substantially all DII's assets; (iv) there shall occur a transaction or series of transactions which the Board of Directors of DII shall determine to have the effect of a Change in Control. "Common Stock" shall mean the Common Stock, par value $0.01 of DII, or any security of DII issued in substitution, exchange or in lieu thereof. "Performance Shares" shall mean performance shares awarded under DII's 1994 Stock Incentive Plan and under any successor plan of DII which permits the awardee to elect to defer the Performance Shares. -13- 14 "Stock Units" shall mean bookkeeping units in the Deferred Compensation Account, each of which represents a share of Common Stock. "Termination of Employment" shall mean the Executive's cessation of employment or service with the Company or any affiliate voluntarily or involuntarily, for any reason. "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Executive that would result in severe financial hardship to the Executive resulting from (i) a sudden and unexpected illness or accident of the Executive or a dependent of the Executive, (ii) a loss of the Executive's property due to casualty, or (iii) other such extraordinary and unforeseeable circumstances, all as determined in the sole discretion of the Company. (k) It is the intention of the parties hereto that the arrangement described in this Agreement be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. Nothing in this Agreement or the Trust Agreement and no action taken pursuant to the provisions of this Agreement or the Trust Agreement shall create or be construed to create a fiduciary relationship between the Company and the Executive, his designated beneficiary or any other person. Any funds that may be invested under the provisions of the Trust Agreement shall continue for all purposes to be a part of the general funds of the Company and no person other than the Company shall by virtue of the provisions of this Agreement have any interest in such funds. To the extent that any person acquires a right to receive payments from the Company under this Agreement, such right shall be no greater than -14- 15 the right of any unsecured general creditor of the Company. This Agreement constitutes a mere promise by the Company to make a benefit payment in the future. (l) The Company or the trustee of the Trust shall withhold from benefits distributed under this Agreement all income, employment and other taxes required to be withheld by applicable law. (m) 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 this Agreement or the Trust, or takes or threatens to take any action to deny, diminish or to recover from the Executive the benefits intended to be provided hereunder, the Company shall reimburse the Executive for reasonable attorneys' fees and related costs incurred in the successful pursuance or defense of the Executive's rights. If the Executive does not prevail, attorneys' fees shall also be payable under the preceding sentence to the extent the Executive had reasonable justification for retaining counsel, but only to the extent that the scope of such representation was reasonable. (n) No benefit under this Agreement 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 this Agreement 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 this Agreement. 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. -15- 16 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. 15. Miscellaneous. Executive acknowledges that the Company is not responsible for the tax attributes of Executive's compensation under this Agreement. Executive shall be solely responsible for Executive's income tax liability and any other tax liability, and the Company expressly disavows any responsibility or warranty in connection therewith. -16- 17 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. NORTAVOD CORPORATION By: /s/ Thomas J. Smach -------------------------------- Title: Vice President ----------------------------- /s/ Dermott O'Flanagan ----------------------------------- DERMOTT O'FLANAGAN -17- EX-10.29 4 CREDIT AGREEMENT CHASE MANHATTAN BANK 1 EXHIBIT 10.29 EXECUTION COPY ================================================================================ $180,000,000 CREDIT AGREEMENT AMONG THE DII GROUP, INC. AND THE SUBSIDIARY BORROWERS FROM TIME TO TIME PARTIES HERETO, THE SEVERAL LENDERS FROM TIME TO TIME PARTIES HERETO, THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT, AND CHASE SECURITIES INC. AS ARRANGER DATED AS OF OCTOBER 30, 1998 ================================================================================ 2 TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS................................................................................1 1.1 Defined Terms............................................................................1 1.2 Other Definitional Provisions...........................................................24 SECTION 2. AMOUNT AND TERMS OF U.S. DOLLAR COMMITMENTS...............................................24 2.1 Term Commitments........................................................................24 2.2 Procedure for Term Loan Borrowing.......................................................25 2.3 Repayment of Term Loans; Evidence of Debt...............................................25 2.4 Revolving Commitments...................................................................26 2.5 Procedure for Dollar Revolving Loan Borrowing...........................................27 2.6 Commitment Fees, etc. ..................................................................27 2.7 Termination or Reduction of Revolving Commitments.......................................27 2.8 Repayment of Dollar Revolving Loans; Evidence of Debt...................................28 SECTION 3. AMOUNT AND TERMS OF MULTICURRENCY COMMITMENTS.............................................28 3.1 Multicurrency Commitments...............................................................28 3.2 Procedure for Multicurrency Borrowings..................................................29 3.3 Repayment of Multicurrency Loans; Evidence of Debt......................................29 SECTION 4. LETTERS OF CREDIT.........................................................................30 4.1 L/C Commitment..........................................................................30 4.2 Procedure for Issuance of Letter of Credit..............................................30 4.3 Fees and Other Charges..................................................................31 4.4 L/C Participations......................................................................31 4.5 Reimbursement Obligation of the Company.................................................32 4.6 Obligations Absolute....................................................................32 4.7 Letter of Credit Payments...............................................................33 4.8 Applications............................................................................33 SECTION 5. GENERAL PROVISIONS APPLICABLE TO THE LOANS................................................33 5.1 Interest Rates and Payment Dates........................................................33 5.2 Computation of Interest and Fees........................................................34 5.3 Inability to Determine Interest Rate....................................................35 5.4 Optional Prepayments....................................................................35 5.5 Mandatory Prepayments and Commitment Reductions.........................................36 5.6 Conversion and Continuation Options.....................................................37 5.7 Limitations on Tranches.................................................................38 5.8 Pro Rata Treatment and Payments.........................................................38 5.9 Requirements of Law.....................................................................40 5.10 Taxes..................................................................................41 5.11 Indemnity..............................................................................43
-i- 3 5.12 Change of Lending Office...............................................................43 5.13 Subsidiary Borrowers...................................................................43 5.14 Replacement of Lenders.................................................................44 5.15 Lending Installations..................................................................44 SECTION 6. REPRESENTATIONS AND WARRANTIES............................................................44 6.1 Financial Condition.....................................................................44 6.2 No Change...............................................................................45 6.3 Corporate Existence; Compliance with Law................................................45 6.4 Corporate Power; Authorization; Enforceable Obligations.................................46 6.5 No Legal Bar............................................................................46 6.6 Litigation..............................................................................46 6.7 No Default..............................................................................46 6.8 Ownership of Property; Liens............................................................47 6.9 Intellectual Property...................................................................47 6.10 Taxes..................................................................................47 6.11 Federal Regulations....................................................................47 6.12 Labor Matters..........................................................................47 6.13 ERISA..................................................................................48 6.14 Investment Company Act; Other Regulations..............................................48 6.15 Subsidiaries...........................................................................48 6.16 Use of Proceeds........................................................................48 6.17 Environmental Matters..................................................................49 6.18 Accuracy of Information, etc...........................................................50 6.19 Security Documents.....................................................................50 6.20 Solvency...............................................................................50 6.21 Year 2000 Matters......................................................................51 6.22 Certain Documents......................................................................51 6.23 Immaterial Subsidiaries................................................................51 SECTION 7. CONDITIONS PRECEDENT......................................................................52 7.1 Conditions to Initial Extension of Credit...............................................52 7.2 Conditions to Each Extension of Credit..................................................55 7.3 Each Subsidiary Borrower Credit Event...................................................55 SECTION 8. AFFIRMATIVE COVENANTS.....................................................................56 8.1 Financial Statements....................................................................56 8.2 Certificates; Other Information.........................................................56 8.3 Payment of Obligations..................................................................58 8.4 Maintenance of Existence; Compliance. ..................................................58 8.5 Maintenance of Property; Insurance......................................................58 8.6 Inspection of Property; Books and Records; Discussions..................................58 8.7 Notices.................................................................................58 8.8 Environmental Laws......................................................................59 8.9 Additional Collateral, etc..............................................................59
-ii- 4 SECTION 9. NEGATIVE COVENANTS........................................................................61 9.1 Financial Condition Covenants...........................................................61 9.2 Indebtedness............................................................................62 9.3 Liens...................................................................................63 9.4 Fundamental Changes.....................................................................64 9.5 Disposition of Property.................................................................65 9.6 Restricted Payments.....................................................................65 9.7 Capital Expenditures....................................................................66 9.8 Investments.............................................................................66 9.9 Optional Payments and Modifications of Certain Debt Instruments. .......................67 9.10 Transactions with Affiliates...........................................................68 9.11 Sales and Leasebacks...................................................................68 9.12 Changes in Fiscal Periods..............................................................68 9.13 Negative Pledge Clauses................................................................68 9.14 Clauses Restricting Subsidiary Distributions...........................................69 9.15 Lines of Business......................................................................69 9.16 Amendments to Acquisition Documents....................................................69 SECTION 10. EVENTS OF DEFAULT........................................................................69 SECTION 11. THE ADMINISTRATIVE AGENT.................................................................73 11.1 Appointment............................................................................73 11.2 Delegation of Duties...................................................................73 11.3 Exculpatory Provisions.................................................................73 11.4 Reliance by Administrative Agent.......................................................73 11.5 Notice of Default......................................................................74 11.6 Non-Reliance on Administrative Agent and Other Lenders.................................74 11.7 Indemnification........................................................................75 11.8 Administrative Agent in Its Individual Capacity........................................75 11.9 Successor Administrative Agent.........................................................75 11.10 Authorization to Release Guarantees and Liens.........................................76 SECTION 12. GUARANTEE................................................................................76 12.1 Guarantee..............................................................................76 12.2 No Subrogation, Contribution, Reimbursement or Indemnity...............................77 12.3 Amendments, etc. with respect to the Subsidiary Borrower Obligations...................77 12.4 Guarantee Absolute and Unconditional...................................................78 12.5 Reinstatement..........................................................................78 12.6 Payments...............................................................................79 SECTION 13. MISCELLANEOUS............................................................................79 13.1 Amendments and Waivers.................................................................79 13.2 Notices................................................................................80 13.3 No Waiver; Cumulative Remedies.........................................................81 13.4 Survival of Representations and Warranties.............................................81
-iii- 5 13.5 Payment of Expenses and Taxes..........................................................81 13.6 Successors and Assigns; Participations and Assignments.................................82 13.7 Adjustments; Set-off...................................................................84 13.8 Counterparts...........................................................................85 13.9 Severability...........................................................................85 13.10 Integration...........................................................................85 13.11 GOVERNING LAW.........................................................................85 13.12 Submission To Jurisdiction; Waivers...................................................86 13.13 Acknowledgments.......................................................................86 13.14 Conversion of C.......................................................................87 13.15 Confidentiality.......................................................................87 13.16 European Economic and Monetary Union..................................................87 13.17 Accounting Changes....................................................................91 13.18 Collateral Agent as Several Creditor. ................................................91 13.19 WAIVERS OF JURY TRIAL.................................................................91
-iv- 6 ANNEX: A Pricing Grid SCHEDULES: 1.1A Commitments 1.1B Qualified Foreign Subsidiaries 1.1C Immaterial Subsidiaries 6.4 Consents, Authorizations, Filings and Notices 6.15 Subsidiaries 6.19 UCC Filing Jurisdictions 7.1(g) Environmental Audit Properties 9.2(d) Existing Indebtedness 9.3(f) Existing Liens 9.5(f) Specified Dispositions 9.8(k) Investments EXHIBITS: A Form of Guarantee and Collateral Agreement B Form of Borrowing Subsidiary Agreement C Form of Borrowing Subsidiary Termination D Form of Compliance Certificate E Form of Closing Certificate F Form of Assignment and Acceptance G-1 Form of Legal Opinion of Curtis, Mallet-Prevost, Colt & Mosle G-2 Form of Legal Opinion of Counsel to Subsidiary Borrowers H Form of Exemption Certificate I Form of Solvency Certificate J Form of Term Note K Form of Revolving Note L Form of Intercreditor Agreement -v- 7 CREDIT AGREEMENT, dated as of October 30, 1998, among THE DII GROUP, INC., a Delaware corporation (the "Company"), the SUBSIDIARY BORROWERS (as hereinafter defined), the several banks and other financial institutions or entities from time to time parties to this Agreement (the "Lenders") and THE CHASE MANHATTAN BANK, as administrative agent. W I T N E S S E T H: WHEREAS, pursuant to the Acquisition Agreement (such capitalized term and other capitalized terms used without definition in these recitals being used with the meanings given such terms in Section 1.1) the Company, through one or more Wholly-Owned Subsidiaries, will acquire from Hewlett-Packard GmbH certain assets used in the manufacturing of certain printed circuit boards, including the premises used for such manufacturing at its facility located in Boblingen, Germany; and WHEREAS, to finance, in part, the cost of the Acquisition (including specified assumed liabilities), the payment of fees and expenses relating thereto and the refinancing of certain existing indebtedness of the Company, and to provide financing for working capital and general corporate purposes of the Company and its Subsidiaries, the Company has requested the Lenders to make available the credit facilities described herein; and WHEREAS, the Lenders are willing to make such credit facilities available upon and subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1. "ABR": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Reference Lender as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Reference Lender in connection with extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current 8 2 practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Reference Lender from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. Any change in the ABR due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "ABR Loans": Loans the rate of interest applicable to which is based upon the ABR. "Acquisition": as defined in Section 7.1. "Acquisition Agreement": the Master Asset Purchase Agreement, dated as of October 30, 1998, among the Company, MTKG and the Seller. "Acquisition Documentation": collectively, the Acquisition Agreement and all schedules, exhibits and annexes thereto and all side letters and agreements affecting the terms thereof or entered into in connection therewith (including, without limitation, the Division Purchase Agreement), in each case as amended, supplemented or otherwise modified from time to time in accordance with Section 9.16. "Adjustment Date": as defined in the Pricing Grid. "Administrative Agent": The Chase Manhattan Bank, together with its affiliates, as the arranger of the Commitments and as the administrative agent for the Lenders under this Agreement and the other Loan Documents, together with any of its successors. "Affiliate": as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Aggregate Available Revolving Commitments": as at any date of determination with respect to all Revolving Lenders, an amount in U.S. Dollars equal to the Available Revolving Commitments of all Revolving Lenders on such date. "Aggregate Committed Outstandings": as at any date of determination with respect to any Revolving Lender, an amount in U.S. Dollars equal to the sum of (a) the 9 3 Aggregate Revolving Outstandings of such Revolving Lender on such date and (b) the U.S. Dollar Equivalent of the Aggregate Multicurrency Outstandings of such Revolving Lender on such date. "Aggregate Exposure": with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the aggregate amount of such Lender's Commitments at such time and (b) thereafter, the sum of (i) the aggregate then unpaid principal amount of such Lender's Term Loans and (ii) the amount of such Lender's Revolving Commitment then in effect or, if the Revolving Commitments have been terminated, the amount of such Lender's Aggregate Committed Outstandings then outstanding. "Aggregate Exposure Percentage": with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time. "Aggregate Multicurrency Outstandings": as at any date of determination with respect to any Revolving Lender, an amount in the applicable Available Foreign Currencies equal to the aggregate unpaid principal amount of such Revolving Lender's Multicurrency Loans. "Aggregate Revolving Outstandings": as at any date of determination with respect to any Revolving Lender, an amount equal to the sum of (a) the aggregate unpaid principal amount of such Lender's Dollar Revolving Loans on such date and (b) such Lender's Revolving Percentage of the aggregate unpaid principal amount of all L/C Obligations on such date. "Agreement": this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Applicable Margin": for each Type of Loan at any time, the rate per annum determined pursuant to the Pricing Grid. "Application": an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to open a Letter of Credit. "Arranger": Chase Securities Inc., as arranger of the Commitments. "Asset Sale": any Disposition of property (other than Capital Stock of the Company) or series of related Dispositions of property (excluding any such Disposition permitted by clause (a), (b), (c), (d) or (f) of Section 9.5 or Section 9.11) that yields gross proceeds to the Company or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $2,000,000 in any fiscal year; provided, that asset Dispositions permitted by clause (f) of Section 9.5 shall not be excluded from the definition of "Asset Sale" to the extent that the gross proceeds therefrom exceed $125,000,000, in the case of the Disposition described in Item 1 set forth on Schedule 9.5(f), and $30,000,000, in the case of the Disposition described in Item 2 set forth on Schedule 9.5(f). 10 4 "Assignee": as defined in Section 13.6(c). "Assignment and Acceptance": an Assignment and Acceptance, substantially in the form of Exhibit F. "Assignor": as defined in Section 13.6(c). "Available Foreign Currencies": Deutsche Marks, Pounds Sterling, euro (when available) and any other available and freely-convertible eurocurrency selected by the Company and approved by the Administrative Agent and each of the Revolving Lenders. "Available Revolving Commitment": as to any Revolving Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Revolving Commitment then in effect over (b) such Lender's Aggregate Committed Outstandings on such date. "Benefitted Lender": as defined in Section 13.7(a). "Board": the Board of Governors of the Federal Reserve System of the United States (or any successor). "Borrowers": the collective reference to the Company and the Subsidiary Borrowers. "Borrowing Date": any Business Day specified by a Borrower as a date on which such Borrower requests the relevant Lenders to make Loans hereunder. "Borrowing Subsidiary Agreement": a Borrowing Subsidiary Agreement, substantially in the form of Exhibit B. "Borrowing Subsidiary Termination": a Borrowing Subsidiary Termination, substantially in the form of Exhibit C. "Business": as defined in Section 6.17(b). "Business Day": (a) when such term is used in respect of a day on which a Loan denominated in an Available Foreign Currency is to be made, a payment is to be made in respect of such Loan, an interest rate or Exchange Rate is to be set in respect of such Available Foreign Currency or any other dealing in such Available Foreign Currency is to be carried out pursuant to this Agreement, such term shall mean a London Banking Day which is also a day on which banks are open for general banking business in the city which is the principal financial center of the country of issuance of such Available Foreign Currency, (b) when such term is used in respect of a day on which a Eurodollar Loan is to be made, an interest rate is to be set in respect thereof or any payment is to be made in respect thereof, such term shall mean a London Banking Day, and (c) when such term is used in any context in this Agreement (including as described in the foregoing clauses (a) and (b)), such term shall mean a day which, in addition to complying 11 5 with any applicable requirements set forth in the foregoing clauses (a) and (b), is a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Capital Expenditures": for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries, provided that the acquisition of Capital Stock shall in no case constitute a Capital Expenditure. "Capital Lease Obligations": as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Cash Equivalents": (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States or any state thereof or Hong Kong or any foreign country which is a member of the OECD having combined capital and surplus of not less than $200,000,000 (or the foreign currency equivalent thereof); (c) commercial paper of an issuer rated at least A-1 by Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the 12 6 requirements of clause (b) of this definition; or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "C/D Assessment Rate": for any day as applied to any ABR Loan, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the "FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. ss. 327.4 (or any successor provision) to the FDIC (or any successor) for the FDIC's (or such successor's) insuring time deposits at offices of such institution in the United States. "C/D Reserve Percentage": for any day as applied to any ABR Loan, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board, for determining the maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board as in effect from time to time) in respect of new non-personal time deposits in Dollars having a maturity of 30 days or more. "Change of Control": (a) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, shall become the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of more than 35% of the then outstanding voting stock of the Company other than in a transaction having the approval of the board of directors of the Company at least a majority of which members are Continuing Directors or (b) Continuing Directors shall cease to constitute at least a majority of the directors constituting the board of directors of the Company. "Closing Date": the date on which the conditions precedent set forth in Section 7.1 shall have been satisfied, which date is October 30, 1998. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": all property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document. "Collateral Agent": The Chase Manhattan Bank, together with its affiliates, as collateral agent pursuant to the terms of the Intercreditor Agreement. "Commitment": as to any Lender, the sum of the Term Commitment and the Revolving Commitment of such Lender. "Commitment Fee Rate": at any time, the rate per annum determined pursuant to the Pricing Grid. "Commonly Controlled Entity": an entity, whether or not incorporated, that is under common control with the Company within the meaning of Section 4001 of ERISA or is 13 7 part of a group that includes the Company and that is treated as a single employer under Section 414 of the Code. "Company": as defined in the preamble hereto. "Company Guaranty: the guarantee contained in Section 12. "Compliance Certificate": a certificate duly executed by a Responsible Officer substantially in the form of Exhibit D. "Confidential Information Memorandum": the Confidential Information Memorandum dated October 1998 and furnished to the Lenders. "Consolidated EBITDA": for any period, Consolidated Net Income for such period plus, without duplication and to the extent included as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense and asset taxes, (b) interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loans), (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual or non-recurring non-cash expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, non-cash losses on sales of assets outside of the ordinary course of business or realized upon the sale of Capital Stock of any Person), (f) aggregate non-recurring charges taken in fiscal 1998 with respect to Orbit Semiconductor, Inc. (amounting to approximately $84,000,000) and (g) any other non-cash charges, and minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income, (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business or realized upon the sale of Capital Stock of any Person) and (c) any other non-cash income, all as determined on a consolidated basis. "Consolidated Interest Coverage Ratio": for any period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period. "Consolidated Interest Expense": for any period, total cash interest expense (including that attributable to Capital Lease Obligations) of the Company and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Company and its Subsidiaries (including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Derivative Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP). "Consolidated Leverage Ratio": as at any day, the ratio of (a) Consolidated Total Funded Debt on such day to (b) Consolidated EBITDA for the four consecutive fiscal quarters of the Company most recently ended. 14 8 "Consolidated Net Income": for any period, the consolidated net income (or loss) of the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Company or is merged into or consolidated with the Company or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Company) in which the Company or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Company or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Company to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary. "Consolidated Net Worth": at any date, all amounts that would, in conformity with GAAP, be included on a consolidated balance sheet of the Company and its Subsidiaries under stockholders' equity at such date (excluding any foreign currency adjustments); provided, for purposes of determining compliance with Section 9.1(c), no effect shall be given to non-recurring charges taken in the fourth quarter of fiscal year 1998 with respect to Orbit Semiconductor, Inc. in an aggregate amount not to exceed $18,000,000. "Consolidated Senior Funded Debt": at any date, the aggregate principal amount of all Senior Indebtedness of the Company and its Subsidiaries at such date which is Funded Debt, determined on a consolidated basis in accordance with GAAP. "Consolidated Total Funded Debt": at any date, the aggregate principal amount of Funded Debt of the Company and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. "Continuing Directors": the directors of the Company on the Closing Date, and each other director, if, in each case, such other director's election or appointment by the other directors or nomination for election by the stockholders to the board of directors of the Company, as the case may be, is recommended or approved by at least 66-2/3% of the then Continuing Directors. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Convertible Subordinated Notes": the 6% Convertible Subordinated Notes of the Company due October 15, 2002. "Default": any of the events specified in Section 10, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. 15 9 "Derivative Agreements": of any Person at any date, swaps, caps or collar agreements or similar arrangements to which such Person and any financial institution, commodities or stock exchange or clearinghouse (a "Derivatives Counterparty") are parties under which such parties agree to exchange payments based upon interest rates, exchange rates or market prices or values or changes therein in respect of debt obligations or equities, currencies or commodities or indexes in respect of any of the foregoing without delivery of the same (including, whether or not otherwise included in the foregoing, options granted or written by such Person in favor of a Derivatives Counterparty intended to be settled in cash.) "Disposition": with respect to any property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof. The terms "Dispose" and "Disposed of" shall have correlative meanings. "Division Purchase Agreement": the Division Purchase Agreement, dated as of October 30, 1998, between Hewlett-Packard Company and Multilayer Technology. "Dollar Revolving Loans": as defined in Section 2.4(a). "Dollars", "U.S. Dollars" and "$": dollars in lawful currency of the United States. "Domestic Subsidiary": any Subsidiary of the Company organized under the laws of any jurisdiction within the United States. "Dutch Pledge Agreements": the Deed of Pledge of Registered Shares in a Limited Partnership executed by Dovatron Nevada, Inc. and Dovatron Mexico, Inc. pursuant to which the pledgors thereunder grant a security interest in an aggregate of 65% of the outstanding limited partnership interest in DII International Holdings C.V., and the Deed of Pledge of Registered Shares in a Private Limited Liability Company executed by Dovatron Nevada, Inc., pursuant to which the pledgor thereunder grants a security interest in 65% of the share capital of Nador Invest B.V., in each case in form and substance satisfactory to the Administrative Agent. "Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Base Rate": (a) with respect to each Interest Period pertaining to a Multicurrency Loan denominated in any currency other than Pounds Sterling (in the event that Pounds Sterling is an Available Foreign Currency), the rate per annum determined by the Administrative Agent to be the offered rate for deposits in such currency with a term comparable to such Interest Period that appears on the applicable Telerate Page at approximately 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period; provided, 16 10 however, that if at any time for any reason such offered rate for any such currency does not appear on a Telerate Page, "Eurocurrency Base Rate" shall mean, with respect to each day during each Interest Period pertaining to a Multicurrency Loan denominated in such currency, the rate per annum equal to the average (rounded upward to the nearest 1/16th of 1%) of the respective rates notified to the Administrative Agent by each of the Multicurrency Reference Lenders as the rate at which such Multicurrency Reference Lender is offered deposits in such currency at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the London interbank market for delivery on the first day of such Interest Period for the number of days comprised therein; and (b) in the event that Pounds Sterling is an Available Foreign Currency, with respect to each day during each Interest Period pertaining to a Multicurrency Loan denominated in Pounds Sterling, the rate per annum equal to the average (rounded upward to the nearest 1/16th of 1%) of the respective rates notified to the Administrative Agent by each of the Multicurrency Reference Lenders as the rate at which such Multicurrency Reference Lender is offered deposits in Pounds Sterling at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the Paris interbank market for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurocurrency Rate": with respect to each day during each Interest Period pertaining to a Multicurrency Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurocurrency Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar Loan or a Multicurrency Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on such screen), the "Eurodollar Base Rate" shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar 17 11 market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurodollar Loans": Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Event of Default": any of the events specified in Section 10, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Exchange Rate": with respect to any currency other than Dollars, the rate shall be determined by reference to such publicly available service for displaying exchange rates as may be agreed upon by the Administrative Agent and the Company or, in the absence of such agreement, such "Exchange Rate" shall instead be the Administrative Agent's spot rate of exchange in the interbank market where its foreign currency exchange operations in respect of such non-Dollar currency are then being conducted, at or about 11:00 A.M., local time, on such date for the purchase of Dollars with such non-Dollar currency, for delivery two Business Days later; provided, that if at the time of any such determination, no such spot rate can reasonably be quoted, the Administrative Agent may use any reasonable method as it deems applicable to determine such rate, and such determination shall be conclusive absent manifest error. "Excluded Foreign Subsidiary": any Foreign Subsidiary in respect of which either (a) the pledge of all of the Capital Stock of such Subsidiary as Collateral or (b) the guaranteeing by such Subsidiary of the Obligations, would, in the good faith judgment of the Company, result in adverse tax, legal or regulatory consequences to the Company. "Existing Credit Agreement": the Loan Agreement, dated as of May 5, 1993, among the Company, certain of its Subsidiaries and Norwest Bank Colorado, N.A., The Chase Manhattan Bank, Harris Trust and Savings Bank and NBD Bank. "Facility": each of (a) the Term Commitments and the Term Loans made thereunder (the "Term Facility") and (b) the Revolving Commitments (including the commitment to make Multicurrency Loans) and the extensions of credit made thereunder (the "Revolving Facility"). "Federal Funds Effective Rate": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve 18 12 Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by the Reference Lender from three federal funds brokers of recognized standing selected by it. "Foreign Subsidiary": any Subsidiary of the Company that is not a Domestic Subsidiary. "Funded Debt": as to any Person, all Indebtedness of such Person of the types described in clauses (a) through (e) of the definition of Indebtedness in this Section 1.1, and all Guarantee Obligations of such Person in respect of such Indebtedness. "Funding Office": the office of the Administrative Agent specified in Section 13.2 or such other office as may be specified from time to time by the Administrative Agent as its funding office by written notice to the Company and the Lenders. "GAAP": generally accepted accounting principles in the United States as in effect from time to time, except that for purposes of Section 9.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements delivered pursuant to Section 6.1(b). "Governmental Authority": any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization (including the National Association of Insurance Commissioners). "Greatsino Acquisition": the acquisition by the Company of all the outstanding capital stock of Greatsino Electric Technology, which is a printed circuit board fabricator and contract electronics manufacturer with operations in the People's Republic of China. "Greatsino Documentation": collectively, the Stock Purchase Agreement dated as of August 22, 1998, by and among the Company, Universal Appliances Ltd. and Valenta Holdings Ltd., pursuant to which the Company purchased all of the outstanding stock of Greatsino Electronic Technology, and all schedules, exhibits and annexes thereto and all side letters and agreements affecting the terms thereof or entered into in connection therewith (in each case as in effect on the date hereof). "Guarantee and Collateral Agreement": the Guarantee and Collateral Agreement to be executed and delivered by the Company and each Subsidiary Guarantor, substantially in the form of Exhibit A, as the same may be amended, supplemented or otherwise modified from time to time. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a 19 13 reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor (other than pursuant to a contractual right to indemnity (other than in respect of Indebtedness) in connection with acquisitions or Dispositions in accordance with past practice), (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Company in good faith. "Immaterial Subsidiary": any Subsidiary set forth on Schedule 1.1C or any new Subsidiary created or acquired after the Closing Date and designated by the Company by notice to the Administrative Agent as an Immaterial Subsidiary; provided, that at any time, (i) the aggregate book value of the assets of each Immaterial Subsidiary shall not exceed 5% of the aggregate book value of all assets of the Company and its Subsidiaries taken as a whole and (ii) the revenues of each Immaterial Subsidiary as of the fiscal year most recently ended do not exceed 5% of the revenues of the Company and its Subsidiaries taken as a whole in such fiscal year, (iii) the aggregate book value of the assets of all such Immaterial Subsidiaries, taken together shall not exceed 10% of the aggregate book value of the assets of the Company and its Subsidiaries taken as a whole and (iv) the aggregate revenues of all Immaterial Subsidiaries in such fiscal year shall not exceed 10% of the aggregate revenues of the Company and its Subsidiaries taken as a whole in such fiscal year; provided that the foregoing clauses (iii) and (iv) shall apply only to Immaterial Subsidiaries created or acquired after the Closing Date. The Company shall redesignate any Immaterial Subsidiary as a Material Subsidiary by written notice to the Administrative Agent delivered not later than the date of delivery of the Company's audited financial statements for any fiscal year which would demonstrate that one or more Immaterial Subsidiaries must be redesignated as Material Subsidiaries in order to comply with the requirements set forth in the preceding sentence. "Indebtedness": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the 20 14 deferred purchase price of property or services (other than current trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party under acceptance, letter of credit or similar facilities, (g) the liquidation value of all redeemable preferred Capital Stock of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above; (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation; and (j) for the purposes of Sections 9.2 and 10(e) only, all obligations of such Person in respect of Derivative Agreements. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intellectual Property": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Intercreditor Agreement": the Collateral Agency and Intercreditor Agreement to be entered into by The Chase Manhattan Bank, as collateral agent, each of the Lenders and each Lender under the MTKG Credit Agreement, substantially in the form of Exhibit H, as the same may be amended, supplemented or otherwise modified from time to time. "Interest Payment Date": (a) as to any ABR Loan, the last day of each March, June, September and December to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan or Multicurrency Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Eurodollar Loan or Multicurrency Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (d) as to any Loan (other than any Revolving Loan that is an ABR Loan), the date of any repayment or prepayment made in respect thereof. "Interest Period": with respect to any Eurodollar Loan or Multicurrency Loan: 21 15 (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan or Multicurrency Loan and ending one, two, three or six months thereafter, as selected by the relevant Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan or Multicurrency Loan and ending one, two, three or six months thereafter, as selected by the relevant Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period pertaining to a Eurodollar Loan or Multicurrency Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period applicable to a Eurodollar Loan or Multicurrency Loan that would otherwise extend beyond the Scheduled Revolving Termination Date shall end on the Scheduled Revolving Termination Date; (iii) any Interest Period pertaining to a Eurodollar Loan or Multicurrency Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iv) each Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan or Multicurrency Loan during an Interest Period for such Eurodollar Loan or Multicurrency Loan. "Investments": as defined in Section 9.8. "Issuing Lender": The Chase Manhattan Bank, in its capacity as issuer of any Letter of Credit. "Judgement Currency": as defined in Section 13.14. "L/C Commitment": $25,000,000. 22 16 "L/C Fee Payment Date": the last day of each March, June, September and December and the last day of the Revolving Commitment Period. "L/C Obligations": at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit that have not then been reimbursed pursuant to Section 4.5. "L/C Participants": the collective reference to all the Revolving Lenders other than the Issuing Lender. "Lending Installation": with respect to a Lender or the Administrative Agent, the office, branch, subsidiary or Affiliate of such Lender or the Administrative Agent listed on the signature pages hereof or otherwise selected by such Lender or the Administrative Agent pursuant to Section 5.15. "Lenders": as defined in the preamble hereto. "Letters of Credit": as defined in Section 4.1(a). "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing). "Loan": any loan made by any Lender pursuant to this Agreement. "Loan Documents": this Agreement, the Security Documents, each Borrowing Subsidiary Agreement, each Borrowing Subsidiary Termination, the Intercreditor Agreement and the Notes. "Loan Parties": the Company, each Subsidiary Borrower and each other Subsidiary of the Company that is a party to a Loan Document. "London Banking Day": any day on which banks in London are open for general banking business, including dealings in foreign currency and exchange. "Majority Facility Lenders": with respect to any Facility, the holders of more than 50% of the aggregate unpaid principal amount of the Term Loans or the Aggregate Committed Outstandings, as the case may be, outstanding under such Facility (or, in the case of the Revolving Facility, prior to any termination of the Revolving Commitments, the holders of more than 50% of the Total Revolving Commitments). "Majority Revolving Facility Lenders": the Majority Facility Lenders in respect of the Revolving Facility. 23 17 "Material Adverse Effect": a material adverse effect on (a) the Acquisition, (b) the business, property, operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole or (c) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Material Subsidiary": any Subsidiary other than an Immaterial Subsidiary. "MTKG": Multilayer Technology and Co. KG, a German limited partnership and indirect subsidiary of the Company. "MTKG Credit Agreement": the $90,000,000 term loan credit agreement to be entered into among MTKG, The Chase Manhattan Bank, as administrative agent, and the several lenders from time to time parties thereto, as the same may be amended, supplemented or otherwise modified from time to time. "Multicurrency Loans": as defined in Section 3.1. "Multicurrency Reference Lender": The Chase Manhattan Bank. "Multiemployer Plan": a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or sale of equity securities or debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. 24 18 "Non-Excluded Taxes": as defined in 5.10(a). "Non-Guarantor Subsidiary": any Subsidiary that is not a Wholly Owned Subsidiary Guarantor. "Non-U.S. Lender": as defined in Section 5.10(d). "Notes": the collective reference to any promissory note evidencing Loans. "Obligations": the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company or any Subsidiary Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of each Borrower to the Administrative Agent or to any Lender (or, in the case of Derivative Agreements, any affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Derivative Agreement entered into with any Lender or any affiliate of any Lender or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by any Borrower pursuant hereto) or otherwise. "Other Taxes": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "Participant": as defined in Section 13.6(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title -IV of ERISA (or any successor). "Person": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan that is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pricing Grid": the pricing grid attached hereto as Annex A. 25 19 "Pro Forma Balance Sheet": as defined in Section 6.1(a). "Projections": as defined in Section 8.2(c). "Properties": as defined in Section 6.17(a). "Qualified Foreign Subsidiary": (a) any Foreign Subsidiary listed on Schedule 1.1B and (b) any other Foreign Subsidiary the designation of which as a Subsidiary Borrower is accompanied by any amendments, supplements or other modifications to the Security Documents deemed necessary or appropriate by the Administrative Agent in connection with such designation. "Recovery Event": any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of the Company or any of its Subsidiaries. "Reference Lender": The Chase Manhattan Bank. "Register": as defined in Section 13.6(d). "Regulation U": Regulation U of the Board as in effect from time to time. "Reimbursement Obligation": the obligation of the Company to reimburse the Issuing Lender pursuant to Section 4.5 for amounts drawn under Letters of Credit. "Reinvestment Deferred Amount": with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Company or any of its Subsidiaries in connection therewith that are not applied to prepay the Term Loans pursuant to Section 5.5(c) as a result of the delivery of a Reinvestment Notice. "Reinvestment Event": any Asset Sale or Recovery Event in respect of which the Company has delivered a Reinvestment Notice or entered into a written agreement to use all or a specified portion of the Net Cash Proceeds of such Asset Sale or Recovery Event to acquire assets similar to those giving rise to the relevant Asset Sale or Recovery Event, as the case may be. "Reinvestment Notice": a written notice executed by a Responsible Officer stating that no Event of Default has occurred and is continuing and that the Company (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire assets similar to those giving rise to the relevant Asset Sale or Recovery Event, as the case may be. "Reinvestment Prepayment Amount": with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire assets similar to those giving rise to the relevant Reinvestment Event, as the case may be. 26 20 "Reinvestment Prepayment Date": with respect to any Reinvestment Event, the earlier of (a) the date occurring 12 months after such Reinvestment Event and (b) the date on which the Company shall have determined not to acquire assets similar to those giving rise to the relevant Recovery Event with all or any portion of the relevant Reinvestment Deferred Amount. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. ss. 4043. "Required Lenders": at any time, the holders of more than 50% of (a) until the Closing Date, the Commitments then in effect and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of the Term Loans then outstanding and (ii) the Total Revolving Commitments then in effect or, if the Revolving Commitments have been terminated, the Aggregate Committed Outstandings then outstanding. "Required Prepayment Lenders": the Majority Facility Lenders in respect of each Facility. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer, president, chief financial officer or the executive vice president of finance of the Company, but in any event, with respect to financial matters, the chief financial officer or the executive vice president of finance of the Company. "Restricted Payments": as defined in Section 9.6. "Revolving Commitment": as to any Lender, the obligation of such Lender, if any, to make Revolving Loans and participate in Letters of Credit in an aggregate principal and/or face amount (in U.S. Dollars or the Dollar Equivalent thereof) not to exceed the amount set forth under the heading "Revolving Commitment" opposite such Lender's name on Schedule 1.1A or in the Assignment and Acceptance pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof. The original amount of the Total Revolving Commitments is $110,000,000. 27 21 "Revolving Commitment Period": the period from and including the Closing Date to the Scheduled Revolving Termination Date, or such earlier date on which the Revolving Loans shall terminate as provided herein. "Revolving Lender": each Lender that has a Revolving Commitment or that holds Revolving Loans. "Revolving Loans": the collective reference to Dollar Revolving Loans and Multicurrency Loans. "Revolving Percentage": as to any Revolving Lender at any time, the percentage which such Lender's Revolving Commitment then constitutes of the Total Revolving Commitments (or, at any time after the Revolving Commitments shall have expired or terminated, the percentage which the sum of (i) aggregate principal amount of such Lender's Dollar Revolving Loans then outstanding and (ii) the Dollar Equivalent of such Lender's Multicurrency Loans then outstanding, constitutes of the aggregate principal amount of the Dollar Revolving Loans and the Dollar Equivalent of the Multicurrency Loans then outstanding). "Revolving Termination Date": the earlier of (a) the Scheduled Revolving Termination Date and (b) the date on which the Revolving Commitments are terminated pursuant to the terms hereof. "Scheduled Revolving Termination Date": November 1, 2003. "SEC": the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority. "Security Documents": the collective reference to the Guarantee and Collateral Agreement, the Dutch Pledge Agreements and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document. "Seller": Hewlett-Packard GmbH, a German company. "Senior Indebtedness": at any date, all Indebtedness of the Company and its Subsidiaries at such date other than Subordinated Indebtedness. "Single Employer Plan": any Plan that is covered by Title IV of ERISA, but that is not a Multiemployer Plan. "Solvent": when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable 28 22 federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "Subordinated Notes": (i) the Convertible Subordinated Notes and (ii) the 8.50% Senior Subordinated Notes of the Company due 2007. "Subordinated Indebtedness": (i) Indebtedness of the Company in respect of the Subordinated Notes and (ii) other Indebtedness of the Company which by its terms is subordinated to the Obligations in a manner and to an extent satisfactory to the Administrative Agent. "Subsidiary": as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. "Subsidiary Borrower": at any time, any Qualified Foreign Subsidiary of the Company designated as a Subsidiary Borrower by the Company pursuant to Section 5.13 that has not ceased to be a Subsidiary Borrower pursuant to such Section. "Subsidiary Borrower Obligations": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the relevant Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans to and all other obligations and liabilities of any Subsidiary Borrower to the Administrative Agent or to any Lender (or, in the case of any Derivative Agreements, any affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Derivative Agreement entered into with any Lender or any affiliate of any Lender or any other document made, delivered or 29 23 given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by any Subsidiary Borrower pursuant hereto) or otherwise. "Subsidiary Guarantor": each Subsidiary of the Company other than any Immaterial Subsidiary or Excluded Foreign Subsidiary. "Term Commitment": as to any Lender, the obligation of such Lender, if any, to make a Term Loan to the Company hereunder in a principal amount not to exceed the amount set forth under the heading "Term Commitment" opposite such Lender's name on Schedule 1.1A. The original aggregate amount of the Term Commitments is $70,000,000. "Term Lender": each Lender that has a Term Commitment or is the holder of a Term Loan. "Term Loan": as defined in Section 2.1. "Term Percentage": as to any Term Lender at any time, the percentage which such Lender's Term Commitment then constitutes of the aggregate Term Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Lender's Term Loans then outstanding constitutes of the aggregate principal amount of the Term Loans then outstanding). "Total Aggregate Committed Outstandings": at any time, the aggregate amount of the Aggregate Committed Outstandings of the Revolving Lenders outstanding at such time. "Total Revolving Commitments": at any time, the aggregate amount of the Revolving Commitments of the Revolving Lenders then in effect. "Tranche": the collective reference to Eurodollar Loans or Multicurrency Loans of any Facility the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Transferee": any Assignee or Participant. "Type": as to any Term Loan or Dollar Revolving Loan, its nature as an ABR Loan or a Eurodollar Loan. "Uniform Customs": the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "United States": the United States of America. 30 24 "U.S. Dollar Equivalent": with respect to an amount denominated in any currency other than U.S. Dollars, the equivalent in U.S. Dollars of such amount determined at the Exchange Rate on the date of determination of such equivalent. In making any determination of the U.S. Dollar Equivalent for purposes of calculating the amount of Loans to be borrowed from the respective Lenders on any Borrowing Date, the Administrative Agent shall use the relevant Exchange Rate in effect on the date on which the interest rate for such Loans is determined pursuant to the provisions of this Agreement and the other Loan Documents. "Wholly Owned Subsidiary": as to any Person, any other Person all of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. "Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is a Wholly Owned Subsidiary of the Company. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (b As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, (i) accounting terms relating to the Company and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP, (ii) the words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation", (iii) the word "incur" shall be construed to mean incur, create, issue, assume, become liable in respect of or suffer to exist (and the words "incurred" and "incurrence" shall have correlative meanings), and (iv) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, Capital Stock, securities, revenues, accounts, leasehold interests and contract rights. (c The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF U.S. DOLLAR COMMITMENTS 2.1 Term Commitments. Subject to the terms and conditions hereof, each Term Lender severally agrees to make a term loan (a "Term Loan") in U.S. Dollars to the Company on the Closing Date in an amount not to exceed the amount of the Term Commitment of such 31 25 Lender. The Term Loans may from time to time be Eurodollar Loans or ABR Loans, as determined by the Company and notified to the Administrative Agent in accordance with Sections 2.2 and 5.6. 2.2 Procedure for Term Loan Borrowing. The Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, one Business Day prior to the anticipated Closing Date) requesting that the Term Lenders make the Term Loans on the Closing Date and specifying the amount to be borrowed. The Term Loans made on the Closing Date shall initially be ABR Loans. Upon receipt of such notice the Administrative Agent shall promptly notify each Term Lender thereof. Not later than 12:00 Noon, New York City time, on the Closing Date each Term Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Term Loan to be made by such Lender. The Administrative Agent shall credit the account of the Company on the books of such office of the Administrative Agent with the aggregate of the amounts made available to the Administrative Agent by the Term Lenders in immediately available funds. 2.3 Repayment of Term Loans; Evidence of Debt. (a) The Term Loan of each Term Lender shall mature in 20 consecutive quarterly installments, commencing on February 1, 1999, each of which shall be in an amount equal to such Lender's Term Percentage multiplied by the amount set forth below opposite such installment:
Installment Principal Amount ----------- ---------------- February 1, 1999 $2,500,000 May 1, 1999 $2,500,000 August 1, 1999 $2,500,000 November 1, 1999 $2,500,000 February 1, 2000 $3,000,000 May 1, 2000 $3,000,000 August 1, 2000 $3,000,000 November 1, 2000 $3,000,000 February 1, 2001 $3,500,000 May 1, 2001 $3,500,000 August 1, 2001 $3,500,000 November 1, 2001 $3,500,000 February 1, 2002 $4,000,000 May 1, 2002 $4,000,000 August 1, 2002 $4,000,000 November 1, 2002 $4,000,000 February 1, 2003 $4,500,000 May 1, 2003 $4,500,000 August 1, 2003 $4,500,000 November 1, 2003 $4,500,000
32 26 (b The Company hereby unconditionally promises to pay to the Administrative Agent for the account of the appropriate Term Lender the principal amount of each Term Loan of such Term Lender in installments according to the amortization schedule set forth in paragraph (a) above (or on such earlier date on which the Loans become due and payable pursuant to Section 10). The Company hereby further agrees to pay interest on the unpaid principal amount of the Term Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 5.1. (c Each Term Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Company to such Term Lender resulting from each Term Loan of such Term Lender from time to time, including the amounts of principal and interest payable and paid to such Term Lender from time to time in respect of such Term Loans under this Agreement. (d The Administrative Agent, on behalf of the Company, shall maintain the Register pursuant to Section 13.6(d), and a subaccount therein for each Term Lender, in which shall be recorded (i) the amount of each Term Loan made hereunder and any Note evidencing such Term Loan, the Type thereof and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Term Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Company and each Term Lender's share thereof. (e The entries made in the Register and the accounts of each Term Lender maintained pursuant to Section 2.3(d) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Company therein recorded; provided, however, that the failure of any Term Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Company to repay (with applicable interest) the Term Loans by such Term Lender in accordance with the terms of this Agreement. (f The Company agrees that, upon the request to the Administrative Agent by any Term Lender, the Company will execute and deliver to such Term Lender a promissory note of the Company evidencing any Term Loans of such Lender, substantially in the form of Exhibit J, with appropriate insertions as to date and principal amount. 2.4 Revolving Commitments. (a) Subject to the terms and conditions hereof, each Revolving Lender severally agrees to make revolving credit loans ("Dollar Revolving Loans") in U.S. Dollars to the Company from time to time during the Revolving Commitment Period so long as after giving effect thereto and to any concurrent repayment or prepayment of Loans (i) the Available Revolving Commitment of each Revolving Lender is greater than or equal to zero and (ii) the Total Aggregate Committed Outstandings does not exceed the Total Revolving Commitments. During the Revolving Commitment Period the Company may use the Revolving Commitments by borrowing, prepaying the Dollar Revolving Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. The Dollar 33 27 Revolving Loans may from time to time be Eurodollar Loans or ABR Loans, as determined by the Company and notified to the Administrative Agent in accordance with Sections 2.5 and 5.6. (b) The Company shall repay all outstanding Dollar Revolving Loans on the Revolving Termination Date. 2.5 Procedure for Dollar Revolving Loan Borrowing. The Company may borrow Dollar Revolving Loans under the Revolving Commitments during the Revolving Commitment Period on any Business Day, provided that the Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 12:00 Noon, New York City time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, in the case of ABR Loans), specifying (i) the amount and Type of Dollar Revolving Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Period therefor. Any Dollar Revolving Loans made on the Closing Date shall initially be ABR Loans. Each borrowing of Dollar Revolving Loans under the Revolving Commitments shall be in an amount equal to (x) in the case of ABR Loans, $1,000,000 or a whole multiple thereof (or, if the then aggregate Available Revolving Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans, $2,500,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Revolving Lender thereof. Each Revolving Lender will make the amount of its pro rata share of each Dollar Revolving Loan borrowing available to the Administrative Agent for the account of the Company at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date requested by the Company in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Company by the Administrative Agent crediting the account of the Company on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Revolving Lenders and in like funds as received by the Administrative Agent. 2.6 Commitment Fees, etc. (a) The Company agrees to pay to the Administrative Agent for the account of each Revolving Lender a commitment fee for the period from and including the Closing Date to the last day of the Revolving Commitment Period, computed at the Commitment Fee Rate on the average daily amount of the Available Revolving Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Scheduled Revolving Termination Date, commencing on the first of such dates to occur after the date hereof. (b The Company agrees to pay to the Administrative Agent the fees in the amounts and on the dates previously agreed to in writing by the Company and the Administrative Agent. 2.7 Termination or Reduction of Revolving Commitments. The Company shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to 34 28 terminate the Revolving Commitments or, from time to time, to reduce the amount of the Revolving Commitments; provided that no such termination or reduction of Revolving Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Loans made on the effective date thereof, the Total Aggregate Committed Outstandings would exceed the Total Revolving Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Revolving Commitments then in effect. 2.8 Repayment of Dollar Revolving Loans; Evidence of Debt. (a) The Company hereby unconditionally promises to pay to the Administrative Agent for the account of the appropriate Revolving Lender the then unpaid principal amount of the Dollar Revolving Loans on the Scheduled Revolving Termination Date and on such other dates and in such other amounts as may be required from time to time pursuant to this Agreement. The Company hereby further agrees to pay interest on the unpaid principal amount of the Dollar Revolving Loans from time to time outstanding until payment thereof in full at the rates per annum, and on the dates, set forth in Section 5.1. (b) Each Revolving Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Company resulting from each Dollar Revolving Loan made by it from time to time, including the amounts of principal and interest payable thereon and paid from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to Section 13.6(d), and a subaccount therein for each Revolving Lender, in which shall be recorded (i) the date and amount of each Revolving Loan made hereunder, (ii) the date and amount of any principal or interest due and payable or to become due and payable from the Company hereunder in respect of the Dollars Revolving Loans and (iii) both the date and amount of any sum received by the Administrative Agent hereunder from the Company in respect of the Dollar Revolving Loans and each Revolving Lender's share thereof. (d) The entries made in the Register and the accounts of each Revolving Lender maintained pursuant to this Section 2.8 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Company therein recorded; provided, however, that the failure of any Revolving Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Company to repay (with applicable interest) the Dollar Revolving Loans made to the Company by each Revolving Lender in accordance with the terms of this Agreement. SECTION 3. AMOUNT AND TERMS OF MULTICURRENCY COMMITMENTS 3.1 Multicurrency Commitments. Subject to the terms and conditions hereof, each Revolving Lender severally agrees to make revolving credit loans (each, a "Multicurrency Loan") in U.S. Dollars or any Available Foreign Currency to any Borrower from time to time during the Revolving Commitment Period so long as after giving effect thereto and to any concurrent repayment or prepayment of Loans (a) the Available Revolving Commitment of each 35 29 Revolving Lender is greater than or equal to zero, (b) the aggregate outstanding principal amount of Multicurrency Loans does not exceed an amount of which the U.S. Dollar Equivalent is $25,000,000 and (c) the Total Aggregate Committed Outstandings does not exceed the Total Revolving Commitments. During the Revolving Commitment Period, any Borrower may borrow Multicurrency Loans under the Revolving Commitments by borrowing, repaying the Multicurrency Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. 3.2 Procedure for Multicurrency Borrowings. Any Borrower may request the Revolving Lenders to make Multicurrency Loans during the Revolving Commitment Period on any Business Day provided that such Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., London time, three Business Days prior to the requested Borrowing Date), specifying in each case (i) the amount and currency to be borrowed, (ii) the requested Borrowing Date and (iii) the length of the initial Interest Period therefor. Each borrowing of Multicurrency Loans under the Revolving Commitments shall be in an amount in U.S. Dollars equal to, or an amount in an Available Foreign Currency of which the U.S. Dollar Equivalent is equal to, at least $2,500,000 (or, if the then Aggregate Available Revolving Commitments are less than $2,500,000, such lesser amount). Upon receipt of any such notice from any Borrower, the Administrative Agent shall promptly notify each Revolving Lender thereof. Not later than 12:00 P.M. Noon, London time, on the requested Borrowing Date, each Revolving Lender shall make an amount equal to its Revolving Percentage of the principal amount of Multicurrency Loans requested to be made on such Borrowing Date available to the Administrative Agent at the Administrative Agent's funding office for the applicable currency specified by the Administrative Agent from time to time by notice to the Revolving Lenders and in immediately available funds. The amounts made available by each Revolving Lender will then be made available to the relevant Borrower at the funding office for the relevant Available Foreign Currency specified from time to time by the Administrative Agent by notice to the Revolving Lenders and in like funds as received by the Administrative Agent. 3.3 Repayment of Multicurrency Loans; Evidence of Debt. (a) Each Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Revolving Lender the then unpaid principal amount of each Multicurrency Loan of such Revolving Lender to such Borrower on the Revolving Termination Date and on such other date(s) and in such other amounts as may be required from time to time pursuant to this Agreement. Each Borrower hereby further agrees to pay interest on the unpaid principal amount of the Multicurrency Loans advanced to it and from time to time outstanding until payment thereof in full at the rates per annum, and on the dates, set forth in Section 5.1. (b) Each Revolving Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of each Borrower to such Revolving Lender resulting from each Multicurrency Loan of such Revolving Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Revolving Lender from time to time under this Agreement. 36 30 (c) The Administrative Agent shall maintain the Register pursuant to Section 13.6(d), and a subaccount therein for each Revolving Lender, in which shall be recorded (i) the amount of each Multicurrency Loan made hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Revolving Lender hereunder in respect of the Multicurrency Loans and (iii) both the amount of any sum received by the Administrative Agent hereunder from each Borrower in respect of the Multicurrency Loans and each Revolving Lender's share thereof. (d) The entries made in the Register and the accounts of each Multicurrency Lender maintained pursuant to Section 3.3(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of each Borrower therein recorded; provided, however, that the failure of any Revolving Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of such Borrower to repay (with applicable interest) the Multicurrency Loans made to such Borrower by such Revolving Lender in accordance with the terms of this Agreement. SECTION 4. LETTERS OF CREDIT 4.1 L/C Commitment. (a) Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Revolving Lenders set forth in Section 4.4(a), agrees to issue letters of credit ("Letters of Credit") for the account of the Company on any Business Day during the Revolving Commitment Period in such form as may be approved from time to time by the Issuing Lender; provided that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the Available Revolving Commitments would be less than zero. Each Letter of Credit shall (i) be denominated in Dollars and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date that is five Business Days prior to the Scheduled Revolving Termination Date, provided that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above). Notwithstanding anything to the contrary herein, the Letter of Credit in the amount of $667,000 described on Schedule 4.1 hereto is deemed to be a "Letter of Credit" hereunder issued by Norwest Bank Colorado, NA ("Norwest"), and Norwest shall be deemed to be an "Issuing Lender" hereunder solely with respect to such Letter of Credit. (b) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (c) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 4.2 Procedure for Issuance of Letter of Credit. The Company may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at its address for notices specified herein an Application therefor, completed to the satisfaction of 37 31 the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by the Issuing Lender and the Company. The Issuing Lender shall furnish a copy of such Letter of Credit to the Company promptly following the issuance thereof. The Issuing Lender shall promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders, notice of the issuance of each Letter of Credit (including the amount thereof). 4.3 Fees and Other Charges. (a) The Company will pay a fee on all outstanding Letters of Credit at a per annum rate equal to the Applicable Margin then in effect with respect to Eurodollar Loans under the Revolving Facility, shared ratably among the Revolving Lenders and payable quarterly in arrears on each L/C Fee Payment Date after the issuance date. In addition, the Company shall pay to the Issuing Lender for its own account a fronting fee of 1/8 of 1% per annum on the undrawn and unexpired amount of each Letter of Credit, payable quarterly in arrears on each L/C Fee Payment Date after the Issuance Date. (b) In addition to the foregoing fees, the Company shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit. 4.4 L/C Participations. (a) The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Revolving Percentage in the Issuing Lender's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Company in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at the Issuing Lender's address for notices specified herein an amount equal to such L/C Participant's Revolving Percentage of the amount of such draft, or any part thereof, that is not so reimbursed. (b) If any amount required to be paid by any L/C Participant to the Issuing Lender pursuant to Section 4.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit is paid to the Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing 38 32 Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to Section 4.4(a) is not made available to the Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to ABR Loans under the Revolving Facility. A certificate of the Issuing Lender submitted to any L/C Participant with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error. (c) Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with Section 4.4(a), the Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Company or otherwise, including proceeds of collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof, the Issuing Lender will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by the Issuing Lender shall be required to be returned by the Issuing Lender, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it. 4.5 Reimbursement Obligation of the Company. The Company agrees to reimburse the Issuing Lender within two Business Days of the date on which the Issuing Lender notifies the Company of the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified herein in lawful money of the United States and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Company under this Section from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate set forth in (i) until the second Business Day following the date of notice to the Company of the applicable drawing, Section 5.1(b) and (ii) thereafter, Section 5.1(d). 4.6 Obligations Absolute. The Company's obligations under this Section 4 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment that the Company may have or have had against the Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The Company also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Company's Reimbursement Obligations under Section 4.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Company and any beneficiary of any Letter of Credit or any other party to which such 39 33 Letter of Credit may be transferred or any claims whatsoever of the Company against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Issuing Lender. The Company agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Company and shall not result in any liability of the Issuing Lender to the Company. 4.7 Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the Issuing Lender shall promptly notify the Company of the date and amount thereof. The responsibility of the Issuing Lender to the Company in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are substantially in conformity with such Letter of Credit. 4.8 Applications. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 4, the provisions of this Section 4 shall apply. SECTION 5. GENERAL PROVISIONS APPLICABLE TO THE LOANS 5.1 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) Each ABR Loan shall bear interest for each day it is outstanding at a rate per annum equal to the ABR for such day plus the Applicable Margin. (c) Each Multicurrency Loan shall bear interest (subject to Section 13.16, payable in the Available Foreign Currency in which such Multicurrency Loan is denominated) for each day during each Interest Period with respect thereto at a rate per annum equal to the applicable Eurocurrency Rate determined for such Interest Period plus the Applicable Margin in effect for such day. (d) (i) If all or a portion of the principal amount of any Loan or Reimbursement Obligation shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement Obligations (whether or not overdue) shall bear interest at a rate per annum equal to (x) in the case of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to ABR Loans under the 40 34 Revolving Facility plus 2%, and (ii) if all or a portion of any interest payable on any Loan or Reimbursement Obligation or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to ABR Loans under the relevant Facility plus 2% (or, in the case of any such other amounts that do not relate to a particular Facility, the rate then applicable to ABR Loans under the Revolving Facility plus 2%), in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (as well after as before judgment). (e) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (d) of this Section shall be payable from time to time on demand. 5.2 Computation of Interest and Fees. (a) Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to ABR Loans the rate of interest on which is calculated on the basis of the Prime Rate and Loans denominated in Pounds Sterling, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the relevant Lenders of each determination of a Eurodollar Rate or a Eurocurrency Rate. Any change in the interest rate on a Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Company and the relevant Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of a Borrower, deliver to such Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 5.1(a). (c) (i) If any Multicurrency Reference Lender shall for any reason no longer have a Revolving Commitment or any Multicurrency Loans, such Multicurrency Reference Lender shall thereupon cease to be a Multicurrency Reference Lender, and if, as a result, there shall only be one Multicurrency Reference Lender remaining, the Administrative Agent (after consultation with the Company and the Revolving Lenders) shall, by notice to the Company and the Lenders, designate another Revolving Lender as a Multicurrency Reference Lender so that there shall at all times be at least two Multicurrency Reference Lenders. (ii) Each Multicurrency Reference Lender shall use its best efforts to furnish quotations of rates to the Administrative Agent as contemplated hereby. If any of the Multicurrency Reference Lenders shall be unable or shall otherwise fail to supply such rates to the Administrative Agent upon its request, the rate of interest shall, subject to the provisions of Section 5.3, be determined on the basis of the quotations of the remaining applicable Multicurrency Reference Lenders or Multicurrency Reference Lender, as applicable. 41 35 5.3 Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate or the Eurocurrency Rate with respect to the currency in which a Loan or a requested Loan is denominated (the "Affected Currency"), as the case may be, for such Interest Period, or (b) the Administrative Agent shall have received notice from the Majority Facility Lenders in respect of the relevant Facility that the Eurodollar Rate or the Eurocurrency Rate, as the case may be, determined or to be determined with respect to such Affected Currency for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Company and the relevant Lenders as soon as practicable thereafter. If such notice is given (w) any Eurodollar Loans or Multicurrency Loans, as the case may be, under the relevant Facility requested to be made on the first day of such Interest Period shall be made as ABR Loans in U.S. Dollars, (x) any Loans under the relevant Facility that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be converted into or continued as ABR Loans, (y) any outstanding Eurodollar Loans under the relevant Facility shall be converted, on the last day of the then-current Interest Period, to ABR Loans and (z) any Multicurrency Loans to which such Interest Period relates shall be repaid on the last day of the then current Interest Period. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans or Multicurrency Loans under the relevant Facility shall be made or continued as such, nor shall the Borrowers have the right to convert Loans under the relevant Facility to Eurodollar Loans, as the case may be, provided that Loans may continue to be made, converted or continued, as the case may be, in U.S. Dollars or Available Foreign Currencies other than the Affected Currency. 5.4 Optional Prepayments. (a) The Company may at any time and from time to time prepay the Dollar Revolving Loans and the Term Loans, in whole or in part, without premium or penalty, upon irrevocable notice delivered to the Administrative Agent at least three Business Days prior thereto in the case of Eurodollar Loans and at least one Business Day prior thereto in the case of ABR Loans, which notice shall specify the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Company shall also pay any amounts owing pursuant to Section 5.11. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Dollar Revolving Loans that are ABR Loans) accrued interest to such date on the amount prepaid. Partial prepayments of Term Loans and 42 36 Dollar Revolving Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof. (b) The Borrowers may at any time and from time to time prepay, without premium or penalty, the Multicurrency Loans, in whole or in part, upon at least three Business Days' irrevocable notice to the Administrative Agent specifying the date and amount of prepayment; provided, that if a Multicurrency Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the relevant Borrower shall also pay any amounts owing pursuant to Section 5.11. Upon the receipt of any such notice, the Administrative Agent shall promptly notify each Revolving Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments of Multicurrency Loans shall be in an aggregate principal amount of which the U.S. Dollar Equivalent is at least $1,000,000. 5.5 Mandatory Prepayments and Commitment Reductions. (a) If, at any time during the Revolving Commitment Period, for any reason the Aggregate Committed Outstandings of all Revolving Lenders exceed the Total Revolving Commitments then in effect, (i) the Company shall, without notice or demand, immediately prepay the Revolving Loans and/or (ii) the Borrowers shall, without notice or demand, immediately prepay the Multicurrency Loans such that the sum of (A) the aggregate principal amount of the Revolving Loans so prepaid and (B) the U.S. Dollar Equivalent of the aggregate principal amount of the Multicurrency Loans so prepaid, equals or exceeds the amount of such excess. (b) Unless the Required Prepayment Lenders shall otherwise agree, if any Capital Stock of the Company shall be sold or issued by the Company (other than (i) in connection with options exercisable for the purchase of Capital Stock or compensation-related transactions with officers, employees or directors, to the extent the aggregate Net Cash Proceeds thereof do not exceed $15,000,000 in any fiscal year of the Company and (ii) upon issuance of Capital Stock upon the conversion of the Convertible Subordinated Notes), an amount equal to 50% of the Net Cash Proceeds thereof shall be applied on the date of such sale or issuance, unless a Reinvestment Notice shall be delivered in respect of such sale or issuance, toward the prepayment of the Term Loans and the Revolving Loans as set forth in Section 5.5(e), provided, that, notwithstanding the foregoing, on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant sale or issuance shall be applied toward the prepayment of Term Loans and the Revolving Loans as set forth in Section 5.5(e). (c) Unless the Required Prepayment Lenders shall otherwise agree, if on any date, the Company or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect of such Recovery Event or Asset Sale, such Net Cash Proceeds shall be applied on such date toward the prepayment of the Term Loans and the Revolving Loans as set forth in Section 5.5(e); provided, that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Recovery Events that may be excluded from the foregoing requirement pursuant to a Reinvestment Notice shall not exceed, on any date which this Agreement is in effect, 20% of the net fixed asset value plus 43 37 inventory of the Company and its Subsidiaries, on a consolidated basis, as of the last day of the fiscal year of the Company most recently ended prior to such date and (ii) on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied toward the prepayment of the Term Loans and the Revolving Loans as set forth in Section 5.5(e). (d) Notwithstanding the foregoing, mandatory prepayments of Revolving Loans or Multicurrency Loans that would otherwise be required pursuant to this Section 5.5 solely as a result of fluctuations in Exchange Rates from time to time shall only be required to be made pursuant to this Section 5.5 on the last Business Day of each month on the basis of the Exchange Rate in effect on such Business Day. (e) Amounts to be applied in connection with prepayments made pursuant to Section 5.5 shall be applied, first, to the prepayment of the Term Loans and, second, to the prepayment of the Dollar Revolving Loans or, if the Borrowers elect, the Multicurrency Loans. The application of any prepayment of Term Loans or Dollar Revolving Loans pursuant to this Section 5.5 shall be made, first, to ABR Loans and, second, to Eurodollar Loans. Each prepayment of the Loans under this Section 5.5 (except in the case of Dollar Revolving Loans that are ABR Loans) shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. 5.6 Conversion and Continuation Options. (a) The Company may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Company may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election (which notice shall specify the length of the initial Interest Period therefor), provided that no ABR Loan under a particular Facility may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing and the Administrative Agent or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such conversions. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. (b) Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Company giving irrevocable notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan under a particular Facility may be continued as such when any Event of Default has occurred and is continuing and the Administrative Agent has or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such continuations, and provided, further, that if the Company shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to ABR 44 38 Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. (c) Any Multicurrency Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the relevant Borrower giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, provided, that if the relevant Borrower shall fail to give such notice or if any Default or Event of Default has occurred and is continuing and the Administrative Agent or the Required Lenders have determined that such continuation would not be appropriate, such Multicurrency Loans shall automatically be continued for an Interest Period of one month. 5.7 Limitations on Tranches. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, immediately after giving effect thereto, (a) the aggregate principal amount of the Eurodollar Loans comprising each Tranche shall be equal to $2,500,000 or a whole multiple of $1,000,000 in excess thereof and (b) the aggregate principal amount of the Multicurrency Loans comprising each Tranche shall be in an amount which is, or of which the U.S. Dollar Equivalent is, at least $2,500,000. 5.8 Pro Rata Treatment and Payments. (a) Each borrowing by a Borrower from the Lenders hereunder, each payment by the Borrowers on account of any commitment fee and any reduction of the Commitments of the Lenders shall be made pro rata according to the respective Term Percentages or Revolving Percentages, as the case may be, of the relevant Lenders. (b) Each payment (including each prepayment) by the Company on account of principal of and interest on the Term Loans shall be made pro rata according to the respective outstanding principal amounts of the Term Loans then held by the Term Lenders. The amount of each principal prepayment of the Term Loans shall be applied to reduce the then remaining installments of the Term Loans pro rata based upon the then remaining principal amount thereof. Amounts prepaid on account of the Term Loans may not be reborrowed. (c) Each payment (including each prepayment) by the Borrowers on account of principal of and interest on the Revolving Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Loans then held by the Revolving Lenders. (d) All payments (including prepayments) to be made by the Company hereunder in respect of amounts denominated in Dollars, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Funding Office, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. 45 39 (e) All payments (including prepayments) to be made by a Borrower on account of Multicurrency Loans hereunder, whether on account of principal, interest, fees or otherwise, shall be made without set-off or counterclaim and shall be made prior to 12:00 Noon, London time, on the due date thereof to the Administrative Agent, for the account of the Revolving Lenders, at the payment office for the currency of such Multicurrency Loans specified from time to time by the Administrative Agent by notice to the Revolving Lenders, in the currency of such Multicurrency Loans and in immediately available funds. The Administrative Agent shall distribute such payments to the Revolving Lenders entitled to receive the same promptly upon receipt in like funds as received. (f) If any payment hereunder (other than payments on the Eurodollar Loans or Multicurrency Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan or a Multicurrency Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension. (g) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to (i) the daily average Federal Funds Effective Rate (in the case of a borrowing of Dollar Revolving Loans or Term Loans) and (ii) the Administrative Agent's reasonable estimate of its average daily cost of funds (in the case of a borrowing of Multicurrency Loans), in each case for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount (together with interest thereon from the date such amount was made available to such Borrower (i) at the rate per annum applicable to ABR Loans hereunder (in the case of a borrowing of Dollar Revolving Loans or Term Loans) or (ii) the Administrative Agent's reasonable estimate of its average daily cost of funds plus the Applicable Margin applicable to Multicurrency Loans (in the case of a borrowing of Multicurrency Loans)), on demand, from the applicable Borrower. (h) Unless the Administrative Agent shall have been notified in writing by the applicable Borrower 46 40 prior to the date of any payment being made hereunder that such Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that such Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount. If such payment is not made to the Administrative Agent by such Borrower within three Business Days of such required date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against any Borrower. 5.9 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any Application or any Eurodollar Loan or Multicurrency Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Excluded Taxes and Non-Excluded Taxes covered by Section 5.10 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate or the Eurocurrency Rate hereunder, including, without limitation, the imposition of any reserves with respect to Eurocurrency Liabilities under Regulation D of the Board; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount that such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or Multicurrency Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the applicable Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable, provided that such Lender shall have given notice to the Company within 180 days after it becomes aware or, in the exercise of reasonable care, should have been aware of the event giving rise to such payment obligation. If any Lender becomes entitled to claim any additional amounts pursuant to this paragraph, it shall promptly notify the Company (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof 47 41 or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Company (with a copy to the Administrative Agent) of a written request therefor, the Company shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction, provided that such Lender shall have given notice to the Company within 180 days after it becomes aware or, in the exercise of reasonable care, should have been aware of the event giving rise to such payment obligation. (c) A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender to the Company (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The obligations of the Borrowers pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 5.10 Taxes. (a) All payments made by the Borrowers under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) ("Excluded Taxes") imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that the Borrowers shall not be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that are attributable to such Lender's failure to comply with the requirements of paragraph (d) or (e) of this Section or (ii) that are United States withholding taxes imposed on amounts payable to such Lender at the time the Lender becomes a party to this Agreement, except, in each case, to the extent that such Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the applicable Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph. 48 42 (b) In addition, the Borrowers shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by any Borrower, as promptly as possible thereafter such Borrower shall send to the Administrative Agent for its own account or for the account of the relevant Lender, as the case may be, a certified copy of an original official receipt received by such Borrower showing payment thereof. If a Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, such Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. (d) Each Lender (or Transferee) that is not a United States person as defined in Section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver to the Company and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a statement substantially in the form of Exhibit H and a Form W-8, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Company under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Company at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Company (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver. (e) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which a Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to such Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by such Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender's judgment such completion, execution or submission would not materially prejudice the legal position of such Lender. 49 43 (f) The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 5.11 Indemnity. Each of the Borrowers agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense that such Lender may sustain or incur as a consequence of (a) default by such Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans or Multicurrency Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by such Borrower in making any prepayment of or conversion from Eurodollar Loans or Multicurrency Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans or Multicurrency Loans on a day that is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to the Company by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 5.12 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 5.9 or 5.10(a) with respect to such Lender, it will, if requested by the Company, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of any Borrower or the rights of any Lender pursuant to Section 5.9 or 5.10(a). 5.13 Subsidiary Borrowers. The Company may designate any Qualified Foreign Subsidiary of the Company as a Subsidiary Borrower by delivery to the Administrative Agent of a Borrowing Subsidiary Agreement executed by such Subsidiary and the Company and upon such delivery such Subsidiary shall for all purposes of this Agreement be a Subsidiary Borrower and a party to this Agreement until the Company shall have executed and delivered to the Administrative Agent a Borrowing Subsidiary Termination with respect to such Subsidiary, whereupon such Subsidiary shall cease to be a Subsidiary Borrower and a party to this Agreement. Notwithstanding the preceding sentence, no Borrowing Subsidiary Termination will become effective as to any Subsidiary Borrower at a time when any principal of or interest on 50 44 any Loan to such Subsidiary Borrower shall be outstanding hereunder, provided that such Borrowing Subsidiary Termination shall be effective to terminate such Subsidiary Borrower's right to make further borrowings under this Agreement. 5.14 Replacement of Lenders. The Company shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing pursuant to Section 5.9 or 5.10(a) or (b) defaults in its obligation to make Loans hereunder, with a replacement financial institution; provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall have taken no action under Section 5.12 so as to eliminate the continued need for payment of amounts owing pursuant to Section 5.9 or 5.10(a), (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Company shall be liable to such replaced Lender under Section 5.11 if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial institution, if not already a Lender, shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 13.6 (provided that the Company shall be obligated to pay the registration and processing fee referred to therein), (viii) until such time as such replacement shall be consummated, the Borrowers shall pay all additional amounts (if any) required pursuant to Section 5.9 or 5.10(a), as the case may be, and (ix) any such replacement shall not be deemed to be a waiver of any rights that any Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender. 5.15 Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change Lending Installation from time to time; provided that such Lender shall be solely responsible with respect to any Loans so booked, and the Borrowers and the Administrative Agent shall be entitled to deal solely with the Lender with respect to such Loans. All terms of this Agreement shall apply to any such Lending Installation and the Loans and any Notes issued hereunder shall be deemed held by each Lender for the benefit of any such Lending Installation. Each Lender may, by written notice to the Administrative Agent and the Borrower in accordance with Section 13.2, designate replacement or additional Lending Installations through which Loans will be made by it and for whose account Loan payments are to be made. SECTION 6. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit, each of the Company and each Subsidiary Borrower (to the extent such representation relates to such Subsidiary Borrower) hereby represents and warrants to the Administrative Agent and each Lender that: 6.1 Financial Condition. (a) The unaudited pro forma consolidated balance sheet of the Company and its consolidated Subsidiaries as at September 27, 1998 (the "Pro 51 45 Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the consummation of the Acquisition, (ii) the Loans to be made on the Closing Date and the use of proceeds thereof, (iii) the loans to be made under the MTKG Credit Agreement on the Closing Date and the use of the proceeds thereof and (iv) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Company as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of the Company and its consolidated Subsidiaries as at September 27, 1998, assuming that the events specified in the preceding sentence had actually occurred at such date. (b) The audited consolidated balance sheets of the Company as at December 28, 1997 and December 29, 1996, and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, reported on by and accompanied by an unqualified report from Deloitte & Touche LLP and KPMG Peat Marwick LLP, respectively, present fairly the consolidated financial condition of the Company as at such dates, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. The unaudited consolidated balance sheet of the Company as at September 27, 1998, June 28, 1998, and March 31, 1998, and the related unaudited consolidated statements of income and cash flows for each of the thirteen-week periods ended on such dates, present fairly the consolidated financial condition of the Company as at such dates, and the consolidated results of its operations and its consolidated cash flows for the thirteen-week periods then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firms of accountants and disclosed therein). The Company and its Subsidiaries, taken as a whole, do not have any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph. During the period from December 29, 1997 to and including the date hereof there has been no Disposition by the Company of any material part of its business or property. 6.2 No Change. Since December 28, 1997 there has been no development or event that has had or could reasonably be expected to have a Material Adverse Effect, except as disclosed in the Confidential Information Memorandum (or incorporated by reference therein) or the Company's press release issued on October 22, 1998, a copy of which has been delivered to each Lender. 6.3 Corporate Existence; Compliance with Law. Each of the Company and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with 52 46 all Requirements of Law, except to the extent that the failure to comply with any of the foregoing clauses (c) or (d) could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan Party has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents and Acquisition Documentation to which it is a party and, in the case of the Borrowers, to borrow hereunder and, in the case of each Loan Party which is a party to the Acquisition Agreement, to consummate the Acquisition. Each Loan Party has taken all necessary corporate action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrowers, to authorize the borrowings on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the Acquisition and the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, except (i) consents, authorizations, filings and notices described in Schedule 6.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect and (ii) the filings referred to in Section 6.19. Each Loan Document has been duly executed and delivered on behalf of each Loan Party party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party party thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 6.5 No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder, the use of the proceeds thereof and the consummation of the Acquisition will not violate any Requirement of Law or any Contractual Obligation of the Company or any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents). No Requirement of Law or Contractual Obligation applicable to the Company or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 6.6 Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Company, threatened by or against the Company or any of its Subsidiaries or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby or the Acquisition, or (b) that could reasonably be expected to have a Material Adverse Effect. 6.7 No Default. Neither the Company nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect that could reasonably 53 47 be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 6.8 Ownership of Property; Liens. Each of the Company and its Subsidiaries has title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien except as permitted by Section 9.3 or, with respect to the Closing Date, any Lien granted in connection with the Existing Credit Agreement to the extent satisfactory arrangements shall have been made for the termination thereof. 6.9 Intellectual Property. The Company and each of its Subsidiaries owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does the Company know of any valid basis for any such material claim. The use of Intellectual Property by the Company and its Subsidiaries does not infringe on the rights of any Person in any material respect. 6.10 Taxes. Each of the Company and each of its Subsidiaries has filed or caused to be filed all Federal, state and other material tax returns that are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Company or its Subsidiaries, as the case may be); no tax Lien has been filed, and, to the knowledge of such Borrower, no claim is being asserted, with respect to any such tax, fee or other charge. 6.11 Federal Regulations. No part of the proceeds of any Loans will be used for "buying" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Company will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in Regulation U. 6.12 Labor Matters. Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes against the Company or any of its Subsidiaries pending or, to the knowledge of such party, threatened; (b) hours worked by and payment made to employees of the Company and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters; and (c) all payments due from the Company or any of its Subsidiaries on account of employee health and welfare insurance have been paid or accrued as a liability on the books of the Company or the relevant Subsidiary. 54 48 6.13 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect, each Plan has complied in all respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount. Neither the Company nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan that has resulted or could reasonably be expected to result in a material liability under ERISA, and neither the Company nor any Commonly Controlled Entity would become subject to any material liability under ERISA if the Company or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. 6.14 Investment Company Act; Other Regulations. No Loan Party is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Loan Party is subject to regulation under any Requirement of Law (other than Regulation X of the Board) that limits its ability to incur Indebtedness. 6.15 Subsidiaries. Except as disclosed to the Administrative Agent by the Company in writing from time to time after the Closing Date, (a) Schedule 6.15 sets forth the name and jurisdiction of incorporation of each Subsidiary and, as to each such Subsidiary, the percentage of each class of Capital Stock owned by any Loan Party and (b) there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options and other rights under the Company's 1994 Stock Incentive Plan, 1994 Employee Stock Purchase Plan and Non-Employee Directors Stock Compensation Plan granted to employees or directors and directors' qualifying shares) of any nature relating to any Capital Stock of the Company or any Subsidiary, except as created by the Loan Documents. 6.16 Use of Proceeds. The proceeds of the Term Loans shall be used to make an equity contribution to DII International Holdings C.V., a wholly owned Dutch subsidiary of the Company (which will use such proceeds to fund the purchase price of the Acquisition), and to pay fees and expenses related to the Acquisition. The proceeds of the Revolving Loans and the Letters of Credit shall be used to refinance indebtedness of the Company and its Subsidiaries under the Existing Credit Agreement and for general corporate purposes in the ordinary course of business. 55 49 6.17 Environmental Matters. Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) the facilities and properties owned, leased or operated by the Company or any of its Subsidiaries (the "Properties") do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances that constitute or constituted a violation of, or could give rise to liability under, any Environmental Law; (b) neither the Company nor any of its Subsidiaries has received or is aware of any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the business operated by the Company or any of its Subsidiaries (the "Business"), nor does such party have knowledge or reason to believe that any such notice will be received or is being threatened; (c) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location that could give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Law; (d) no judicial proceeding or governmental or administrative action is pending or, to the knowledge of such party, threatened, under any Environmental Law to which the Company or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business; (e) there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Company or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws; (f) the Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the Business; and (g) neither the Company nor any of its Subsidiaries has assumed any liability of any other Person under Environmental Laws. 56 50 6.18 Accuracy of Information, etc. Other than the projections and pro forma financial information referred to in the next sentence, the statements and information contained in this Agreement, the other Loan Documents, the Confidential Information Memorandum and all other documents, certificates and written statements (as the same may have been updated or supplemented, provided such update or supplement has been furnished to the Administrative Agent and the Lenders prior to the date of this Agreement) furnished by or on behalf of the Loan Parties to the Administrative Agent and the Lenders for use in connection with the transactions contemplated by this Agreement and the other Loan Documents, do not contain, as of the date of this Agreement, any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The projections and pro forma financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Company to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount. As of the date hereof, the representations and warranties contained in the Acquisition Documentation are true and correct in all material respects; provided, that the representations and warranties of Hewlett-Packard GmbH contained therein are understood to be true and correct in all material respects to the best of the Company's and MTKG's knowledge. There is no fact known to any Loan Party that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the Confidential Information Memorandum or in any other documents, certificates and statements furnished to the Administrative Agent and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents. 6.19 Security Documents. The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. In the case of certificated Pledged Stock described in the Guarantee and Collateral Agreement, when stock certificates representing such Pledged Stock are delivered to the Administrative Agent, and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when financing statements and other filings specified on Schedule 6.19 in appropriate form are filed in the offices specified on Schedule 6.19, the Guarantee and Collateral Agreement shall constitute a fully perfected (to the extent perfection is permitted or provided for under any applicable foreign law) Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (except, in the case of Collateral other than Pledged Stock, Liens permitted by Section 9.3). 6.20 Solvency. Each Loan Party is, and after giving effect to the Acquisition and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. 57 51 6.21 Year 2000 Matters. Any reprogramming required to permit the proper functioning (but only to the extent that such proper functioning would otherwise be impaired by the occurrence of the year 2000) in and following the year 2000 of computer systems and other equipment containing embedded microchips material to the conduct of business, in either case owned or operated by the Company or any of its Subsidiaries or used or relied upon in the conduct of their business (including any such systems and other equipment supplied by others or with which the computer systems of the Company or any of its Subsidiaries interface), and the testing of all such systems and other equipment as so reprogrammed, will be completed in all material respects by October 1, 1999. The costs to the Company and its Subsidiaries that have not been incurred as of the date hereof for such reprogramming and testing and for the other reasonably foreseeable consequences to them of any improper functioning of other computer systems and equipment containing embedded microchips due to the occurrence of the year 2000 could not reasonably be expected to result in a Default or Event of Default or to have a Material Adverse Effect. Except for any reprogramming referred to above, the computer systems of the Company and its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient for the conduct of their business as currently conducted. 6.22 Certain Documents. The Company has delivered to the Administrative Agent (with a copy for each Lender) a complete and correct copy of the Acquisition Documentation and the Greatsino Documentation, including any amendments, supplements or modifications with respect to any of the foregoing. 6.23 Immaterial Subsidiaries. (a) (i) The aggregate book value of the assets of each Immaterial Subsidiary set forth on Schedule 1.1C does not exceed, for any such Immaterial Subsidiary, 5% of the aggregate book value of the assets of the Company and its Subsidiaries taken as a whole and (ii) the aggregate book value of the assets of all such Immaterial Subsidiaries taken together does not exceed 10% of the aggregate book value of the assets of the Company and its Subsidiaries taken as a whole. (b) (i) The revenues of each Immaterial Subsidiary set forth on Schedule 1.1C in any fiscal year shall not exceed, for any such Immaterial Subsidiary, 5% of the revenues of the Company and its Subsidiaries taken as a whole for such fiscal year and (ii) the revenues all such Immaterial Subsidiaries taken together shall not exceed, for any fiscal year, 10% of the revenues of the Company and its Subsidiaries taken as a whole for such fiscal year. (c) Notwithstanding the foregoing, the Company shall not be deemed to have made an untrue representation under this Section 6.23 if the Company shall redesignate any Immaterial Subsidiary as a Material Subsidiary by notice to the Administrative Agent delivered at the time of delivery of the Company's audited financial statements for any fiscal year demonstrating that such redesignation is required in order to comply with the foregoing provisions of this Section 6.23. 58 52 SECTION 7. CONDITIONS PRECEDENT 7.1 Conditions to Initial Extension of Credit. The agreement of each Lender to make the initial extension of credit requested to be made by it is subject to the satisfaction, prior to or concurrently with the making of such extension of credit on the Closing Date (but in any event no later than November 30, 1998), of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by the Administrative Agent, the Company and each Person listed on Schedule 1.1A, (ii) the Guarantee and Collateral Agreement, executed and delivered by the Company and each Subsidiary Guarantor, (iii) an Acknowledgment and Consent in the form attached to the Guarantee and Collateral Agreement, executed and delivered by each Issuer (as defined therein), if any, that is not a Loan Party, (iv) the Intercreditor Agreement, executed and delivered by a duly authorized officer of the parties thereto and (v) each Dutch Pledge Agreement, executed and delivered by a duly authorized officer of the parties thereto. In the event that this Agreement has not been duly executed and delivered by each Person listed on Schedule 1.1A on the date scheduled to be the Closing Date, the condition referred to in clause (i) above shall nevertheless be deemed satisfied if on such date the Company and the Administrative Agent shall have designated one or more Persons (the "Designated Lenders") to assume, in the aggregate, all of the Commitments that would have been held by the Persons listed on Schedule 1.1A (the "Non-Executing Persons") which have not so executed and delivered this Agreement (subject to each such Designated Lender's consent and its execution and delivery of this Agreement). Schedule 1.1A shall automatically be deemed to be amended to reflect the respective Commitments of the Designated Lenders and the omission of the Non-Executing Persons as Lenders hereunder. (b) Acquisition, etc. The following transactions shall have been consummated, in each case on terms and conditions reasonably satisfactory to the Lenders: (i) the Company, through MTKG, shall have consummated the acquisition of Hewlett-Packard GmbH's printed circuit board manufacturing operation located in Boeblingen, Germany, pursuant to the Master Asset Purchase Agreement and other satisfactory documentation, and no material provision thereof shall have been waived, amended or modified (the "Acquisition"); (ii) the Acquisition shall have been consummated for an aggregate purchase price of not more than $95,000,000 (including assumed liabilities); (iii) (A) The Administrative Agent shall have received satisfactory evidence that the Existing Credit Agreement shall have been terminated and all amounts thereunder shall be paid in full simultaneous with the Closing and (B) 59 53 satisfactory arrangements shall have been made for the termination of all Liens granted in connection therewith. (c) Pro Forma Balance Sheet; Financial Statements. The Lenders shall have received (i) the Pro Forma Balance Sheet, (ii) audited consolidated financial statements of the Company for the 1997 and 1996 fiscal years and (iii) satisfactory unaudited interim consolidated financial statements of the Company for each fiscal quarterly period ended subsequent to the date of the latest applicable financial statements delivered pursuant to clause (ii) of this paragraph as to which such financial statements are available, and such financial statements shall not, in the reasonable judgment of the Lenders, reflect any material adverse change in the consolidated financial condition of the Company, as reflected in the financial statements or projections contained in the Confidential Information Memorandum. (d) Approvals. All governmental and third party approvals necessary in connection with the Acquisition, the continuing operations of the Company and its Subsidiaries and the transactions contemplated hereby shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority that would restrain, prevent or otherwise impose adverse conditions on the Acquisition or the financing contemplated hereby. (e) Business Plan. The Lenders shall have received a business plan for the Company and its Subsidiaries for the five fiscal years ending December 31, 2002 and a written discussion of the assumptions supporting the business plan of the Company and its Subsidiaries for the period from the Closing Date through the final maturity of the Term Loans. (f) Lien Searches. The Administrative Agent shall have received the results of a recent lien search in each of the jurisdictions where assets of the Loan Parties are located, and such search shall reveal no liens on any of the assets of the Company or its Subsidiaries except for liens permitted by Section 9.3 or with respect to which arrangements for the termination thereof shall have been made as provided in Section 7.1(b)(iii)(B). (g) Environmental Audit. The Administrative Agent shall have received an environmental audit from Shield Environmental Associates, Inc. with respect to the real properties of the Company and its Subsidiaries specified by the Administrative Agent as set forth on Schedule 7.1(g). (h) Fees. The Lenders, the Administrative Agent and the Arranger shall have received all fees required to be paid, and all expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel), on or before the Closing Date. All such amounts will be paid with proceeds of Loans made on the 60 54 Closing Date and will be reflected in the funding instructions given by the Company to the Administrative Agent on or before the Closing Date. (i) Closing Certificate. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of each Loan Party, dated the Closing Date, substantially in the form of Exhibit E, with appropriate insertions and attachments. (j) Legal Opinions. The Administrative Agent shall have received the following executed legal opinions: (i) the legal opinion of Curtis, Mallet-Prevost, Colt & Mosle counsel to the Company and its Subsidiaries, substantially in the form of Exhibit G-1; (ii) the legal opinion of local counsel in each foreign jurisdiction where a Subsidiary, if any, that is a Subsidiary Borrower on the Closing Date is incorporated, which opinion shall be satisfactory to the Administrative Agent; (iii) the legal opinion of local counsel in Colorado, which opinion shall be satisfactory to the Administrative Agent; and (iv) the legal opinion of local counsel in The Netherlands, which opinion shall be satisfactory to the Administrative Agent. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (k) Pledged Stock; Stock Powers; Pledged Notes. The Collateral Agent shall have received (i) the certificates representing the shares of Capital Stock that are certificated pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note (if any) pledged to the Collateral Agent pursuant to the Guarantee and Collateral Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof. (l) Filings, Registrations and Recordings. Each document (including any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Collateral Agent to be filed, registered or recorded in order to create in favor of the Collateral Agent, for the benefit of the Lenders, a perfected (to the extent perfection is permitted or provided for under any applicable foreign law) Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 9.3), shall be in proper form for filing, registration or recordation. 61 55 (m) Solvency Certificate. The Administrative Agent shall have received a solvency certificates substantially in the form of Exhibit I hereto, from the Chief Financial Officer of the Company. (n) Insurance. The Administrative Agent shall have received insurance certificates satisfying the requirements of Section 5.2(b) of the Guarantee and Collateral Agreement. 7.2 Conditions to Each Extension of Credit. The agreement of each Lender to make any extension of credit requested to be made by it on any date (including its initial extension of credit) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date. Each borrowing by and issuance of a Letter of Credit on behalf of any Borrower hereunder shall constitute a representation and warranty by the Company as of the date of such extension of credit that the conditions contained in this Section 7.2 have been satisfied. In addition, each borrowing by a Subsidiary Borrower hereunder shall constitute a representation and warranty by such Subsidiary Borrower (insofar as such conditions relate to representations and warranties or covenants or agreements of such Subsidiary Borrower) as of the date thereof that the conditions contained in this Section 7.2 have been satisfied. 7.3 Each Subsidiary Borrower Credit Event. The agreement of each Revolving Lender to make the initial extension of credit requested to be made by it to any Subsidiary Borrower on any date is subject to the satisfaction of the following conditions precedent: (a) Borrowing Subsidiary Agreement. The Administrative Agent shall have received the Borrowing Subsidiary Agreement for such Subsidiary Borrower executed and delivered by the Company and such Subsidiary Borrower. (b) Opinions. The Administrative Agent shall have received a satisfactory written opinion of reputable counsel for such Subsidiary Borrower, substantially in the form of Exhibit G-2, and covering such other matters relating to such Subsidiary Borrower or its Borrowing Subsidiary Agreement as the Administrative Agent shall reasonably request. 62 56 (c) Other Documents. The Administrative Agent shall have received a Closing Certificate in the form of Exhibit E hereto, with appropriate insertions and attachments, and such other documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of such Subsidiary Borrower, the authorization of the transactions contemplated hereby relating to such Subsidiary Borrower and any other legal matters relating to such Subsidiary Borrower, its Borrowing Subsidiary Agreement or such transactions, all in form and substance satisfactory to the Administrative Agent. SECTION 8. AFFIRMATIVE COVENANTS The Company agrees, and each Subsidiary Borrower agrees (to the extent specifically applicable to such Subsidiary Borrower), that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, each such party shall and shall cause each of its Subsidiaries to: 8.1 Financial Statements. Furnish to the Administrative Agent and each Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company, a copy of the audited consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Deloitte & Touche LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited condensed consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such quarter and the related unaudited condensed consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 8.2 Certificates; Other Information. Furnish to the Administrative Agent and each Lender (or, in the case of clause (f), to the relevant Lender): 63 57 (a) concurrently with the delivery of any financial statements pursuant to Section 8.1, (i) a certificate of a Responsible Officer stating that, to the best of such Responsible Officer's knowledge, each Loan Party during such period has observed or performed in all material respects all of its covenants and other agreements, and satisfied in all material respects every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) in the case of quarterly or annual financial statements, (x) a Compliance Certificate containing all information and calculations necessary for determining compliance by the Company and its Subsidiaries with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of the Company, as the case may be, and (y) to the extent not previously disclosed to the Administrative Agent, a listing of any county or state within the United States where any Loan Party keeps inventory or equipment acquired by any Loan Party since the date of the most recent list delivered pursuant to this clause (y) (or, in the case of the first such list so delivered, since the Closing Date), together with evidence satisfactory to the Administrative Agent that all actions required to perfect the security interest (if required under this Agreement or any other Loan Document) of the Lenders in such property have been taken; (b) as soon as available, and in any event no later than 45 days after the end of each fiscal year of the Company, a detailed consolidated budget for the following fiscal year (including a projected consolidated balance sheet of the Company and its Subsidiaries as of the end of the following fiscal year, the related consolidated statements of projected cash flow, projected changes in financial position and projected income and a description of the underlying assumptions applicable thereto), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the "Projections"), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect; (c) within 45 days after the end of each fiscal quarter of the Company, a narrative discussion and analysis of the financial condition and results of operations of the Company and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, as compared to the comparable periods of the previous year; (d) no later than 5 Business Days prior to the effectiveness thereof, copies of substantially final drafts of any proposed material amendment, supplement, waiver or other modification with respect to the Acquisition Documentation; (e) within five days after the same are sent, copies of all financial statements and reports that the Company sends to the holders of any class of its debt securities or public 64 58 equity securities and, within five days after the same are filed, copies of all financial statements and reports that the Company may make to, or file with, the SEC; and (f) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 8.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be. 8.4 Maintenance of Existence; Compliance. (a) (i) Preserve, renew and keep in full force and effect its corporate existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 9.4 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 8.5 Maintenance of Property; Insurance. (a) Keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business. 8.6 Inspection of Property; Books and Records; Discussions. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and (b) permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable times on any Business Day and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Company and its Subsidiaries with officers and employees of the Company and its Subsidiaries and with its independent certified public accountants, with prior notice to the Company or its Subsidiaries and subject to reasonable security and confidentiality procedures.. 8.7 Notices. Promptly give notice to the Administrative Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Company or any of its Subsidiaries or (ii) litigation, investigation or proceeding that may 65 59 exist at any time between the Company or any of its Subsidiaries and any Governmental Authority, that in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting the Company or any of its Subsidiaries in which the amount involved is $5,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought; (d) the following events, as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Company or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan; and (e) any development or event that has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section 8.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Company or the relevant Subsidiary proposes to take with respect thereto. 8.8 Environmental Laws. (a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws. 8.9 Additional Collateral, etc. (a) With respect to any property acquired after the Closing Date by the Company or any of its Subsidiaries (other than (x) any property described in paragraph (b) or (c) below, (y) any property subject to a Lien expressly permitted by Section 9.3(g) and (z) property acquired by any Excluded Foreign Subsidiary or Immaterial Subsidiary) as to which the Collateral Agent, for the benefit of the Lenders, does not have a perfected (to the extent perfection is permitted or provided for under any applicable foreign law) Lien, promptly (i) execute and deliver to the Collateral Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Collateral Agent deems necessary or advisable to grant to the Collateral Agent, for the benefit of the Lenders, a security interest in 66 60 such property and (ii) take all actions necessary or advisable to grant to the Collateral Agent, for the benefit of the Lenders, a perfected (to the extent perfection is permitted or provided for under any applicable foreign law) first priority security interest in such property, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Collateral Agent. (b) With respect to any new Subsidiary (other than an Excluded Foreign Subsidiary or an Immaterial Subsidiary) created or acquired after the Closing Date by the Company (which, for the purposes of this paragraph (b), shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary or an Immaterial Subsidiary), the Company or any of its Subsidiaries, promptly (i) execute and deliver to the Collateral Agent such amendments to the Guarantee and Collateral Agreement as the Collateral Agent deems necessary or advisable to grant to the Collateral Agent, for the benefit of the Lenders, a perfected (to the extent perfection is permitted or provided for under any applicable foreign law) first priority security interest in the Capital Stock of such new Subsidiary that is owned by the Company or any of its Subsidiaries, (ii) deliver to the Collateral Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Company or such Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement, (B) to take such actions necessary or advisable to grant to the Collateral Agent for the benefit of the Lenders a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement with respect to such new Subsidiary, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Collateral Agent and (C) to deliver to the Collateral Agent a certificate of such Subsidiary, substantially in the form of Exhibit E, with appropriate insertions and attachments, and (iv) if requested by the Collateral Agent, deliver to the Collateral Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Collateral Agent. (c) With respect to any new Excluded Foreign Subsidiary (other than an Immaterial Subsidiary) created or acquired after the Closing Date by the Company or any of its Subsidiaries, promptly (i) execute and deliver to the Collateral Agent such amendments to the Guarantee and Collateral Agreement as the Collateral Agent deems necessary or advisable to grant to the Collateral Agent, for the benefit of the Lenders, a perfected (to the extent perfection is permitted or provided for under any applicable foreign law) first priority security interest in the Capital Stock of such new Subsidiary that is owned by the Company or any of its Subsidiaries (provided that in no event shall more than 65% of the total outstanding Capital Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to the Collateral Agent the certificates representing such Capital Stock (if such Capital Stock is certificated), together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Company or such Subsidiary, as the case may be, and take such other action as may be necessary or, in the opinion of the Collateral Agent, desirable to perfect (to the extent perfection is permitted or provided for under any applicable foreign law) the Collateral Agent's security interest therein, and (iii) if requested by the Collateral Agent, deliver to the Collateral Agent legal opinions 67 61 relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Collateral Agent. SECTION 9. NEGATIVE COVENANTS The Company agrees and each Subsidiary Borrower agrees (to the extent specifically applicable to such Subsidiary Borrower) that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, each such party shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 9.1 Financial Condition Covenants. (a) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio of the Company as at any day during the periods set forth below to exceed the ratio set forth below opposite such period (it being understood that, notwithstanding the dates set forth below, any step-down in the Consolidated Leverage Ratio shall occur on the last day of the fiscal quarter concluding closest to any date set forth below):
Consolidated Period Leverage Ratio ------ -------------- Closing Date - January 3, 1999 4.25 January 4, 1999 - January 2, 2000 4.25 January 3, 2000 - December 31, 2000 3.75 January 1, 2001- December 30, 2001 3.50 December 31, 2001- December 29, 2002 3.25 December 30, 2002 and thereafter 3.00
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters of the Company (or, if less, the number of full fiscal quarters subsequent to the Closing Date) ending with the fiscal quarter concluding closest to any date set forth below to be less than the ratio set forth below opposite such date: 68 62
Consolidated Interest Fiscal Quarter Coverage Ratio -------------- --------------------- December 31, 1998 3.00 March 31, 1999 3.00 June 30, 1999 3.00 September 30, 1999 3.00 December 31, 1999 3.25 March 31, 2000 3.25 June 30, 2000 3.25 September 30, 2000 3.25 December 31, 2000 and thereafter 3.50
(c) Consolidated Net Worth. Permit Consolidated Net Worth at any time to be less than (i) the sum of (A) $175,000,000 and (B) 50% of cumulative Consolidated Net Income for each fiscal quarter of the Company (beginning with the fiscal quarter ending January 3, 1999) for which Consolidated Net Income is positive less (ii) the aggregate purchase price of shares of the Company's common stock repurchased by the Company of up to $25,000,000. 9.2 Indebtedness. Create, issue, incur, assume, become liable in respect of or suffer to exist any Indebtedness, except: (a) Indebtedness of any Loan Party pursuant to any Loan Document; (b) (i) Indebtedness of the Company to any Subsidiary and of any Wholly Owned Subsidiary to the Company or any other Subsidiary so long as, if applicable, the provisions of Section 9.8(h) are complied with or (ii) Indebtedness of any Non-Guarantor Subsidiary to any other Non-Guarantor Subsidiary; (c) Guarantee Obligations by the Company or any of its Subsidiaries of obligations of any Wholly Owned Subsidiary; (d) Indebtedness outstanding on the date hereof and listed on Schedule 9.2(d) and any refinancings, refundings, renewals or extensions thereof (without increasing, or shortening the maturity of, the principal amount thereof); (e) Indebtedness (including, without limitation, Capital Lease Obligations) secured by Liens permitted by Section 9.3(g) in an aggregate principal amount not to exceed $30,000,000 at any one time outstanding; (f) (i) Indebtedness of MTKG in respect of the MTKG Credit Agreement and (ii) Guarantee Obligations of the Company and DII International Holdings, CV, a wholly-owned foreign subsidiary of the Company, in respect of such Indebtedness; (g) additional Indebtedness of the Company or any of its Subsidiaries in an aggregate principal amount (for the Company and all Subsidiaries) not to exceed $25,000,000 at any one time outstanding; 69 63 (h) subordinated Indebtedness that requires no principal repayment prior to the date which is six months following the Scheduled Revolving Termination Date, has subordination terms reasonably acceptable to the Administrative Agent and bears interest at an annual rate of not more than the three month Eurodollar Rate plus 10%; (i) Indebtedness under Derivative Agreements entered into by the Company or any of its Subsidiaries to protect against changes in interest rates or currency exchange rates or commodity prices or similar risks and not for speculative purposes (but in any event excluding any Derivative Agreements under which the Company or any of its Subsidiaries may become obligated to make any payments resulting from changes in market values of the Subordinated Notes or any Capital Stock of the Company); and (j) Indebtedness in connection with one or more standby or trade letters of credit or performance, surety or appeal bonds issued in the ordinary course of business or pursuant to self-insurance obligations and not in connection with the borrowing of money or the obtaining of advances or credit in an aggregate amount not to exceed $25,000,000 at any one time outstanding. 9.3 Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired, except for: (a) Liens for taxes, assessments or governmental charges or levies not yet delinquent or that are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 60 days or that are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount and that do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries; (f) Liens in existence on the date hereof listed on Schedule 9.3(f), securing Indebtedness permitted by Section 9.2(d), provided that no such Lien is spread to cover 70 64 any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (g) (I) Liens securing Indebtedness of the Company or any other Subsidiary incurred pursuant to Section 9.2(e) to finance the acquisition of fixed or capital assets, provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby (A) is not increased and (B) does not exceed the acquisition cost of such fixed or capital assets and (II) Liens on any assets acquired by the Company or any Subsidiary, which Liens were not created in contemplation of such acquisition, provided that such Liens do not at any time encumber any property other than the assets so acquired; (h) Liens created pursuant to the Security Documents; (i) any interest or title of a lessor under any lease entered into by the Company or any other Subsidiary in the ordinary course of its business and covering only the assets so leased; (j) Liens created pursuant to the Security Documents under the MTKG Credit Agreement; and (k) Liens not otherwise permitted by this Section so long as neither (i) the aggregate outstanding principal amount of the obligations secured thereby nor (ii) the aggregate fair market value (determined as of the date such Lien is incurred) of the assets subject thereto exceeds (as to the Company and all Subsidiaries) $5,000,000 at any one time. 9.4 Fundamental Changes. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of, all or substantially all of its property or business (except as permitted by Section 9.5), except that: (a) any Subsidiary of the Company may be merged or consolidated with or into the Company (provided that the Company shall be the continuing or surviving corporation) or with or into any Wholly Owned Subsidiary Guarantor (provided that the Wholly Owned Subsidiary Guarantor shall be the continuing or surviving corporation); (b) any Subsidiary of the Company may be merged or consolidated with or into any Person (provided that the continuing or surviving entity of such merger or consolidation shall be a Subsidiary and the Company shall comply with the provisions of Section 8.9 with respect thereto) to the extent the acquisition of such Person is an Investment permitted under Section 9.8; 71 65 (c) any Non-Guarantor Subsidiary may merge or consolidate with or into any other Non Guarantor Subsidiary; (d) any Non-Guarantor Subsidiary may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to any other Subsidiary; and (e) any Subsidiary of the Company may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any Wholly Owned Subsidiary Guarantor. 9.5 Disposition of Property. Dispose of any of its property, whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person, except: (a) the Disposition of obsolete or worn out property in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) Dispositions permitted by Section 9.4(d) or (e); (d)(i) the sale or issuance of any Subsidiary's Capital Stock to the Company or any Wholly Owned Subsidiary Guarantor or (ii) the sale or issuance of the Capital Stock of any Non-Guarantor Subsidiary to any Non-Guarantor Subsidiary; (e) Dispositions of other property having a fair market value, in the aggregate on any date while this Agreement is in effect, not to exceed 10% in respect of fiscal year 1998, 20% in respect of fiscal year 1999 or 25% thereafter of the net fixed asset value of the Company and its Subsidiaries, on a consolidated basis, as determined on the last day of the fiscal year of the Company most recently ended prior to such date; (f) Dispositions described on Schedule 9.5(f); and (g) Dispositions permitted by Section 9.11 9.6 Restricted Payments. Declare or pay any dividend (other than dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Subordinated Notes or Capital Stock of the Company or any Subsidiary, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any Subsidiary or enter into derivatives or other transaction (other than the sale of puts with respect to the Company's Capital Stock to the extent the Company would be permitted to repurchase such Capital Stock under this Agreement) with any financial institution, commodities or stock exchange or clearinghouse (a "Derivatives Counterparty") 72 66 obligating it to make payments to such Derivatives Counterparty as a result of any change in market value of any such Capital Stock (collectively, "Restricted Payments"), except that: (a) any Subsidiary may make Restricted Payments to the Company or any Wholly Owned Subsidiary Guarantor; (b) any Non-Guarantor Subsidiary may make Restricted Payments to any other Subsidiary, (c) so long as no Default or Event of Default shall have occurred and be continuing, the Company may repurchase the Convertible Subordinated Notes; provided, that if such repurchase is not financed with Indebtedness described in Section 9.2(h), (i) the ratio of Consolidated Senior Funded Debt to Consolidated EBITDA for the four consecutive fiscal quarters most recently ended shall not exceed 1.5:1.0 and (ii) the ratio of Consolidated Total Debt to Consolidated EBITDA for the four consecutive fiscal quarters most recently ended shall not exceed 2.5:1.0, in the case of each of clause (i) and (ii) after giving effect to the proposed repurchase of Convertible Subordinated Notes; (d) so long as no Default or Event of Default shall have occurred and be continuing, the Company may repurchase shares of its common stock; provided, that the aggregate amount of such repurchases shall not exceed $25,000,000 during the term of this Agreement. 9.7 Capital Expenditures. Make or commit to make any Capital Expenditure, except (a) Capital Expenditures of the Company and its Subsidiaries in the ordinary course of business not exceeding 10% of the Company's revenues for the four consecutive fiscal quarters most recently ended less the amount of the aggregate Capital Expenditures made by the Company and its Subsidiaries for the current fiscal quarter and the three fiscal quarters most recently ended, excluding all Capital Expenditures made or committed related to the Acquisition and the Greatsino Acquisition; provided, that up to $25,000,000 of any such amount referred to above, if not so expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next succeeding fiscal year and (b) Capital Expenditures made with the proceeds of any Reinvestment Deferred Amount. 9.8 Investments. Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or make any other Investment in, any Person (all of the foregoing, "Investments"), except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) Guarantee Obligations permitted by Section 9.2; 73 67 (d) loans and advances to any individual employee of the Company or any Subsidiary of the Company in the ordinary course of business (including for travel, entertainment and relocation expenses) in an aggregate amount for the Company or any Subsidiary of the Company not to exceed $5,000,000 at any one time outstanding; (e) the Acquisition; (f) repurchases of the Convertible Subordinated Notes and Capital Stock by the Company pursuant to Section 9.6(c) and 9.6(d), respectively; (g) Investments by the Company in DII International Holdings CV, a Dutch subsidiary of the Company ("Holdings"), and by Holdings in MTKG (in the form of capital contribution, direct or indirect guarantees of Indebtedness or participations in Indebtedness), the proceeds of which shall be used to fund the purchase price of the Acquisition and costs and expenses in connection therewith; (h) Investments by the Company or any of its Subsidiaries in the Company or any Person that, prior to or as a result of such Investment, is or becomes a Wholly Owed Subsidiary; provided that if any such Investment or series of Investments exceeds $500,000 and is made by the Company or any Subsidiary Guarantor in a Wholly Owned Subsidiary which is not or does not become a Subsidiary Guarantor, (i) such Investment is evidenced by a promissory note pledged in favor of the Administrative Agent for the benefit of the Lenders and (ii) such Investment constitutes Indebtedness of the primary obligor that is not subordinate to any other Indebtedness of such obligor; (i) Investments in any Person engaged or proposing to engage in the same or a similar line of business as the Company and its Subsidiaries, provided that (x) such Investments under this clause (i) aggregate no more than one or a combination of the following computations: (A) $10,000,000 in any year, provided that any amount not so invested in any year may be used for such Investments in the next succeeding fiscal year, less any amount used pursuant to clause (B)(1) of this clause (i) and (B)(1) any amount not previously used pursuant to clause (A) plus (2) $10,000,000 less any amount previously invested pursuant to this clause (B) and (y) Investments made pursuant to this clause (i) during any fiscal year shall be deemed made, first, in respect of amounts permitted for such fiscal year as provided above and, second, in respect of amounts carried over from the prior fiscal year pursuant to subclause (A) above; provided further that Investments in minority interests shall not exceed $25,000,000 in the aggregate; (j) in addition to Investments otherwise expressly permitted by this Section, Investments by the Company or any of its Subsidiaries in an aggregate amount (valued at cost) not to exceed $5,000,000 in any fiscal year; and (k) Investments described on Schedule 9.8(k). 9.9 Optional Payments and Modifications of Certain Debt Instruments. (a) Except as permitted by Section 9.6(c), make any optional or voluntary payment, prepayment, 74 68 repurchase or redemption of or otherwise optionally or voluntarily defease or segregate funds with respect to any Subordinated Indebtedness or enter into any derivative or other transaction with any Derivatives Counterparty obligating it to make payments to such Derivatives Counterparty as a result of any change in market value of Subordinated Indebtedness, (b) amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of Subordinated Indebtedness (other than any such amendment, modification, waiver or other change that (i) would extend the maturity or reduce the amount of any payment of principal thereof or reduce the rate or extend any date for payment of interest thereon and (ii) does not involve the payment of a consent fee) or (c) designate any Indebtedness (other than obligations of the Loan Parties pursuant to the Loan Documents) as "Designated Senior Indebtedness" for the purposes of any indenture pursuant to which Subordinated Indebtedness is issued. 9.10 Transactions with Affiliates. Enter into any transaction (other than such transactions between Non-Guarantor Subsidiaries), including any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Company or any Wholly Owned Subsidiary Guarantor) unless such transaction is (a) otherwise permitted under this Agreement and upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person that is not an Affiliate, or (b) in the ordinary course of business of the Company or such Subsidiary, as the case may be, and upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person that is not an Affiliate. 9.11 Sales and Leasebacks. Enter into any arrangement with any Person providing for the leasing by the Company or any Subsidiary of real or personal property that has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary (a "Sale Leaseback Transaction") other than Sale Leaseback Transactions yielding proceeds not to exceed in the aggregate 25% of Capital Expenditures for the four consecutive fiscal quarters most recently ended; provided that any amount referred to above, if not so used in the period for which it is permitted, may be carried over to a subsequent period not later than the four quarters after the fiscal quarter in which it became available; provided further that the aggregate amount of all Sale Leaseback Transactions shall not exceed $50,000,000. 9.12 Changes in Fiscal Periods. Permit the fiscal year of the Company to end on a day other than the Sunday closest to December 31 or change the Company's method of determining fiscal quarters. 9.13 Negative Pledge Clauses. Enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of the Company or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property or revenues, whether now owned or hereafter acquired, other than (a) this Agreement and the other Loan Documents, 75 69 (b) the MTKG Credit Agreement, (c) the indenture governing the Company's 8.50% Senior Subordinated Notes due 2007 and (d) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby). 9.14 Clauses Restricting Subsidiary Distributions. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Company to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Company or any other Subsidiary of the Company, (b) make loans or advances to, or other Investments in, the Company or any other Subsidiary of the Company or (c) transfer any of its assets to the Company or any other Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents, (ii) the MTKG Credit Agreement, (iii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary and (iv) restrictions with respect to property which is subject to a Lien permitted by Sections 9.3(g) and 9.3(k). 9.15 Lines of Business. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Company and its Subsidiaries are engaged on the date of this Agreement (after giving effect to the Acquisition) or that are reasonably related thereto. 9.16 Amendments to Acquisition Documents. (a) Amend, supplement or otherwise modify (pursuant to a waiver or otherwise) the terms and conditions of the indemnities and licenses furnished to the Company or any of its Subsidiaries pursuant to the Acquisition Documentation or any other document delivered by the Seller or any of its affiliates in connection therewith such that after giving effect thereto such indemnities or licenses shall be materially less favorable to the interests of the Loan Parties or the Lenders with respect thereto or (b) otherwise amend, supplement or otherwise modify the terms and conditions of the Acquisition Documentation or any such other documents except for any such amendment, supplement or modification that (i) becomes effective after the Closing Date and (ii) could not reasonably be expected to have a Material Adverse Effect. SECTION 10. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) any Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or any Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any other amount payable hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or 76 70 (b) any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or (c) (i) any Loan Party shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 8.4(a) (with respect to the Company only), Section 8.7(a) or Section 9 of this Agreement or Sections 5.5 and 5.7(b) of the Guarantee and Collateral Agreement; or (d) any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days; or (e) the Company or any of its Subsidiaries shall (i) default in making any payment of any principal of any Indebtedness (including any Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount of which exceeds in the aggregate $5,000,000; or (f) (i) the Company or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Subsidiaries any case, 77 71 proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Company or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could, in the sole judgment of the Required Lenders, reasonably be expected to have a Material Adverse Effect; or (h) one or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) of $5,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (i) any of the Security Documents shall cease, for any reason, to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or 78 72 (j) the guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert; or (k) a Change of Control shall occur; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Company, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Revolving Facility Lenders, the Administrative Agent may, or upon the request of the Majority Revolving Facility Lenders, the Administrative Agent shall, by notice to the Company declare the Revolving Commitments to be terminated forthwith, whereupon the Revolving Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Company shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrowers hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrowers hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Company (or such other Person as may be lawfully entitled thereto). Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by each of the Borrowers. 79 73 SECTION 11. THE ADMINISTRATIVE AGENT 11.1 Appointment. Each Lender hereby irrevocably designates and appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 11.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 11.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. 11.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Borrowers), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any 80 74 Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 11.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender, the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 11.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereinafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the 81 74 business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 11.7 Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting the obligation of the Borrowers to do so), ratably according to their respective Aggregate Exposure Percentages in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Aggregate Exposure Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the Administrative Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder. 11.8 Administrative Agent in Its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though the Administrative Agent was not the Administrative Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 11.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders and the Company. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 10(a) or Section 10(f) with respect to the Company shall have occurred and be continuing) be subject to approval by the Company (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act 82 76 or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 11 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. 11.10 Authorization to Release Guarantees and Liens. Notwithstanding anything to the contrary contained herein or in any other Loan Document, the Administrative Agent is hereby irrevocably authorized by each of the Lenders (without requirement of notice to or consent of any Lender except as expressly required by Section 13.1) to take any action requested by the Company having the effect of releasing any Collateral or guarantee obligations to the extent necessary to permit consummation of any transaction not prohibited by any Loan Document or that has been consented to in accordance with Section 13.1. SECTION 12. GUARANTEE 12.1 Guarantee. In order to induce the Administrative Agent and the Lenders to execute and deliver this Agreement and to make or maintain the Loans to the Subsidiary Borrowers hereunder, and in consideration thereof, the Company hereby unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Lenders, the prompt and complete payment and performance by the Subsidiary Borrowers when due (whether at stated maturity, by acceleration or otherwise) of the Subsidiary Borrower Obligations, and the Company further agrees to pay any and all expenses (including, without limitation, all reasonable fees, charges and disbursements of counsel) which may be paid or incurred by the Administrative Agent or by the Lenders in enforcing, or obtaining advice of counsel in respect of, any of their rights under the guarantee contained in this Section 12. The guarantee contained in this Section 12, subject to Section 12.5, shall remain in full force and effect until the Subsidiary Borrower Obligations are paid in full, the Commitments are terminated and no Letters of Credit are outstanding, notwithstanding that from time to time prior thereto the Subsidiary Borrowers may be free from any Obligations. The Company agrees that whenever, at any time, or from time to time, it shall make any payment to the Administrative Agent or any Lender on account of its liability under this Section 12, it will notify the Administrative Agent and such Lender in writing that such payment is made under the guarantee contained in this Section 12 for such purpose. No payment or payments made by the Subsidiary Borrowers or any other Person or received or collected by the Administrative Agent or any Lender from the Subsidiary Borrowers or any other Person by virtue of any action or proceeding or any setoff or appropriation or application, at any time or from time to time, in reduction of or in payment of the Subsidiary Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Company under this 83 77 Section 12 which, notwithstanding any such payment or payments, shall remain liable for the Subsidiary Borrower Obligations until, subject to Section 12.5, the Obligations are paid in full, the Commitments are terminated and no Letters of Credit are outstanding. 12.2 No Subrogation, Contribution, Reimbursement or Indemnity. Notwithstanding anything to the contrary in this Section 12, the Company hereby irrevocably waives all rights which may have arisen in connection with the guarantee contained in this Section 12 to be subrogated to any of the rights (whether contractual, under the United States Bankruptcy Code (or similar action under any successor law or under any comparable law), including Section 509 thereof, under common law or otherwise) of the Administrative Agent or any Lender against the Subsidiary Borrowers or against the Administrative Agent or any Lender for the payment of the Subsidiary Borrower Obligations, until all such Obligations shall have been paid in full, no Letters of Credit shall be outstanding and the Commitments shall have been terminated. The Company hereby further irrevocably waives all contractual, common law, statutory and other rights of reimbursement, contribution, exoneration or indemnity (or any similar right) from or against the Subsidiary Borrowers or any other Person which may have arisen in connection with the guarantee contained in this Section 12, until the Subsidiary Borrower Obligations shall have been paid in full, no Letters of Credit shall be outstanding and the Commitments shall have been terminated. So long as the Subsidiary Borrower Obligations remain outstanding, if any amount shall be paid by or on behalf of the Subsidiary Borrowers to the Company on account of any of the rights waived in this Section 12.2, such amount shall be held by the Company in trust, segregated from other funds of the Company, and shall, forthwith upon receipt by the Company, be turned over to the Administrative Agent in the exact form received by the Company (duly indorsed by the Company to the Administrative Agent, if required), to be applied against the Subsidiary Borrower Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. The provisions of this Section 12.2 shall survive the term of the guarantee contained in this Section 12 and the payment in full of the Subsidiary Borrower Obligations and the termination of the Commitments. 12.3 Amendments, etc. with respect to the Subsidiary Borrower Obligations. The Company shall remain obligated under this Section 12 notwithstanding that, without any reservation of rights against the Company, and without notice to or further assent by the Company, any demand for payment of or reduction in the principal amount of any of the Subsidiary Borrower Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such Lender, and any of such Obligations continued, and such Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, and this Agreement, any other Loan Document, and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Lenders (or the Required Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any Lender for the payment of the Subsidiary Borrower Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender 84 78 shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Subsidiary Borrower Obligations or for the guarantee contained in this Section 12 or any property subject thereto. 12.4 Guarantee Absolute and Unconditional. The Company waives any and all notice of the creation, renewal, extension or accrual of any of the Subsidiary Borrower Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the guarantee contained in this Section 12 or acceptance of the guarantee contained in this Section 12; the Subsidiary Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 12; and all dealings between the Subsidiary Borrowers or the Company, on the one hand, and the Administrative Agent and the Lenders, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 12. The Company waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Subsidiary Borrowers or the Company with respect to the Subsidiary Borrower Obligations. The guarantee contained in this Section 12 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of this Agreement or any other Loan Document, any of the Subsidiary Borrower Obligations or any collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender, (b) any defense, setoff or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrowers against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Subsidiary Borrowers or the Company) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Subsidiary Borrowers for the Subsidiary Borrower Obligations, or of the Company under the guarantee contained in this Section 12, in bankruptcy or in any other instance. When the Administrative Agent or any Lender is pursuing its rights and remedies under this Section 12 against the Company, the Administrative Agent or any Lender may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Subsidiary Borrowers or any other Person or against any collateral security or guarantee for the Subsidiary Borrowers Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to pursue such other rights or remedies or to collect any payments from the Subsidiary Borrowers or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of any Subsidiary Borrower or any such other Person or of any such collateral security, guarantee or right of offset, shall not relieve the Company of any liability under this Section 12, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent and the Lenders against the Company. 12.5 Reinstatement. The guarantee contained in this Section 12 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Subsidiary Borrower Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Subsidiary Borrower or upon or as a result of the 85 79 appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Subsidiary Borrower or any substantial part of its property, or otherwise, all as though such payments had not been made. 12.6 Payments. The Company hereby agrees that any payments in respect of the Subsidiary Borrower Obligations pursuant to this Section 12 will be paid to the Administrative Agent without setoff or counterclaim in Dollars or the relevant Available Foreign Currency, as applicable, at the office of the Administrative Agent specified in Section 13.2. SECTION 13. MISCELLANEOUS 13.1 Amendments and Waivers. Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 13.1. The Required Lenders and each Loan Party party to the relevant Loan Document may, or, with the written consent of the Required Lenders, the Administrative Agent and each Loan Party party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) forgive the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any amortization payment in respect of any Term Loan, reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Lender's Revolving Commitment, in each case without the consent of each Lender directly affected thereby; (ii) amend, modify or waive any provision of this Section 13.1 or reduce any percentage specified in the definition of Required Lenders or Required Prepayment Lenders, consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral, release the Company from its obligations under Section 12 or release all or substantially all of the Subsidiary Guarantors from their obligations under the Guarantee and Collateral Agreement, in each case without the written consent of all Lenders; (iii) amend, modify or waive any condition precedent to any extension of credit under the Revolving Facility set forth in Section 7.2 or 7.3(including in connection with any waiver of an existing Default or Event of Default) without the written consent of the Majority Revolving Facility Lenders; (iv) reduce the percentage specified in the definition of Majority Facility Lenders with respect to any Facility without the written consent of all Lenders under such Facility; (v) amend, modify or waive any provision of Section 11 without the written consent of the Administrative Agent; or (vi) amend, modify or waive any provision of Section 4 without the written consent of the Issuing Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Loan Parties, the 86 80 Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 13.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Borrowers and the Administrative Agent, and as set forth in an administrative questionnaire delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto: The Borrowers: The DII Group, Inc. 6273 Monarch Park Place Suite 200 Niwot, Colorado 80503 Attention: Mr. Thomas J. Smach Telecopy: 303-652-0416 Telephone: 303-652-2221 The Administrative Agent: With respect to all matters other than procedures for borrowing and repaying Multicurrency Loans: The Chase Manhattan Bank One Chase Manhattan Plaza 8th Floor New York, New York 10081 Attention: Loan and Agency Services Group Telecopy: (212) 552-5668 Telephone: (212) 552-7277 With respect to borrowings and repayments of Multicurrency Loans: The Chase Manhattan Bank 9 Thomas Moore Street London El 9YT England Attention: Loan and Agency Services Group Telecopy: 44-171-777-2360 Telephone: 44-171-777-2353 with a copy to: The Chase Manhattan Bank 2 Court Street, P.O. Box 706 Binghamton, New York 13902 Attention: Michael Brunner Telecopy: 607-772-9341 Telephone: 607-772-2375
87 81 provided that any notice, request or demand to or upon the Administrative Agent or the Lenders shall not be effective until received. 13.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 13.4 Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit hereunder. 13.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Administrative Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including the reasonable fees and disbursements of counsel to the Administrative Agent and filing and recording fees and expenses, with statements with respect to the foregoing to be submitted to the Company prior to the Closing Date (in the case of amounts to be paid on the Closing Date) and from time to time thereafter on a quarterly basis or such other periodic basis as the Administrative Agent shall deem appropriate, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to each Lender and of counsel to the Administrative Agent, (c) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, that may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent and their 88 82 respective officers, directors, employees, affiliates, agents and controlling persons (each, an "Indemnitee") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Company, any of its Subsidiaries or any of the Properties and the reasonable fees and expenses of legal counsel in connection with claims, actions or proceedings by any Indemnitee against any Loan Party under any Loan Document (all the foregoing in this clause (d), collectively, the "Indemnified Liabilities"), provided, that the Company shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee. Without limiting the foregoing, and to the extent permitted by applicable law, each Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries to so waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. All amounts due under this Section 13.5 shall be payable promptly after written demand therefor. Statements payable by the Company pursuant to this Section 13.5 shall be submitted to The Chase manhattan Bank, One chase manhattan Plaza, New York, New York 10081, Attn: Jesus Sang (Telephone No. (212) 552-7916) (Telecopy No. (212) 552-5650), at the address of the Company set forth in Section 13.2, or to such other Person or address as may be hereafter designated by the Company in a written notice to the Administrative Agent. The agreements in this Section 13.5 shall survive repayment of the Loans and all other amounts payable hereunder. 13.6 Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Lenders, the Administrative Agent, all future holders of the Loans and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, without the consent of the Borrowers, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a "Participant") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. In no event shall any Participant under any such 89 83 participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Loans or any fees payable hereunder, or postpone the date of the final maturity of the Loans, in each case to the extent subject to such participation. Each Borrower agrees that if amounts outstanding under this Agreement and the Loans are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 13.7(a) as fully as if it were a Lender hereunder. Each Borrower also agrees that each Participant shall be entitled to the benefits of Sections 5.9, 5.10 and 5.12 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender; provided that, in the case of Section 5.10, such Participant shall have complied with the requirements of said Section and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender (an "Assignor") may, in accordance with applicable law, at any time and from time to time assign to any Lender or any Affiliate thereof or, with the consent of the Company and the Administrative Agent (which, in each case, shall not be unreasonably withheld or delayed), to an additional bank, financial institution or other entity (an "Assignee") all or any part of its rights and obligations under this Agreement pursuant to an Assignment and Acceptance, executed by such Assignee, such Assignor and any other Person whose consent is required pursuant to this paragraph, and delivered to the Administrative Agent for its acceptance and recording in the Register; provided (i) that no such assignment to an Assignee (other than to any Lender or any affiliate thereof) shall be in an aggregate principal amount of less than $5,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement) and (ii) the assignor shall have commitments and Loans aggregating at least $5,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement), unless otherwise agreed by the Company and the Administrative Agent. Any such assignment need not be ratable as among the Facilities. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment and/or Loans as set forth therein, (y) the Assignor thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of an Assignor's rights and obligations under this Agreement, such Assignor shall cease to be a party hereto) and (z) the Assignee thereunder shall automatically become a party to the Intercreditor Agreement and become a Secured Party (as defined therein) thereunder and have the rights and obligations of a Secured Party as set forth therein. Notwithstanding any provision of this Section 90 84 13.6, the consent of the Company shall not be required for any assignment that occurs when an Event of Default pursuant to Section 8(f) shall have occurred and be continuing with respect to the Company. (d) The Administrative Agent shall, on behalf of the Borrowers, maintain at its address referred to in Section 13.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and the principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and each Borrower, each other Loan Party, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loans and any Notes evidencing the Loans recorded therein for all purposes of this Agreement. Any assignment of any Loan, whether or not evidenced by a Note, shall be effective only upon appropriate entries with respect thereto being made in the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of a Loan evidenced by a Note shall be registered on the Register only upon surrender for registration of assignment or transfer of the Note evidencing such Loan, accompanied by a duly executed Assignment and Acceptance, and thereupon one or more new Notes shall be issued to the designated Assignee and the old Note shall be returned by the Administrative Agent to the Company marked "cancelled". (e) Upon its receipt of an Assignment and Acceptance executed by an Assignor, an Assignee and any other Person whose consent is required by Section 13.6(c), together with payment to the Administrative Agent of a registration and processing fee of $4,000, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) record the information contained therein in the Register on the effective date determined pursuant thereto. (f) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section 13.6 concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. (g) Each Borrower, upon receipt of written notice from the relevant Lender, agrees to issue Notes to any Lender requiring Notes to facilitate transactions of the type described in paragraph (f) above. 13.7 Adjustments; Set-off. (a) Except to the extent that this Agreement expressly provides for payments to be allocated to a particular Lender or to the Lenders under a particular Facility, if any Lender (a "Benefitted Lender") shall receive any payment of all or part of the Obligations owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 10(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of the Obligations owing to such other Lender, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such 91 85 portion of the Obligations owing to each such other Lender, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrowers, any such notice being expressly waived by the Borrowers to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrowers hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrowers. Each Lender agrees promptly to notify the Borrowers and the Administrative Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 13.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. 13.9 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13.10 Integration. This Agreement and the other Loan Documents represent the agreement of the Borrowers, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 13.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 92 86 13.12 Submission To Jurisdiction; Waivers. Each of the Borrowers hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company at its address set forth in Section 13.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto (and, in the case of each Subsidiary Borrower, such Subsidiary Borrower hereby irrevocably appoints the Company to receive and accept any such process on behalf of such Subsidiary Borrower, and the Company hereby accepts such appointment); (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 13.13 Acknowledgments. Each of the Borrowers hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to such Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and such Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrowers and the Lenders. 93 87 13.14 Conversion of Currencies. (a) If, for the purpose of obtaining judgment in any court, it is necessary to convert a sum owing hereunder in one currency into another currency, each party hereto (including any Subsidiary Borrower) agrees, to the fullest extent that it may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures in the relevant jurisdiction the first currency could be purchased with such other currency on the Business Day immediately preceding the day on which final judgment is given. (b) The obligations of each Borrower in respect of any sum due to any party hereto or any holder of the obligations owing hereunder (the "Applicable Creditor") shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than the currency in which such sum is stated to be due hereunder (the "Agreement Currency"), be discharged only to the extent that, on the Business Day following receipt by the Applicable Creditor of any sum adjudged to be so due in the Judgment Currency, the Applicable Creditor may in accordance with normal banking procedures in the relevant jurisdiction purchase the Agreement Currency with the Judgment Currency; if the amount of the Agreement Currency so purchased is less than the sum originally due to the Applicable Creditor in the Agreement Currency, such Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Applicable Creditor against such loss. The obligations of the Borrowers contained in this Section 13.14 shall survive the termination of this Agreement and the payment of all other amounts owing hereunder. 13.15 Confidentiality. Each of the Administrative Agent and each Lender agrees to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; provided that nothing herein shall prevent the Administrative Agent or any Lender from disclosing any such information (a) to the Administrative Agent, any other Lender or any affiliate of any Lender, (b) to any Transferee or prospective Transferee that agrees to comply with the provisions of this Section, (c) to its employees, directors, agents, attorneys, accountants and other professional advisors or those of any of its affiliates, (d) upon the request or demand of any Governmental Authority, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) that has been publicly disclosed, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender, or (i) in connection with the exercise of any remedy hereunder or under any other Loan Document. 13.16 European Economic and Monetary Union. (a) Definitions. In this Section 13.16 and in each other provision of this Agreement to which reference is made in this Section 13.16 expressly or impliedly, the following terms have the meanings given to them in this Section 13.16: "commencement of the third stage of EMU" means the date of commencement of the third stage of EMU (at the date of this Agreement expected to be January 1, 1999) 94 88 or the date on which circumstances arise which (in the opinion of the Administrative Agent) have substantially the same effect and result in substantially the same consequences as commencement of the third stage of EMU as contemplated by the Treaty on European Union; "EMU" means economic and monetary union as contemplated in the Treaty on European Union; "EMU legislation" means legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency (whether known as the euro or otherwise), being in part the implementation of the third stage of EMU; "euro" means the single currency of participating member states of the European Union; "euro unit" means the currency unit of the euro; "national currency unit" means the unit of currency (other than a euro unit) of a participating member state; "participating member state" means each state so described in any EMU legislation; and "Treaty on European Union" means the Treaty of Rome of March 25, 1957, as amended by the Single European Act 1986 and the Maastricht Treaty (which was signed at Maastricht on February 7, 1992, and came into force on November 1, 1993), as amended from time to time. (b) Effectiveness of Provisions. The provisions of paragraphs (c) to (j) below (inclusive) shall be effective at and from the commencement of the third stage of EMU, provided, that if and to the extent that any such provision relates to any state (or the currency of such state) that is not a participating member state on the commencement of the third stage of EMU, such provision shall become effective in relation to such state (and the currency of such state) at and from the date on which such state becomes a participating member state. (c) Redenomination and Alternative Currencies. Each obligation under this Agreement of a party to this Agreement which has been denominated in the national currency unit of a participating member state shall be redenominated into the euro unit in accordance with EMU legislation, provided, that if and to the extent that any EMU legislation provides that following the commencement of the third stage of EMU an amount denominated either in the euro or in the national currency unit of a participating member state and payable within that participating member state by crediting an account of the creditor can be paid by the debtor either in the euro unit or in the national currency 95 89 unit, each party to this Agreement shall be entitled to pay or repay any such amount either in the euro unit or in such national currency unit. (d) Loans. Any Loan in the currency of a participating member state shall be made in the euro unit. (e) Business Days. With respect to any amount denominated or to be denominated in the euro or a national currency unit, any reference to a "Business Day" shall be construed as a reference (i) for purposes of determining each date (a "Rate Fixing Day") on which the Eurodollar Base Rate applicable thereto may be set, any day (a "TO Day") (other than a Saturday, Sunday, Christmas, New Year's Day or any day on which the Trans-European Real-time Gross Settlement Operating System (or any successor settlement system) is not operating (as determined by the Administrative Agent) on which the TARGET operating system is operating for purposes of quoting eurocurrency deposit rates and (ii) for purposes of determining any day on which any Loan in such currency may be made hereunder or on which an Interest Period applicable thereto shall begin or end, a day (other than a Saturday or Sunday) on which banks are generally open for business in (i) London and New York City and (ii) Frankfurt am Main, Germany (or such principal financial center or centers in such participating member state or states as the Administrative Agent may from time to time nominate for this purpose). (f) Payments to the Administrative Agent. Sections 3.3 and 5.1(c) shall be construed so that, in relation to the payment of any amount of euro units or national currency units, such amount shall be made available to the Administrative Agent in immediately available, freely transferable, cleared funds to such account with such bank in Frankfurt am Main, Germany (or such other principal financial center in such participating member state as the Administrative Agent may from time to time nominate for this purpose) as the Administrative Agent shall from time to time nominate for this purpose. (g) Payments by the Administrative Agent to the Lenders. Any amount payable by the Administrative Agent to the Lenders under this Agreement in the currency of a participating member state shall be paid in the euro unit. (h) Payments by the Administrative Agent Generally. With respect to the payment of any amount denominated in the euro or in a national currency unit, the Administrative Agent shall not be liable to any Borrower or any of the Lenders in any way whatsoever for any delay, or the consequences of any delay, in the crediting to any account of any amount required by this Agreement to be paid by the Administrative Agent if the Administrative Agent shall have taken all relevant steps to achieve, on the 96 90 date required by this Agreement, the payment of such amount in immediately available, freely transferable, cleared funds (in the euro unit or, as the case may be, in a national currency unit) to the account with the bank in the principal financial center in the participating member state which the relevant Borrower or, as the case may be, any Lender shall have specified for such purpose. In this paragraph (h), "all relevant steps" means all such steps as may be prescribed from time to time by the regulations or operating procedures or such clearing or settlement system as the Administrative Agent may from time to time determine for the purpose of clearing or settling payments of the euro. (i) Basis of Accrual. If the basis of accrual of interest or fees expressed in this Agreement with respect to the currency of any state that becomes a participating state shall be inconsistent with any convention or practice in the London Interbank Market or, as the case may be, the Paris Interbank Market for the basis of accrual of interest or fees in respect of the euro, such convention or practice shall replace such expressed basis effective as of and from the date on which such state becomes a participating member state; provided, that if any Loan in the currency of such state is outstanding immediately prior to such date, such replacement shall take effect, with respect to such Loan, at the end of the then current Interest Period. (j) Rounding and Other Consequential Changes. Without prejudice and in addition to any method of conversion or rounding prescribed by any EMU legislation and without prejudice to the respective liabilities for indebtedness of the Borrowers to the Lenders and the Lenders to the Borrowers under or pursuant to this Agreement: (i) each reference in this Agreement to a minimum amount (or an integral multiple thereof) in a national currency unit to be paid to or by the Administrative Agent shall be replaced by a reference to such reasonably comparable and convenient amount (or an integral multiple thereof) in the euro unit as the Administrative Agent may from time to time specify; and (ii) except as expressly provided in this Section 13.16, each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be necessary or appropriate to reflect the introduction of or changeover to the euro in participating member states. (k) Increased Costs. The Borrowers shall from time to time, at the request of the Administrative Agent, pay to the Administrative Agent for the account of each Lender the amount of any cost or increased cost incurred by, or of any reduction in any amount payable to or in the effective return on its capital to, or of interest or other return foregone by, such Lender or any holding company of such Lender as a result of the introduction of, changeover to or operation of the euro in any participating member state to the extent such introduction, changeover or operation relates to such Lender's obligations hereunder; provided that the Borrowers shall not be required to pay to any Lender any amounts 97 91 under this paragraph for any period prior to the date on which such Lender gives notice to the Company that such amounts are payable unless such Lender gives notice within 180 days after it becomes aware or should have been aware of the event giving rise to such payment obligation. 13.17 Accounting Changes. In the event that any "Accounting Change" (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Company and the Administrative Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the Company's financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Company, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. "Accounting Changes" refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC. 13.18 Collateral Agent as Several Creditor. Each of the Borrowers and the Lenders agree that the Collateral Agent shall be the joint and several creditor together with the relevant Lender of each and every obligation of the Company and of each and any of the Subsidiary Borrowers toward each of the Lenders under this Agreement and the other Loan documents pursuant to Section 7.2 of the Intercreditor Agreement with such rights as set forth in such section. 13.19 WAIVERS OF JURY TRIAL. EACH OF THE BORROWERS, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 98 92 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. THE DII GROUP, INC. By: ---------------------------------------------- Name: Title: THE CHASE MANHATTAN BANK, as Administrative Agent and as a Lender By: ---------------------------------------------- Name: Title: 99 Annex A Pricing Grid
================================================================================================================= Applicable Margin for Eurodollar Loans and Multicurrency Applicable Margin Commitment Fee Consolidated Leverage Ratio Loans for ABR Loans Rate - ----------------------------------------------------------------------------------------------------------------- Less than or equal to 2.00 1.00% 0% 0.250% - ----------------------------------------------------------------------------------------------------------------- Greater than 2.00, but less than or equal to 2.50 1.25% 0% 0.250% - ----------------------------------------------------------------------------------------------------------------- Greater than 2.50, but less than or equal to 3.00 1.50% 0% 0.375% - ----------------------------------------------------------------------------------------------------------------- Greater than 3.00, but less than or equal to 3.50 1.75% 0.25% 0.375% - ----------------------------------------------------------------------------------------------------------------- Greater than 3.50, but less than or equal to 4.00 2.00% 0.50% 0.500% - ----------------------------------------------------------------------------------------------------------------- Greater than 4.00 2.25% 0.75% 0.500% =================================================================================================================
Changes in the Applicable Margin Ratio or in the Commitment Fee Rate resulting from changes in the Consolidated Leverage Ratio shall become effective on the date (the "Adjustment Date") on which financial statements are received by the Administrative Agent pursuant to the terms of the Credit Documentation (but in any event not later than the 45th day after the end of each of the first three quarterly periods of each fiscal year or the 90th day after the end of each fiscal year, as the case may be) and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified above, then, until such financial statements are delivered, the Consolidated Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this definition be deemed to be greater than 4.00. Each determination of the Consolidated Leverage Ratio pursuant to this definition shall be made with respect to the period of four consecutive fiscal quarters of the Company ending at the end of the period covered by the relevant financial statements. Notwithstanding the foregoing, until the first Adjustment Date occurring following the end of the first full fiscal quarter to be completed after the Closing Date, the Applicable Margins and Commitment Fee Rate will be as set forth above opposite the Consolidated Leverage Ratio of greater than 3.50, but less than or equal to 4.00. EX-10.30 5 CREDIT AGREEMENT MULTILAYER TECHNOLOGY 1 EXHIBIT 10.30 EXECUTION COPY =============================================================================== $90,000,000 CREDIT AGREEMENT AMONG MULTILAYER TECHNOLOGY GMBH & CO. KG, AS BORROWER, THE SEVERAL LENDERS FROM TIME TO TIME PARTIES HERETO, THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT, AND CHASE SECURITIES INC., AS ARRANGER DATED AS OF OCTOBER 30, 1998 =============================================================================== 2 TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS...........................................................................................1 1.1 Defined Terms.......................................................................................1 1.2 Other Definitional Provisions......................................................................10 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS......................................................................10 2.1 Commitments........................................................................................10 2.2 Procedure for Borrowing............................................................................10 2.3 Repayment of Loans.................................................................................11 2.4 Optional Prepayments...............................................................................11 2.5 Interest Rates and Payment Dates...................................................................12 2.6 Computation of Interest and Fees...................................................................12 2.7 Inability to Determine Floating Portion of Interest Rate...........................................13 2.8 Pro Rata Treatment and Payments....................................................................14 2.9 Requirements of Law................................................................................15 2.10 Taxes.............................................................................................16 2.11 Indemnity.........................................................................................17 2.12 Change of Lending Office..........................................................................17 2.13 Replacement of Lenders............................................................................18 SECTION 3. REPRESENTATIONS AND WARRANTIES.......................................................................18 3.1 Financial Condition................................................................................18 3.2 Existence; Compliance with Law.....................................................................19 3.3 Power; Authorization; Enforceable Obligations......................................................19 3.4 No Legal Bar.......................................................................................19 3.5 Litigation.........................................................................................19 3.6 No Default.........................................................................................20 3.7 Ownership of Property; Liens.......................................................................20 3.8 Intellectual Property..............................................................................20 3.9 Subsidiaries.......................................................................................20 3.10 Use of Proceeds...................................................................................20 3.11 Security Documents................................................................................20 3.12 Year 2000 Matters.................................................................................21 3.13 Certain Documents.................................................................................21 3.14 Withholding Tax...................................................................................21 3.15 No Filing.........................................................................................21 3.16 Proper Form.......................................................................................22 3.17 Choice of Law.....................................................................................22 SECTION 4. CONDITIONS PRECEDENT.................................................................................22
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Page SECTION 5. AFFIRMATIVE COVENANTS................................................................................24 5.1 Financial Statements...............................................................................24 5.2 Certificates; Other Information....................................................................24 5.3 Payment of Obligations.............................................................................25 5.4 Maintenance of Existence; Compliance. .............................................................25 5.5 Maintenance of Property; Insurance.................................................................25 5.6 Inspection of Property; Books and Records; Discussions.............................................25 5.7 Notices............................................................................................26 5.8 Environmental Laws.................................................................................26 5.9 Additional Collateral, etc.........................................................................26 SECTION 6. EVENTS OF DEFAULT....................................................................................27 SECTION 7. THE ADMINISTRATIVE AGENT.............................................................................29 7.1 Appointment........................................................................................29 7.2 Delegation of Duties...............................................................................29 7.3 Exculpatory Provisions.............................................................................30 7.4 Reliance by Administrative Agent...................................................................30 7.5 Notice of Default..................................................................................30 7.6 Non-Reliance on Administrative Agent and Other Lenders.............................................30 7.7 Indemnification....................................................................................31 7.8 Administrative Agent in Its Individual Capacity....................................................31 7.9 Successor Administrative Agent.....................................................................32 7.10 Authorization to Release Guarantees and Liens.....................................................32 SECTION 8. MISCELLANEOUS........................................................................................32 8.1 Amendments and Waivers.............................................................................32 8.2 Notices............................................................................................33 8.3 No Waiver; Cumulative Remedies.....................................................................34 8.4 Survival of Representations and Warranties.........................................................34 8.5 Payment of Expenses and Taxes......................................................................34 8.6 Successors and Assigns; Participations and Assignments.............................................35 8.7 Adjustments; Set-off...............................................................................37 8.8 Counterparts.......................................................................................37 8.9 Severability.......................................................................................37 8.10 Integration.......................................................................................38 8.11 GOVERNING LAW.....................................................................................38 8.12 Submission To Jurisdiction; Waivers...............................................................38 8.13 Acknowledgements..................................................................................38 8.14 Confidentiality...................................................................................39 8.15 Accounting Changes............................................................................39 8.16 Judgment......................................................................................39 8.17 Collateral Agent as Secured Creditor..........................................................40 8.18 WAIVERS OF JURY TRIAL.............................................................................40
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Page SCHEDULES: 1.1A Commitments 1.1B Premium Schedule 3.3 Consents, Authorizations, Filings and Notices 3.11(a) Filing Jurisdictions EXHIBITS: A List of German Security Agreements B Form of Closing Certificate C Form of Assignment and Acceptance D-1 Form of Legal Opinion of Curtis, Mallet-Provost, Colt & Mosle D-2 Form of Legal Opinion of Raupach & Wollert-Elmendorff D-3 Form of Legal Opinion of Michaelis Pfeiffer Konig D-4 Form of Legal Opinion of Loeff Claeyes Verbeke E Form of Guarantee Agreement F Form of Guarantee and Collateral Agreement G Form of Intercreditor Agreement
iv 5 CREDIT AGREEMENT, dated as of October 30, 1998, among MULTILAYER TECHNOLOGY GMBH & CO. KG, a German limited partnership (the "Borrower"), the several banks and other financial institutions or entities from time to time parties to this Agreement (the "Lenders"), and THE CHASE MANHATTAN BANK, as administrative agent. W I T N E S S E T H WHEREAS, pursuant to the Acquisition Agreement (such capitalized term and other capitalized terms used without definition in these recitals being used with the meanings given such terms in Section 1.1) the Borrower will acquire from Hewlett-Packard GmbH certain assets used in the manufacturing of certain printed circuit boards, including the premises used for such manufacturing at its facility located in Boblingen, Germany; and WHEREAS, to finance, in part, the cost of the Acquisition (including specified assumed liabilities), and the payment of fees and expenses relating thereto, the Borrower has requested the Lenders to make available the credit facilities described herein; and WHEREAS, the Lenders are willing to make such credit facilities available upon and subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1. "ABR": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Reference Lender as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Reference Lender in connection with extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Reference Lender from three New York City negotiable 6 2 certificate of deposit dealers of recognized standing selected by it. Any change in the ABR due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "Acquisition": the purchase by the Borrower from Hewlett-Packard GmbH of certain assets used in the manufacturing of certain printed circuit boards, including the premises used for such manufacturing at Hewlett-Packard GmbH's facility located at Boblingen, Germany, and the assumption of certain specified liabilities, pursuant to the Acquisition Agreement. "Acquisition Agreement": the Master Asset Purchase Agreement, dated as of October 30, 1998, by and among the Seller, the Borrower and DII. "Acquisition Documentation": collectively, the Acquisition Agreement and all schedules, exhibits and annexes thereto and all side letters and agreements affecting the terms thereof or entered into in connection therewith (including, without limitation, the Division Purchase Agreement), in each case as amended, supplemented or otherwise modified from time to time. "Administrative Agent": The Chase Manhattan Bank, together with its affiliates, as the arranger of the Commitments and as the administrative agent for the Lenders under this Agreement and the other Loan Documents, together with any of its successors. "Affiliate": as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power or, if no securities are issued, exercise 10% or more of the voting rights, for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agreement": this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Arranger": Chase Securities Inc., as arranger of the Commitments. "Assignee": as defined in Section 8.6(c). "Assignment and Acceptance": an Assignment and Acceptance, substantially in the form of Exhibit C. "Assignor": as defined in Section 8.6(c). 7 3 "Benefitted Lender": as defined in Section 8.7(a). "Board": the Board of Governors of the Federal Reserve System of the United States (or any successor). "Borrower": as defined in the preamble hereto. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close, provided, that with respect to notices and determinations in connection with, and payments of principal and interest on, Loans, such day is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market. "Capital Lease Obligations": as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "C/D Assessment Rate": for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the "FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. ss. 327.4 (or any successor provision) to the FDIC (or any successor) for the FDIC's (or such successor's) insuring time deposits at offices of such institution in the United States. "C/D Reserve Percentage": for any day, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board, for determining the maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board as in effect from time to time) in respect of new non-personal time deposits in Dollars having a maturity of 30 days or more. "Change of Control": either of the following events: (a) a "Change of Control" (as defined in the DII Credit Agreement) shall occur or (b) DII shall cease to own, directly or indirectly, 100% of the Capital Stock of the Borrower. "Closing Date": the date on which the conditions precedent set forth in Section 4 shall have been satisfied, which date is the date hereof. 8 4 "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": all property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document. "Collateral Agent": The Chase Manhattan Bank, together with its affiliates, as collateral agent pursuant to the terms of the Intercreditor Agreement. "Commitment": as to any Lender, the obligation of such Lender to make a Loan to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading "Commitment" opposite such Lender's name on Schedule 1.1A. The original aggregate amount of the Commitments is $90,000,000. "Confidential Information Memorandum": the Confidential Information Memorandum dated October 1998 and furnished to the Lenders. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "CV": DII International Holdings C.V., which is a wholly owned Netherlands subsidiary of DII and the indirect parent of the Borrower. "Default": any of the events specified in Section 6, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Derivative Agreements": of any Person at any date, swaps, caps or collar agreements or similar arrangements to which such Person and any financial institution, commodities or stock exchange or clearinghouse (a "Derivatives Counterparty") are parties under which such parties agree to exchange payments based upon interest rates, exchange rates or market prices or values or changes therein in respect of debt obligations or equities, currencies or commodities or indexes in respect of any of the foregoing without delivery of the same (including, whether or not otherwise included in the foregoing, options granted or written by such Person in favor of a Derivatives Counterparty intended to be settled in cash.) "DII": The DII Group, Inc., a Delaware corporation. "DII Credit Agreement": the Credit Agreement, dated as of the date hereof, among DII, the Subsidiary Borrowers from time to time parties thereto, the lenders named therein and The Chase Manhattan Bank, as administrative agent, as the same may be amended, supplemented or otherwise modified from time to time. "Division Purchase Agreement": the Division Purchase Agreement, dated as of October 30, 1998, between Hewlett-Packard Company and Multilayer Technology. "Dollars" and "$": dollars in lawful currency of the United States. 9 5 "DOVatron": DOVatron Verwaltungs GmbH, a German limited liability company which is a limited partner of the Borrower owning 100% of the limited partnership interest in the Borrower. "Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "Eurocurrency Reserve Requirements": for any day, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate": with respect to each day during each Interest Period, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on such screen), the "Eurodollar Base Rate" shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Event of Default": any of the events specified in Section 6, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Excluded Foreign Subsidiary": any Subsidiary of DII that is not organized under the laws of any jurisdiction within the United States in respect of which either (a) the pledge of 10 6 all of the Capital Stock of such Subsidiary as Collateral or (b) the guaranteeing by such Subsidiary of the Obligations (as defined in the Guarantee and Collateral Agreement), would, in the good faith judgment of DII, result in adverse tax, legal or regulatory consequences to DII. "Federal Funds Effective Rate": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by the Reference Lender from three federal funds brokers of recognized standing selected by it. "Funding Office": the office of the Administrative Agent specified in Section 8.2 or such other office as may be specified from time to time by the Administrative Agent as its funding office by written notice to the Borrower and the Lenders. "GAAP": generally accepted accounting principles in the United States as in effect from time to time. "German Security": the collective reference to the agreements set forth on Exhibit A, each in form and substance satisfactory to the Administrative Agent. "Governmental Authority": any nation or government, any state or other political subdivision thereof, any international or supranational organization, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization (including the National Association of Insurance Commissioners). "Guarantee Agreement": the Guarantee Agreement to be made by DII, CV, Multilayer and DOVatron in favor of the Collateral Agent for the benefit of the Lenders, substantially in the form of Exhibit E, as the same may be amended, supplemented or otherwise modified from time to time. "Guarantee and Collateral Agreement": the Guarantee and Collateral Agreement to be executed and delivered by DII and each of its Subsidiaries (other than Excluded Foreign Subsidiaries and Immaterial Subsidiaries (as defined in the DII Credit Agreement)), substantially in the form of Exhibit F, as the same may be amended, supplemented or otherwise modified from time to time. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, 11 7 including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor (other than pursuant to a contractual right to indemnity (other than in respect of Indebtedness) in connection with acquisitions or dispositions in accordance with the past practice of DII), (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "Guarantors": the collective reference to DII, CV, Multilayer, DOVatron and the Guarantors named in the Guarantee and Collateral Agreement. "Indebtedness": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than current trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party under acceptance, letter of credit or similar facilities, (g) the liquidation value of all redeemable preferred Capital Stock of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above; (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation; and (j) for the purposes of Section 6(e) only, all obligations of such Person in respect of Derivative Agreements. "Intellectual Property": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, German, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, 12 8 patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Intercreditor Agreement": the Collateral Agency and Intercreditor Agreement to be entered into among The Chase Manhattan Bank, as collateral agent, each of the Lenders and each Lender under the DII Credit Agreement, substantially in the form of Exhibit G, as the same may be amended, supplemented or otherwise modified from time to time. "Interest Payment Date": the last day of each Interest Period and the date of any repayment or prepayment made in respect of the Loans. "Interest Period": as to any Loan, (a) initially, the period commencing on the Closing Date and ending three months thereafter; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period and ending three months thereafter; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; and (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "Lenders": as defined in the preamble hereto. "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing). "Loan": any loan made by any Lender pursuant to this Agreement. "Loan Documents": this Agreement, the Security Documents and the Intercreditor Agreement. "Loan Parties": the Borrower, each Guarantor and each other Subsidiary of DII that is a party to a Loan Document. "Material Adverse Effect": a material adverse effect on (a) the Acquisition, (b) the business, property, operations, condition (financial or otherwise) or prospects of the 13 9 Borrower and its Subsidiaries taken as a whole or DII and its Subsidiaries taken as a whole or (c) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "Multilayer": Multilayer Technology Geschaftsfuhrungs GmbH, a German limited liability company which is the general partner of the Borrower. "Non-Excluded Taxes": as defined in Section 2.10(a). "Other Taxes": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "Participant": as defined in Section 8.6(b). "Percentage": as to any Lender at any time, the percentage which such Lender's Commitment then constitutes of the aggregate Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Lender's Loans then outstanding constitutes of the aggregate principal amount of the Loans then outstanding). "Person": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Pledge Agreement": the Pledge Agreement to be made by DOVatron Nevada, Inc. and DOVatron Mexico, Inc. in favor of the Collateral Agent for the ratable benefit of the Lenders, in form and substance satisfactory to the Administrative Agent, pursuant to which the pledgors pledge 35% of their interest in CV to the Collateral Agent for the ratable benefit of the Lenders, as the same may be amended, supplemented or otherwise modified from time to time. "Premium": an amount determined in accordance with Schedule 1.1B. "Pro Forma Balance Sheet": as defined in Section 3.1. "Reference Lender": The Chase Manhattan Bank. "Register": as defined in Section 8.6(d). "Required Lenders": at any time, the holders of more than 50% of (a) until the Closing Date, the Commitments then in effect and (b) thereafter, the aggregate unpaid principal amount of the Loans then outstanding. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in 14 10 each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer, president, chief financial officer or the executive vice president of finance of the Borrower or DII, as the case may be, but in any event, with respect to financial matters, the chief financial officer or the executive vice president of finance of the Borrower or DII, as the case may be. "Security Documents": the collective reference to the Guarantee Agreement, the German Security Documents, the Pledge Agreement, the Guarantee and Collateral Agreement and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document. "Seller": Hewlett-Packard GmbH, a German limited liability company. "Subsidiary": as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Transferee": any Assignee or Participant. "United States": the United States of America. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings as used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, (i) accounting terms relating to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP, (ii) the words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation", (iii) the word "incur" shall be construed to mean incur, create, issue, assume, become liable in respect of or suffer to exist (and the words "incurred" and "incurrence" shall have correlative meanings), and (iv) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, Capital Stock, securities, revenues, accounts, leasehold interests and contract rights. 15 11 (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to make a term loan (a "Loan") to the Borrower on the Closing Date in an amount not to exceed the amount of the Commitment of such Lender. 2.2 Procedure for Borrowing. The Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 11:00 A.M., New York City time, two Business Days prior to the anticipated Closing Date) requesting that the Lenders make the Loans on the Closing Date and specifying the amount to be borrowed. Upon receipt of such notice the Administrative Agent shall promptly notify each Lender thereof. Not later than 12:00 Noon, New York City time, on the Closing Date each Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Loan to be made by such Lender. The Administrative Agent shall make the proceeds of the Loans available to the Borrower in like funds as received by the Administrative Agent from the Lenders. 2.3 Repayment of Loans. (a The Loan of each Lender shall mature and be payable in full on the fifth anniversary of the Closing Date. (b) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the principal amount of the Loan of such Lender as set forth in paragraph (a) above (or on such earlier date on which the Loans become due and payable pursuant to Section 6). The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.5. (c) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from the Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time in respect of such Loan under this Agreement. (d) The Administrative Agent, on behalf of the Borrower, shall maintain the Register pursuant to Section 8.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from 16 12 the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (e) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.3(c) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loan of such Lender in accordance with the terms of this Agreement. 2.4 Optional Prepayments. The Borrower may at any time prepay the Loans, in whole but not in part, upon irrevocable notice delivered to the Administrative Agent at least three Business Days prior to the date of prepayment, which notice shall specify the date of prepayment; provided, that (i) the Borrower shall, at the time of such prepayment, pay to the Administrative Agent for the ratable benefit of the Lenders, the Premium calculated as of the date of such prepayment and (ii) if the Loans are prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.11. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the entire principal amount of the Loans shall be due and payable on the date specified therein, together with the Premium and accrued interest to such date and any amounts payable pursuant to Section 2.11. 2.5 Interest Rates and Payment Dates. (a) The Loans shall bear interest for each Interest Period at a per annum rate of interest comprised of a fixed rate component and a variable rate component, as follows: (i) a fixed rate component calculated at the rate per annum of 6.667% on the aggregate principal amount of the Loans; and (ii) a variable rate component calculated at the rate per annum determined in accordance with the following formula: VR = ER+2.00% x N -------- 3 where: VR = variable interest rate per annum ER = Eurodollar Rate determined for such Interest Period; provided, that with respect to the interest rate for the initial Interest Period commencing on the Closing Date, ER shall be a rate to be determined by the Administrative Agent. 17 13 N = a notional amount equal initially to $90,000,000, which notional amount will be reduced by $4,500,000 on each Interest Payment Date; provided, that no such reduction shall occur on any such scheduled reduction date if any Default described in Section 6(a) shall have occurred and be continuing. (b) (i) If all or a portion of the principal amount of, or interest or Premium on, any Loan or any fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the ABR plus 2%, from the date of such non-payment until such amount is paid in full (as well after as before judgment). (c) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (b) of this Section shall be payable from time to time on demand. 2.6 Computation of Interest and Fees. (a) Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of the Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.6(a). 2.7 Inability to Determine Floating Portion of Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their Loans during such Interest Period, 18 14 the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter. If such notice is given all outstanding Loans shall on the last day of the then current Interest Period and until such notice has been withdrawn by the Administrative Agent bear interest comprised of a fixed rate component and a variable rate component, as follows: (i) a fixed rate component calculated at the rate per annum of 6.667% on the aggregate principal amount of the Loans; and (ii) a variable rate component calculated at the rate per annum determined in accordance with the following formula: VR = ABR+0.50% x N --------- 3 where: VR = variable interest rate per annum ABR = (as defined in Section 1.1) N = a notional amount equal initially to $90,000,000, which notional amount will be reduced by $4,500,000 on each Interest Payment Date; provided, that no such reduction shall occur on any such scheduled reduction date if any Default described in Section 6(a) shall have occurred and be continuing. 2.8 Pro Rata Treatment and Payments. (a) The borrowing by the Borrower from the Lenders hereunder shall be made pro rata according to the respective Percentages of the Lenders. (b) Each payment (including each prepayment) by the Borrower on account of principal of and interest on (including any Premium) the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Lenders. Each payment in respect of the Loans shall be applied first to accrued and unpaid interest and Premium and then to principal. Amounts prepaid on account of the Loans may not be reborrowed. (c) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, Premium, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Funding Office, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment on a Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall 19 15 be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension. (d) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Closing Date, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of the Closing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to the Loans, on demand, from the Borrower. (e) Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment being made hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three Business Days of such required date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower. 2.9 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Loan made by it, any other Loan Document or any present or future assignment or participation agreement contemplated by Section 8.6 or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes to the extent that they are to be borne by the Borrower pursuant to Section 2.10 and 20 16 Excluded Taxes and except for changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount that such Lender deems to be material, of making, continuing or maintaining Loans, or to reduce any amount receivable hereunder or under any other Loan Document or any present or future assignment or participation agreement contemplated by Section 8.6 in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable, provided that such Lender shall have given reasonable notice to the Borrower within 180 days after it becomes aware or, in the exercise of reasonable care, should have been aware of the event giving rise to such payment obligation. If any Lender becomes entitled to claim any additional amounts pursuant to this paragraph, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction, provided that such Lender shall have given reasonable notice to the Borrower within 180 days after it becomes aware or, in the exercise of reasonable care, should have been aware of the event giving rise to such payment obligation. (c) A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 21 17 2.10 Taxes. (a) All payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) ("Excluded Taxes") imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender or a Participant having been a party to or having executed, delivered or performed its obligations or received a payment under, or enforced or accepted, this Agreement, any other Loan Document, the DII Credit Agreement or any other document (including, without limitation, any present or future assignment or participation agreement contemplated by Section 8.6 which has been or in the future will be executed in connection therewith) and other than arising from the Administrative Agent, the Collateral Agent, a Lender or a Participant being or becoming an Affiliate of the Borrower). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Lender or a Participant hereunder or under any present or future assignment or participation agreement contemplated by Section 8.6, the amounts so payable to the Administrative Agent or such Lender or such Participant shall be increased to the extent necessary to yield to the Administrative Agent or such Lender or such Participant (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder or under any present or future assignment or participation agreement contemplated by Section 8.6 at the rates or in the amounts specified in this Agreement, provided, however, that the Borrower shall not be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes that are attributable to such Lender's failure to comply with the requirements of paragraph (d) of this Section. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of the relevant Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof, if available. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. (d) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by 22 18 applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender's judgment such completion, execution or submission would not materially prejudice the legal position of such Lender. (e) The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.11 Indemnity. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense that such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of or continuation of Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Loans on a day that is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed or continued, for the period from the date of such prepayment or of such failure to borrow or continue to the last day of such Interest Period (or, in the case of a failure to borrow or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.12 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.9 or 2.10(a) with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of any Borrower or the rights of any Lender pursuant to Section 2.9 or 2.10(a). 2.13 Replacement of Lenders. The Borrower shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing pursuant to Section 2.9 or 2.10(a) or (b) defaults in its obligation to make Loans hereunder, with a replacement financial institution; provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall have taken no action under Section 2.12 so as to 23 19 eliminate the continued need for payment of amounts owing pursuant to Section 2.9 or 2.10(a), (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Borrower shall be liable to such replaced Lender under Section 2.11 if any Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial institution, if not already a Lender, shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 8.6 (provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein), (viii) until such time as such replacement shall be consummated, the Borrower shall pay all additional amounts (if any) required pursuant to Section 2.9 or 2.10, as the case may be, and Section 8.6(b) and (ix) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Administrative Agent and each Lender that: 3.1 Financial Condition. The unaudited pro forma balance sheet of the Borrower as at the Closing Date (the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the consummation of the Acquisition, (ii) the Loans to be made on the Closing Date and the use of proceeds thereof and (iii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Borrower as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of Borrower as at the Closing Date, assuming that the events specified in the preceding sentence had actually occurred at such date. The Borrower does not have any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the Pro Forma Balance Sheet. 3.2 Existence; Compliance with Law. The Borrower (a) is a duly organized and validly existing limited partnership and is registered under No. HRA2264 in the commercial register of Boblingen under the laws of Germany, (b) has the power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, and (c) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 3.3 Power; Authorization; Enforceable Obligations. The Borrower and Multilayer each have the power and authority, and the legal right, to make, deliver and perform the Loan Documents and the Acquisition Documents to which the Borrower is a party and to 24 20 borrow hereunder and to consummate the Acquisition. The Borrower and Multilayer have taken all necessary action to authorize the execution, delivery and performance of the Loan Documents to which the Borrower is a party and to authorize the borrowings on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the Acquisition and the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, except (i) consents, authorizations, filings and notices described in Schedule 3.3, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect and (ii) the actions referred to in Section 3.11. Each Loan Document to which the Borrower is a party has been duly executed and delivered on behalf of the Borrower. This Agreement constitutes, and each other Loan Document to which the Borrower is a party upon execution will constitute, a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 3.4 No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the borrowings hereunder, the use of the proceeds thereof and the consummation of the Acquisition will not violate any Requirement of Law or any Contractual Obligation of the Borrower and/or Multilayer and will not result in, or require, the creation or imposition of any Lien on any of their properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents). No Requirement of Law or Contractual Obligation applicable to the Borrower and/or Multilayer could reasonably be expected to have a Material Adverse Effect. 3.5 Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower and/or Multilayer or against any of their properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby or the Acquisition, or (b) that could reasonably be expected to have a Material Adverse Effect. 3.6 No Default. The Borrower is not in default under or with respect to any of its Contractual Obligations in any respect that could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 3.7 Ownership of Property; Liens. The Borrower has good and marketable title to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien except as permitted by the Guarantee Agreement. 3.8 Intellectual Property. The Borrower owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No 25 21 material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does the Borrower know of any valid basis for any such claim. The use of Intellectual Property by the Borrower does not infringe on the rights of any Person in any material respect. 3.9 Subsidiaries. The Borrower has no Subsidiaries on the Closing Date. 3.10 Use of Proceeds. The proceeds of the Loans shall be used to finance the Acquisition and to pay related fees and expenses. 3.11 Security Documents. (a) The Guarantee and Collateral Agreement is effective to create in favor of the Collateral Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. In the case of the certificated Pledged Stock described in the Guarantee and Collateral Agreement, when stock certificates representing such Pledged Stock are delivered to the Collateral Agent, and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when financing statements and other filings specified on Schedule 6.19 to the DII Credit Agreement are filed in the offices specified in such schedule, the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the parties to the Guarantee and Collateral Agreement in such Collateral and the proceeds thereof, as security for the obligations of DII under the Guarantee Agreement and the obligations and liabilities of the Borrowers (as defined in the DII Credit Agreement) under the DII Credit Agreement, in each case prior and superior in right to any other Person (except, in the case of Collateral other than Pledged Stock, Liens permitted by the Guarantee Agreement). (b) Each of the Security Documents (other than the Guarantee and Collateral Agreement) is effective to create in favor of the Collateral Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the collateral described therein and proceeds thereof. In the case of the collateral described in such Security Documents, when the appropriate actions are taken under relevant foreign laws (as specified in such Security Documents), such Security Documents shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of each of the relevant grantors parties thereto in such collateral and the proceeds thereof, as security for the obligations of the Borrower and the other Loan Parties hereunder and under the other Loan Documents, in each case prior and superior in right to any other Person (except Liens permitted by the Guarantee Agreement). 3.12 Year 2000 Matters. Any reprogramming required to permit the proper functioning (but only to the extent that such proper functioning would otherwise be impaired by the occurrence of the year 2000) in and following the year 2000 of computer systems and other equipment containing embedded microchips material to the conduct of business, in either case owned or operated by the Borrower or used or relied upon in the conduct of its business (including any such systems and other equipment supplied by others or with which the computer systems of the Borrower interface), and the testing of all such systems and other equipment as so reprogrammed in all material respects, will be completed by October 1, 1999. The costs to the Borrower that have not been incurred as of the date hereof for such reprogramming and testing 26 22 and for the other reasonably foreseeable consequences to them of any improper functioning of other computer systems and equipment containing embedded microchips due to the occurrence of the year 2000 could not reasonably be expected to result in a Default or Event of Default or to have a Material Adverse Effect. Except for any reprogramming referred to above, the computer system of the Borrower is and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient for the conduct of its business as currently conducted. 3.13 Certain Documents. The Borrower has delivered to each Lender a complete and correct copy of the Acquisition Documentation, including any amendments, supplements or modifications with respect to any of the foregoing. 3.14 Withholding Tax. (a) There is no tax, levy, impost, deduction, charge or withholding imposed, levied or made by or in Germany or any political subdivision or taxing authority thereof or therein either (i) on or by virtue of the execution or delivery of this Agreement or any of the other Loan Documents (or any other document including, without limitation, any present or future assignment or participation agreement contemplated by Section 8.6, which has been or in the future will be executed in connection therewith) or (ii) on any payment to be made by the Borrower pursuant to this Agreement or any of the other Loan Documents or on any payment to be made by the Borrower, the Administrative Agent, the Collateral Agent or any Lender to any Participant. The Borrower is permitted to make all payments pursuant to this Agreement or any other Loan Document or any other document executed in connection therewith, and each Lender, the Administrative Agent and the Collateral Agent are and also in the future will be permitted to make payments to any Participant free and clear of all taxes, levies, imposts, deductions, charges or withholdings imposed, levied or made by or in Germany or any political subdivision or taxing authority thereof or therein, and no such payment in the hands of any Lender, the Administrative Agent, the Collateral Agent or any Participant will be subject to any tax, levy, impost, deduction, charge or withholding imposed, levied or made by or in Germany or any political subdivision or taxing authority therein or thereof. (b) The Borrower neither believes nor reasonably expects that any interest paid by the Borrower hereunder will constitute interest paid by a trade or business in the United States within the meaning of Section 884(f)(l)(A) of the Internal Revenue Code of 1986, as amended. 3.15 No Filing. To ensure the legality, validity, enforceability or admissibility in evidence of this Agreement and the other Loan Documents in Germany, it is not necessary that this Agreement, any other Loan Document or any other document be filed or recorded with any court or other authority in Germany, or that any stamp or similar tax be paid on or in respect of this Agreement or any of the other Loan Documents. 3.16 Proper Form. This Agreement will be in proper legal form under the laws of Germany for the enforcement thereof in Germany. 27 23 3.17 Choice of Law. In any action or proceeding involving the Borrower arising out of or relating to this Agreement in any court of Germany, each Lender and the Administrative Agent would be entitled to the recognition and effectiveness of the provisions of Section 8.11. SECTION 4. CONDITIONS PRECEDENT The agreement of each Lender to make the Loan requested to be made by it is subject to the satisfaction, prior to or concurrently with the making of such Loan on the Closing Date (but in any event no later than November 30, 1998), of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by the Administrative Agent, the Borrower and each Person listed on Schedule 1.1A, (ii) the Guarantee Agreement, executed and delivered by a duly authorized officer of each of DII, CV, Multilayer and DOVatron, (iii) each of the German Security Agreements, executed and delivered by a duly authorized officer of each party thereto, (iv) the Intercreditor Agreement, executed and delivered by a duly authorized officer of the parties thereto and (v) the Pledge Agreement, executed and delivered by a duly authorized officer of each of the parties thereto. (b) DII Credit Agreement. The DII Credit Agreement shall have been duly executed and delivered by the parties thereto and the conditions precedent to the Closing Date thereunder set forth in Section 7 thereof shall have been satisfied. (c) Lien Searches. The Administrative Agent shall have received the results of a recent lien search or other analogous investigation, to the extent applicable under relevant law, in each of the jurisdictions where assets of the Borrower are located, and such search or investigation shall reveal no liens on any of the assets of the Borrower except for liens permitted by the Guarantee Agreement or discharged on or prior to the Closing Date pursuant to documentation satisfactory to the Administrative Agent. (d) Fees. The Lenders, the Administrative Agent and the Arranger shall have received all fees required to be paid, and all expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel), on or before the Closing Date. All such amounts will be paid with proceeds of Loans made on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Administrative Agent on or before the Closing Date. (e) Closing Certificate. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of each Loan Party, dated the Closing Date, substantially in the form of Exhibit B, with appropriate insertions and attachments. (f) Legal Opinions. The Administrative Agent shall have received the following executed legal opinions: 28 24 (i) the legal opinion of Curtis, Mallet-Prevost, Colt & Mosle, United States counsel to the Loan Parties and its Subsidiaries, substantially in the form of Exhibit D-1; (ii) the legal opinion of Raupach & Wollert-Elmendorff, German tax counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit D-2; (iii) the legal opinion of Michaelis Pfeiffer Konig, German counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit D-3; (iv) the legal opinion of Loeff Claeyes Verbeke, Netherlands counsel to CV and its Subsidiaries, substantially in the form of Exhibit D-4; (v) the legal opinion of Bruckhaus Westrick Heller Lober, German counsel to the Lenders, in form and substance satisfactory to the Administrative Agent; and (vi) to the extent consented to by the relevant counsel, each legal opinion, if any, delivered in connection with the Acquisition Agreement, accompanied by a reliance letter in favor of the Lenders. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (g) Accountants' Opinions. The Lenders shall have received opinions of Deloitte & Touche LLP, tax advisors to the Loan Parties, concerning the effectiveness of the tax structure of the transactions contemplated by this Agreement, in form and substance satisfactory to the Administrative Agent. (h) Appointment of Agent for Service of Process. Each of the Borrower, Multilayer and DOVatron shall have irrevocably appointed DII as its agent for service of processes in the United States pursuant to documentation in form and substance satisfactory to the Administrative Agent. (i) Perfection of Liens and Security Interests. All filings, recordings and other actions that are necessary or reasonably desirable in order to establish, protect, preserve and perfect a Collateral Agent's lien on and perfected security interest (to the extent perfection is permitted or provided for under relevant law) in all right, title, estate and interest of the Loan Parties in and to all Collateral covered by the Security Documents prior and superior to all other Liens, existing or future, except Liens permitted by the Guarantee Agreement, shall have been duly made or taken and all fees, taxes and other charges relating to such filings and recordings and other actions shall have been paid by the Borrower. The Collateral Agent shall have received authenticated copies or other evidence of all filings, recordings and other actions obtained or made in order to create and 29 25 perfect such first lien on and perfected security interest (to the extent perfection is permitted or provided for under relevant law) in the right, title, estate and interest of the Borrower in and to all Collateral covered by the Security Documents. (j) Representations and Warranties. Each of the representations and warranties made by each Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date. (k) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans requested to be made on such date. SECTION 5. AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect, or any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, the Borrower shall and shall cause each of its Subsidiaries to: 5.1 Financial Statements. Furnish to the Administrative Agent and each Lender, in each case in English: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related unaudited consolidated statements of income and of cash flows for such year (in each case, expressed in Dollars), setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited condensed consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited condensed consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such officer and disclosed therein). 5.2 Certificates; Other Information. Furnish to the Administrative Agent and each Lender (or, in the case of clause (c), to the relevant Lender), in each case in English: 30 26 (a) concurrently with the delivery of any financial statements pursuant to Section 5.1, a certificate of a Responsible Officer stating that, to the best of such Responsible Officer's knowledge, each Loan Party during such period has observed or performed in all material respects all of its covenants and other agreements, and satisfied in all material respects every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate; (b) no later than 10 Business Days prior to the effectiveness thereof, copies of substantially final drafts of any proposed amendment, supplement, waiver or other modification with respect to the Acquisition Documentation; and (c) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be. 5.4 Maintenance of Existence; Compliance. (a) (i) Preserve, renew and keep in full force and effect its existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.5 Maintenance of Property; Insurance. (a) Keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business. 5.6 Inspection of Property; Books and Records; Discussions. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and (b) permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time on any Business Day and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with 31 27 officers and employees of the Borrower and its Subsidiaries and with its independent certified public accountants with prior notice to the Borrower and its Subsidiaries and subject to reasonable security and confidentiality procedures. 5.7 Notices. Promptly give notice to the Administrative Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Borrower or any of its Subsidiaries or (ii) litigation, investigation or proceeding that may exist at any time between the Borrower or any of its Subsidiaries and any Governmental Authority, that in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting the Borrower or any of its Subsidiaries in which the amount involved is $5,000,000 (or the equivalent thereof) or more and not covered by insurance or in which injunctive or similar relief is sought; and (d) any development or event that has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section 5.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower or the relevant Subsidiary proposes to take with respect thereto. 5.8 Environmental Laws. (a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws. 5.9 Additional Collateral, etc. (a) With respect to any property acquired after the Closing Date by the Borrower (other than (y) any property described in paragraph (b) below and (z) any property subject to a Lien expressly permitted by the Guarantee Agreement) as to which the Collateral Agent, for the benefit of the Lenders, does not have a perfected (to the extent perfection is permitted or provided for under relevant law) Lien, promptly take all actions necessary or advisable to grant to the Collateral Agent, for the benefit of the Lenders, a perfected (to the extent perfection is permitted or provided for under relevant law) first priority security interest in such property. 32 28 (b) With respect to any new Subsidiary created or acquired after the Closing Date by the Borrower, promptly (i) execute and deliver to the Collateral Agent all security documents as the Collateral Agent deems necessary or advisable to grant to the Collateral Agent, for the benefit of the Lenders, a first priority security interest in the Capital Stock of such new Subsidiary that is owned by the Borrower, (ii) cause such new Subsidiary (A) to take such actions necessary or advisable to grant to the Collateral Agent, for the benefit of the Lenders, a perfected (to the extent perfection is permitted or provided for under relevant law) first priority security interest in the Collateral described in clause (i) above with respect to such new Subsidiary and (B) to deliver to the Collateral Agent a certificate of such Subsidiary, substantially in the form of Exhibit C, with appropriate insertions and attachments, (iii) cause such new Subsidiary to enter into a guarantee in respect of the Borrower's obligations hereunder in form and substance satisfactory to the Collateral Agent and (iv) if requested by the Collateral Agent, deliver to the Collateral Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Collateral Agent. SECTION 6. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) the Borrower shall fail to pay any principal or Premium on any Loan when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan, or any other amount payable hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or (b) any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or (c) (i) the Borrower shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 5.4(a) or Section 5.7(a) of this Agreement, (ii) an "Event of Default" under and as defined in the DII Credit Agreement shall have occurred and be continuing, (iii) DII shall default in the observance or performance of any agreement contained in Section 2 of the Guarantee Agreement or (iv) any Loan Party shall default in the observance or performance of any agreement contained in Sections 5.5 and 5.7(b) of the Guarantee and Collateral Agreement; or (d) any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than 33 29 as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days; or (e) any Guarantor, the Borrower or any of its Subsidiaries shall (i) default in making any payment of any principal of any Indebtedness (including any Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount of which exceeds in the aggregate $5,000,000 (or the equivalent thereof); or (f) (i) DII, CV, the Borrower or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or DII, CV, the Borrower or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against DII, CV, the Borrower or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against DII, CV, the Borrower or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) DII, CV, the Borrower or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) DII, CV, the Borrower or any of its 34 30 Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) one or more judgments or decrees shall be entered against DII, CV, the Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) of $5,000,000 (or the equivalent thereof) or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (h) any of the Security Documents shall cease, for any reason, to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (i) the Guarantee Agreement or the guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert; or (j) a Change of Control shall have occurred; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents shall immediately become due and payable, and the Borrower shall pay to the Administrative Agent, for the ratable benefit of the Lenders, the Premium, which shall also become immediately due and payable, and (B) if such event is any other Event of Default, the following actions may be taken: with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents to be due and payable forthwith and the Borrower shall pay to the Administrative Agent, for the ratable benefit of the Lenders, the Premium, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower. SECTION 7. THE ADMINISTRATIVE AGENT 7.1 Appointment. Each Lender hereby irrevocably designates and appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, 35 31 together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 7.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 7.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. 7.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Borrower, DII and CV), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of all the Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of all Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 36 32 7.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by all Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 7.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 7.7 Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Percentages in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time 37 33 (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the Administrative Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder. 7.8 Administrative Agent in Its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though the Administrative Agent was not the Administrative Agent. With respect to its Loans made or renewed by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 7.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 6(a) or Section 6(f) with respect to the Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 7 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. 7.10 Authorization to Release Guarantees and Liens. Notwithstanding anything to the contrary contained herein or in any other Loan Document, the Administrative Agent is hereby irrevocably authorized by each of the Lenders (without requirement of notice to or consent of any Lender except as expressly required by Section 8.1) to take any action requested by the Borrower having the effect of releasing any Collateral or guarantee obligations to the 38 34 extent necessary to permit consummation of any transaction not prohibited by any Loan Document or that has been consented to in accordance with Section 8.1. SECTION 8. MISCELLANEOUS 8.1 Amendments and Waivers. Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 8.1. The Required Lenders and each Loan Party party to the relevant Loan Document may, or, with the written consent of the Required Lenders, the Administrative Agent and each Loan Party party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as all of the Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) reduce the principal amount or extend the final scheduled date of maturity of any Loan, reduce the stated rate of any interest, Premium or fee payable hereunder or extend the scheduled date of any payment thereof, in each case without the consent of each Lender directly affected thereby; (ii) amend, modify or waive any provision of this Section 8.1 or reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release all or substantially all of the Guarantors from their obligations under the Guarantee or Guarantee and Collateral Agreement, as the case may be, in each case without the written consent of all Lenders; or (iii) amend, modify or waive any provision of Section 7 without the written consent of the Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 8.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Borrower and the Administrative Agent, and as set forth in an administrative questionnaire delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto: 39 35 The Borrower: Multilayer Technology GmbH and Co. KG Herrenberger Strasse 110 Boblingen, Germany Attention: Michael Corkery Telecopy: 49-7031-14-1782 Telephone: 49-7031-14-1801 The Administrative Agent: The Chase Manhattan Bank One Chase Manhattan Plaza 8th Floor New York, New York 10081 Attention: Loan and Agency Services Group Telecopy: (212) 552-5658 Telephone: (212) 552-7277 with a copy to: The Chase Manhattan Bank 2 Court Street, P.O. Box 706 Binghamton, New York 13902 Attention: Michael Brunner Telecopy: (607) 772-9341 Telephone: (607) 772-2375 provided that any notice, request or demand to or upon the Administrative Agent or the Lenders shall not be effective until received. 8.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 8.4 Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit hereunder. 8.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or reimburse the Administrative Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including the reasonable fees and disbursements of counsel to the Administrative Agent and filing and recording fees and 40 36 expenses, with statements with respect to the foregoing to be submitted to the Borrower prior to the Closing Date (in the case of amounts to be paid on the Closing Date) and from time to time thereafter on a quarterly basis or such other periodic basis as the Administrative Agent shall deem appropriate, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to each Lender and of counsel to the Administrative Agent, (c) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, that may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent and their respective officers, directors, employees, affiliates, agents and controlling persons (each, an "Indemnitee") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents, any present or future assignment or participation agreement contemplated by Section 8.6(b) and any such other documents, including any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Borrower, any of its Subsidiaries or any of the Properties and the reasonable fees and expenses of legal counsel in connection with claims, actions or proceedings by any Indemnitee against any Loan Party under any Loan Document (all the foregoing in this clause (d), collectively, the "Indemnified Liabilities"), provided, that the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee. Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries to so waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. All amounts due under this Section 8.5 shall be payable promptly after written demand therefor. Statements payable by the Borrower pursuant to this Section 8.5 shall be submitted to The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, New York 10081, Attn: Jesus Sang (Telephone No. (212) 552-7916) (Telecopy No. (212) 552-5650), at the address of the Borrower set forth in Section 8.2, or to such other Person or address as may be hereafter designated by the Borrower in a written notice to the Administrative Agent. The agreements in this Section 8.5 shall survive repayment of the Loans and all other amounts payable hereunder. 41 37 8.6 Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Administrative Agent, all future holders of the Loans and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, without the consent of the Borrower, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a "Participant") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Loans or any premium or fees payable hereunder, or postpone the date of the final maturity of the Loans, in each case to the extent subject to such participation. The Borrower agrees that if amounts outstanding under this Agreement and the Loans are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 8.7(a) as fully as if it were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.9, 2.10, 2.11 and 2.13(viii) with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender and each Lender who sold the participating interest shall be entitled to raise the claims under Section 2.9, 2.10 and 2.11 also in relation to taxes, expenses, losses and other amounts described in said Sections arising in connection with, or due to, the participation in the respective Commitments and Loans and the documents in connection therewith; provided that, in the case of Section 2.10, such Participant shall have complied with the requirements of Section 2.10(d). (c) Any Lender (an "Assignor") may, in accordance with applicable law, at any time and from time to time assign to any Lender or any affiliate thereof or, with the consent of the Borrower and the Administrative Agent (which, in each case, shall not be unreasonably withheld or delayed), to an additional bank, financial institution or other entity (an "Assignee") all, but not part, of its rights and obligations under this Agreement pursuant to an Assignment and Acceptance, executed by such Assignee, such Assignor and any other Person whose consent is required pursuant to this paragraph, and delivered to the Administrative Agent for its 42 38 acceptance and recording in the Register. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment and/or Loans as set forth therein, and (y) the Assignor thereunder shall be released from its obligations under this Agreement and such Assignor shall cease to be a party hereto. Notwithstanding any provision of this Section 8.6, the consent of the Borrower shall not be required for any assignment that occurs when an Event of Default pursuant to Section 8(f) shall have occurred and be continuing with respect to the Borrower. (d) The Administrative Agent shall, on behalf of the Borrower, maintain at its address referred to in Section 8.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and the principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, each other Loan Party, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loans for all purposes of this Agreement. Any assignment of any Loan shall be effective only upon appropriate entries with respect thereto being made in the Register. (e) Upon its receipt of an Assignment and Acceptance executed by an Assignor, an Assignee and any other Person whose consent is required by Section 8.6(c), together with payment to the Administrative Agent of a registration and processing fee of $4,000, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) record the information contained therein in the Register on the effective date determined pursuant thereto. (f) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section 8.6 concerning assignments of Loans relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including any pledge or assignment by a Lender of any Loan to any Federal Reserve Bank in accordance with applicable law. 8.7 Adjustments; Set-off. (a) Except to the extent that this Agreement expressly provides for payments to be allocated to a particular Lender, if any Lender (a "Benefitted Lender") shall, at any time after the Loans and other amounts payable hereunder shall immediately become due and payable pursuant to Section 6, receive any payment of all or part of the Obligations owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 6(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of the Obligations owing to such other Lender, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of the Obligations owing to each such other Lender, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the 43 39 Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower, as the case may be. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 8.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 8.9 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.10 Integration. This Agreement and the other Loan Documents represent the agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 8.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition 44 40 and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) acknowledges that it has appointed DII to receive and accept service of process in any such action or proceeding on behalf of the Borrower and that DII has accepted such appointment; (d) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to DII at its address specified in Section 12(c) of the Guarantee Agreement or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (e) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (f) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 8.13 Acknowledgements. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders. 8.14 Confidentiality. Each of the Administrative Agent and each Lender agrees to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; provided that nothing herein 45 41 shall prevent the Administrative Agent or any Lender from disclosing any such information (a) to the Administrative Agent, any other Lender or any affiliate of any Lender, (b) to any Transferee or prospective Transferee that agrees to comply with the provisions of this Section, (c) to its employees, directors, agents, attorneys, accountants and other professional advisors or those of any of its affiliates, (d) upon the request or demand of any Governmental Authority, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) that has been publicly disclosed, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender, or (i) in connection with the exercise of any remedy hereunder or under any other Loan Document. 8.15 Accounting Changes. In the event that any "Accounting Change" (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. "Accounting Changes" refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC. 8.16 Judgment. The obligation of the Borrower hereunder due to any party hereto in Dollars shall, notwithstanding any judgment in a currency (the "judgment currency") other than Dollars, be discharged only to the extent that on the Business Day following receipt by such party of any sum adjudged to be so due in the judgment currency such party may in accordance with normal banking procedures purchase Dollars with the judgment currency; if the amount of Dollars so purchased is less than the sum originally due to such party in Dollars, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the party against such loss, and if the amount of Dollars so purchased exceeds the sum originally due to any party to this Agreement, such party agrees to remit to the Borrower the excess. 8.17 Collateral Agent as Secured Creditor. Each of the Borrower and the Lenders agree that the Collateral Agent shall be the joint and several creditor together with the relevant Lender of each and every obligation of the Borrower toward each of the Lenders under this Agreement and the other Loan Documents pursuant to Section 7.2 of the Intercreditor Agreement, with such rights as set forth in such Section. 46 42 8.18 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 47 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. MULTILAYER TECHNOLOGY GMBH AND CO. KG By: ------------------------------------ Name: Title: THE CHASE MANHATTAN BANK, as Administrative Agent and as a Lender By: ------------------------------------ Name: Title: EX-13 6 ANNUAL REPORT TO SHAREHOLDERS 1 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ SELECTED FINANCIAL DATA (Dollars in thousands, except per share data) As more fully described in Note 2 of the Consolidated Financial Statements, the Company merged (the "Merger") with Orbit Semiconductor, Inc. ("Orbit") on August 22, 1996, and ultimately Orbit became a wholly owned subsidiary of the Dii Group. This transaction was accounted for as a pooling-of-interests and, accordingly, all prior period financial statements have been restated to reflect the combined operations of the two companies. The following consolidated financial data have been derived from the restated consolidated financial statements:
FOR THE FISCAL YEARS - ------------------------------------------------------------------------------------------------------------------------- 1998 (7) 1997 1996 (6) 1995 1994 (5) - ------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS (1): Net sales $ 925,543 779,603 458,893 396,978 258,464 Income (loss) before extraordinary item (17,032) 35,320 10,035 23,654 8,803 Basic earnings (loss) per share before extraordinary item (2) (0.68) 1.43 0.42 1.05 0.44 Diluted earnings (loss) per share before extraordinary item (2) (0.68) 1.26 0.40 0.95 0.41 ========================================================================================================================= CASH DIVIDENDS DECLARED $ -- -- -- -- -- =========================================================================================================================
- ------------------------------------------------------------------------------------------------------ JAN. 3, DEC. 28, DEC. 29, DEC. 31, DEC. 31, 1998 (7) 1997 1996 (6) 1995 1994 (5) - ------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA (1): Cash and cash equivalents $ 55,972 85,067 25,010 55,533 15,161 Total assets 747,309 592,729 335,851 327,311 211,460 Convertible subordinated notes (3) 86,235 86,250 86,250 86,250 -- Long-term debt, excluding convertible subordinated notes (4) 273,684 156,545 12,938 9,401 31,872 Total stockholders' equity (2) (3) 175,721 207,348 159,037 145,549 118,452 ======================================================================================================
(1) See Notes 2 and 4 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. (2) See Notes 10 and 12 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. (3) As of February 18, 1999, substantially all of the Company's convertible subordinated notes were converted into approximately 4,600,000 shares of common stock and the unconverted portion was redeemed for $101. See Note 6 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. (4) Long-term debt excludes current portion and includes bank term debt, revolving line-of-credit borrowings, other long-term debt (including capital lease obligations), and senior subordinated notes. See Notes 5 and 9 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. (5) The Company recorded a non-recurring pre-tax charge of $12,100 in fiscal 1994. This non-recurring charge was primarily associated with the write-down of certain assets to net realizable value relating to two under-capitalized start-up customers. (6) The Company recorded a non-recurring pre-tax charge of $16,532 in fiscal 1996. See Note 7 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. (7) The Company recorded non-recurring pre-tax charges of $76,636 in fiscal 1998. See Note 7 of the Company's Consolidated Financial Statements included elsewhere herein. 15 2 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) OVERVIEW - -------------------------------------------------------------------------------- The Company's fiscal year consists of either a 52-week or 53-week period ending on the Sunday nearest to December 31. Accordingly, the accompanying consolidated financial statements are presented as of January 3, 1999 and December 28, 1997, and for the 53 weeks ended January 3, 1999 and 52 weeks ended December 28, 1997 and December 29, 1996. Each fiscal year is referred to herein as fiscal 1998, 1997, and 1996, respectively. On July 29, 1997, the Company's Board of Directors declared a two-for-one stock split of the Company's common stock effected in the form of a stock dividend, which was distributed on September 2, 1997, to shareholders of record as of August 15, 1997. All share and per-share data included herein have been retroactively restated to reflect the split. The Company is a leading provider of electronics design and manufacturing services that operates through a global network of independent business units. These business units are uniquely linked to provide the following related products and services: DESIGN AND SEMICONDUCTOR SERVICES - Through Dii Technologies the Company provides printed circuit board and back panel design services, as well as design for manufacturability and test and total life cycle planning. Through Dii Semiconductor (formerly known as Orbit Semiconductor), the Company provides the following application-specific integrated circuit ("ASIC") design services to its OEM customers: o Conversion services from field programmable gate arrays ("FPGAs") to ASICs. These services focus on designs that utilize primarily digital signals, with only a small amount of analog signals. o Design services for mixed-signal ASICs. These services focus on designs that utilize primarily analog signals, with only a small amount of digital signals. o Silicon integration design services. These services utilize silicon design modules that are used to accelerate complex ASIC designs, including system-on-a-chip. Dii Semiconductor utilizes external foundry suppliers for its customers' silicon manufacturing requirements, thereby using a "fabless" manufacturing approach. By integrating the combined capabilities of design and semiconductor services, the Company can compress the time from product concept to market introduction and minimize product development costs. PRINTED WIRING BOARDS - The Company manufactures high density, complex multilayer printed wiring boards and back panels through Multek. SYSTEMS ASSEMBLY AND DISTRIBUTION - The Company assembles complex electronic circuits and provides final system configuration ("box build") and distribution through Dovatron. These services are commonly referred to as contract electronics manufacturing ("CEM"). By offering comprehensive and integrated design and manufacturing services, the Company believes that it is better able to differentiate its product and service offerings from those of its competitors, develop long-term relationships with its customers, and enhance profitability. The Company also has a non-core business unit known as Process Technologies International ("PTI"). Through this business unit, the Company manufactures surface mount printed circuit board solder cream stencils through IRI International and Chemtech; designs and manufactures in-circuit and functional test software and hardware through TTI Testron; and manufactures depaneling equipment and automated handling systems used in the printed circuit board assembly process through Cencorp Automation Systems. Management has undertaken an initiative to divest this non-core business unit, in order to sharpen its focus on the Company's core businesses of custom semiconductor design, printed wiring board design and fabrication, and systems assembly and distribution. The Company does not believe that a sale of PTI would result in any adverse impact on the Company's 1999 consolidated financial position. If the Company sells PTI, the Company's consolidated revenues and operating results will be adversely impacted (by less than 10%) until such time as the proceeds are reinvested back into the Company's core businesses of custom semiconductor design, printed wiring board design and fabrication, and systems assembly and distribution. Operating results may also be affected by a number of factors including the economic conditions in the markets the Company serves; price and product competition; the level of volume and the timing of orders; product mix; the amount of automation employed on specific manufacturing projects; efficiencies achieved by inventory management; 16 3 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) fixed asset utilization; the level of experience in manufacturing a particular product; customer product delivery requirements; shortages of components or experienced labor; the integration of acquired businesses; start-up costs associated with adding new geographical locations; expenditures required for research and development; and failure to introduce, or lack of market acceptance of, new processes, services, technologies, and products on a timely basis. Each of these factors has had in the past, and may have in the future, an adverse effect on the Company's operating results. A majority of the Company's sales are to customers in the electronics industry, which is subject to rapid technological change, product obsolescence, and price competition. The factors affecting the electronics industry, in general, or any of the Company's major customers, in particular, could have a material adverse effect on the Company's operating results. The electronics industry has historically been cyclical and subject to significant economic downturns at various times, which have been characterized by diminished product demand, accelerated erosion of average selling prices, and over-capacity. The Company's customers also are subject to short product life cycles and pricing and margin pressures, which risks are in turn borne by the Company. The Company seeks a well-balanced customer profile across most sectors of the electronics industry in order to reduce exposure to a downturn in any particular sector. The primary sectors within the electronics industry served by the Company are office automation, mainframes and mass storage, data communications, computers and peripherals, telecommunications, industrial and instrumentation, and medical. The Company offers manufacturing capabilities in three major electronics markets of the world (North America, Europe and Asia). The Company's operations located outside of the United States generated approximately 43%, 42% and 25% of total net sales in fiscal 1998, 1997 and 1996, respectively. The Company's international operations subject the Company to the risks of doing business abroad, including currency fluctuations, export duties, import controls and trade barriers, restrictions on the transfer of funds, greater difficulty in accounts receivable collection, burdens of complying with a wide variety of foreign laws, and, in certain parts of the world, political and economic instability. At any given time, certain customers may account for significant portions of the Company's business. Hewlett-Packard accounted for 10% and 17% of net sales in fiscal 1998 and 1997, respectively. IBM accounted for 10% of net sales in fiscal 1998. No other customer accounted for more than 10% of net sales during fiscal 1998, 1997 or 1996. The Company's top ten customers accounted for 48%, 50%, and 43% of net sales in fiscal 1998, 1997 and 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 would have a material adverse effect on the Company's operating results. Although management believes the Company has a broad diversification of customers and markets, the Company has few material, firm long-term commitments or volume guarantees from its customers. In addition, customer orders can be canceled and volume levels can be changed or delayed. From time to time, some of the Company's customers have terminated their manufacturing arrangements with the Company, and other customers have reduced or delayed the volume of design and manufacturing services performed by the Company. The timely replacement of canceled, delayed, or reduced contracts with new business cannot be assured, and termination of a manufacturing relationship or change, reduction, or delay in orders could have a material adverse effect on the Company's operating results. In the past, changes in customer orders have had a significant impact on the Company's results of operations due to corresponding changes in the level of overhead absorption. ACQUISITIONS - -------------------------------------------------------------------------------- The Company has actively pursued acquisitions in furtherance of its strategy to be the fastest and most comprehensive global provider of custom electronics design and manufacturing services, ranging from microelectronics design through the fabrication, final assembly, and distribution of printed circuits and finished products for customers. The Company's acquisitions have enabled the Company to provide more integrated outsourcing technology solutions with time-to-market and lower cost advantages. Acquisitions have also played an important part in expanding the Company's presence in the global electronics marketplace. 17 4 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) ACQUISITIONS (CONTINUED) - -------------------------------------------------------------------------------- Acquisitions involve numerous risks, including difficulties in assimilating the operations, technologies, and products and services of the acquired companies; the diversion of management's attention from other business concerns; risks of entering markets in which the Company has no or limited direct prior experience and where competitors in such markets have stronger market positions; and the potential loss of key employees of the acquired company. There can be no assurance that the Company will be able to successfully integrate newly acquired businesses. Such a failure could have a material adverse effect on the Company's business, financial condition, and results of operations. The integration of certain operations following an acquisition will require the dedication of management resources that may distract attention from the day-to-day business of the Company. In August 1998 the Company acquired Greatsino Electronic Technology, a printed wiring board fabricator and contract electronics manufacturer with operations in the People's Republic of China. The cash purchase price, net of cash acquired, amounted to $51,795. The initial purchase price is subject to adjustment for contingent consideration of no more than $40,000, based upon the business achieving specified levels of earnings through August 31, 1999. As of January 3, 1999, the Company had accrued $9,000 of contingent consideration. In October 1998, the Company acquired Hewlett-Packard's printed wiring board fabrication facility located in Boeblingen, Germany, and its related production equipment, inventory and other assets, for a purchase price of approximately $89,900, subject to certain post-closing adjustments. In connection with the purchase, the Company entered into a three-year supply agreement with Hewlett-Packard. These two transactions represent significant steps in the Company's strategy of expanding its worldwide operations, enhancing its technology offerings, increasing its volume production capabilities, and diversifying its customer base. However, these transactions subject the Company to acquisition-related risks, as well as risks associated with international operations. If these operations do not prove to be as successful as the Company expects, the Company's financial condition and results of operations could be materially adversely affected. In addition, the Greatsino acquisition, as well as certain prior acquisitions, are subject to contingent purchase price adjustments for varying periods, all of which end no later than June 2001. Such adjustments would increase the goodwill allocated to these acquisitions. See Note 2 and Note 4 of the Company's 1998 Consolidated Financial Statements included elsewhere herein for information regarding acquisitions and manufacturing facility purchases. OPERATING RESULTS - FISCAL 1998 COMPARED WITH FISCAL 1997 - -------------------------------------------------------------------------------- Total net sales in fiscal 1998 increased $145,940 (19%) to $925,543 from $779,603 in fiscal 1997. The Company believes that the electronics industry experienced a downturn in fiscal 1998, as evidenced by diminished product demand, accelerated erosion of average selling prices, and overcapacity, the impact of which reduced the historical growth rates experienced by the Company's existing customer base. Net sales from systems assembly and distribution, which represented 64% of net sales in fiscal 1998, increased $75,208 (15%) to $589,286 from $514,078 (66% of net sales) in fiscal 1997. This increase is primarily the result of increases in sales volume from existing and new customers, partially offset by reduced orders of certain product lines from some of Dovatron's major customers in the office automation segment. The sales growth is also attributable, to a lesser extent, to the acquisitions described in Note 2 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. Net sales from printed wiring board design and manufacturing operations, which represented 23% of net sales in fiscal 1998, increased $80,589 (63%) to $208,696 from $128,107 (16% of net sales) in fiscal 1997. This increase is attributable to increases in sales to both existing and new customers, offset by reduced orders of certain product lines from some of Multek's major customers in the semiconductor test equipment industry. The sales growth is also attributable to the acquisitions described in Note 2 and the purchases of the manufacturing facilities described in Note 4 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. Net sales for the Company's other products and services, which represented 13% of net sales in fiscal 1998, decreased $9,857 (7%) to $127,561 from $137,418 (18% of net sales) in fiscal 1997. This decrease is primarily attributable to the downturn in the semiconductor and machine tool industries, which was characterized by diminished product demand, accelerated erosion of average selling prices, and overcapacity. 18 5 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) Excluding non-recurring charges, gross profit in fiscal 1998 increased $6,992 to $138,932 from $131,940 in fiscal 1997. Excluding non-recurring charges, gross margin decreased to 15.0% in fiscal 1998 as compared with 16.9% in fiscal 1997. The gross margin was adversely affected by (i) the increased level of systems build ("box-build") projects for Dovatron, which typically have lower margins than its non box-build projects; (ii) the incremental production from the Multek acquisitions described in Note 2 and the purchases of manufacturing facilities described in Note 4 of the Company's 1998 Consolidated Financial Statements included elsewhere herein, which carry lower gross margins than historical Multek high-technology and quick-turn business; (iii) continued manufacturing inefficiencies, underutilization, and yield problems at Orbit; and (iv) the electronics industry downturn experienced in 1998 (especially in the semiconductor and machine tool industries), characterized by diminished product demand, accelerated erosion of average selling prices, and overcapacity. Selling, general and administrative (SG&A) expense increased $8,535 to $77,318 in fiscal 1998 from $68,783 in fiscal 1997. The percentage of SG&A expense to net sales decreased to 8.4% in fiscal 1998 from 8.8% in fiscal 1997. The increase in absolute dollars is related to (i) the continued expansion of the Company's sales and marketing, finance, and other general and administrative infrastructure necessary to support the Company's growth; (ii) the acquisitions described in Note 2 of the Company's 1998 Consolidated Financial Statements included elsewhere herein; (iii) the purchases of the manufacturing facilities described in Note 4 of the Company's 1998 Consolidated Financial Statements included elsewhere herein; and (iv) increased SG&A expenses associated with the 19% increase in net sales in fiscal 1998. The percentage of SG&A expense to net sales decreased in fiscal 1998 when compared with fiscal 1997 due to better absorption from the increase in sales. During fiscal 1998, the Company recognized non-recurring pre-tax charges of $76,636, substantially all of which related to the operations of the Company's wholly owned subsidiary, Orbit Semiconductor ("Orbit"). The Company decided to sell Orbit's 6-inch, 0.6 micron wafer fabrication facility ("Fab") and adopt a fabless manufacturing strategy to complement Orbit's design and engineering services. The charges were primarily due to the impaired recoverability of inventory, intangible assets and fixed assets, and other costs associated with the exit of semiconductor manufacturing. The manufacturing facility was ultimately sold in January 1999. The non-recurring pre-tax charges consisted of (i) $53,340 associated with the write-down of long-lived assets to fair value, (ii) $12,500 for losses on sales contracts, incremental amounts of uncollectible accounts receivable, and estimated incremental costs for sales returns and allowances, (iii) $5,750 for losses associated with inventory write-downs, (iv) $3,648 of costs related to the exiting of semiconductor manufacturing, and (v) $1,398 of employee termination costs. See Note 7 of the Company's 1998 Consolidated Financial Statements included elsewhere herein for information regarding the non-recurring pre-tax charges. Interest expense increased $11,019 to $21,680 in fiscal 1998 from $10,661 in fiscal 1997. The increase is primarily due to increased borrowings described in Note 5 of the Company's 1998 Consolidated Financial Statements included elsewhere herein used to fund the business acquisitions and purchases of manufacturing facilities. Amortization expense increased $693 to $4,661 in fiscal 1998 from $3,968 in fiscal 1997. This increase is attributable to the amortization of debt issue costs associated with the increased borrowings used to fund the business acquisitions and purchases of manufacturing facilities as well as amortization of goodwill associated with such acquisitions. Other expense (net) decreased $544 in fiscal 1998 from fiscal 1997 mainly due to increased net gains realized on foreign currency transactions and reduced provisions for doubtful accounts. The Company's estimated effective income tax rate differs from the U.S. statutory rate due to domestic income tax credits and lower effective income tax rates on foreign earnings considered permanently invested abroad. The effective tax rate for a particular year will vary depending on the mix of foreign and domestic earnings, income tax credits, and changes in previously established valuation allowances for deferred tax assets based upon management's current analysis of the realizability of these deferred tax assets. As foreign earnings considered permanently invested abroad increase as a percentage of consolidated earnings, the overall consolidated effective income tax rate will usually decrease because the foreign earnings are generally taxed at a lower rate than domestic earnings. 19 6 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) OPERATING RESULTS - FISCAL 1998 COMPARED WITH FISCAL 1997 (CONTINUED) - -------------------------------------------------------------------------------- Foreign income from operations before income taxes amounted to $32,721 and $25,936 in fiscal 1998 and 1997, respectively. Domestic loss from operations before income taxes amounted to $71,253 in fiscal 1998. Domestic income from operations before income taxes amounted to $23,729 in fiscal 1997. The mix of foreign and domestic income or loss from operations before income taxes, the recognition of income tax loss and tax credit carryforwards, and management's current assessment of the required valuation allowance resulted in an estimated effective income tax rate of 56% in fiscal 1998. Excluding the non-recurring charges, the effective income tax rate in fiscal 1998 was 20%. The Company's effective income tax rate was 29% in fiscal 1997. OPERATING RESULTS - FISCAL 1997 COMPARED WITH FISCAL 1996 - -------------------------------------------------------------------------------- Total net sales in fiscal 1997 increased $320,710 (70%) to $779,603 from $458,893 in fiscal 1996. Net sales from systems assembly and distribution, which represented 66% of net sales in fiscal 1997, increased $239,427 (87%) to $514,078 from $274,651 (60% of net sales) in fiscal 1996. The sales growth is primarily attributable to significant increases in orders from both existing and new customers, such as the high volume, multi-site production order for Hewlett-Packard, which began ramping in early fiscal 1997. Net sales from printed wiring board design and manufacturing operations, which represented 16% of net sales in fiscal 1997, increased $55,256 (76%) to $128,107 from $72,851 (16% of net sales) in fiscal 1996. The sales growth in fiscal 1997 is attributable to increases in sales to both existing and new customers. The sales growth is also attributable to the acquisitions described in Note 2 of the Company's 1998 Consolidated Financial Statements included elsewhere herein and the purchase of the manufacturing facility in 1997 described in Note 4 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. Net sales for the Company's other products and services, which represented 18% of net sales in fiscal 1997, increased $26,027 (23%) to $137,418 from $111,391 (24% of net sales) in fiscal 1996. This increase is attributable to increases in sales to both existing and new customers, as well as the acquisitions described in Note 2 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. Excluding non-recurring charges, gross profit in fiscal 1997 increased $43,657 to $131,940 from $88,283 in fiscal 1996. Excluding non-recurring charges, the gross margin decreased to 16.9% in fiscal 1997 as compared with 19.2% in fiscal 1996. The gross margin decrease is primarily the result of (i) the increase in systems assembly and distribution revenues, which generate lower margins than the Company's other products and service offerings, (ii) Multek's underabsorbed overhead associated with the transition of its printed wiring board fabrication facility purchased in August 1997 to the merchant market, and (iii) Orbit's underabsorption of overhead associated with its transition into its new 6-inch, 0.6 micron wafer fabrication facility. The transition into Orbit's 6-inch, 0.6 micron fabrication facility took longer than originally anticipated. The Company completed the transition into its 6-inch, 0.6 micron facility and sold its 4-inch, 1.2 micron wafer fabrication facility during the first quarter of 1998. SG&A expense increased $20,243 to $68,783 in fiscal 1997 from $48,540 in fiscal 1996. The percentage of SG&A expense to net sales was 8.8% and 10.6% for fiscal years 1997 and 1996, respectively. The increase in absolute dollars was primarily attributable to (i) additional costs associated with the start-up of Orbit's newly acquired wafer fabrication facility while winding down its old wafer fabrication facility, (ii) the continued expansion of the Company's sales and marketing, finance, and other general and administrative infrastructure necessary to support the Company's growth, (iii) increased incentive-based stock compensation, the recognition of which is based upon expected achievement of certain earnings per share targets established by the Compensation Committee of the Board of Directors, (iv) the acquisitions described in Note 2 of the Company's 1998 Consolidated Financial Statements included elsewhere herein; (v) the purchase of the manufacturing facility in 1997 described in Note 4 of the Company's 1998 Consolidated Financial Statements included elsewhere herein, and (vi) increased SG&A expenses associated with the 70% increase in net sales in fiscal 1997. The percentage of SG&A expense to net sales decreased in fiscal 1997 when compared with fiscal 1996 due to better absorption from the increase in revenues. Interest expense increased $4,394 to $10,661 in fiscal 1997 from $6,267 in fiscal 1996. The increase is primarily due to increased borrowings described in Note 5 of the Company's 1998 Consolidated Financial Statements included elsewhere herein used to fund the 1997 business acquisitions and purchase of manufacturing facility. 20 7 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) Amortization expense increased $850 to $3,968 in fiscal 1997 from $3,118 in fiscal 1996. This increase is attributable to the amortization of debt issue costs associated with the increased borrowings described in Note 5 of the Company's 1998 Consolidated Financial Statements included elsewhere herein used to fund the 1997 business acquisitions and purchase of manufacturing facility as well as amortization of goodwill associated with the 1997 business acquisitions. Other expense (net) increased $722 in fiscal 1997 from fiscal 1996 mainly as the result of increased provisions for doubtful accounts receivable. Foreign income from operations before income taxes amounted to $25,936 and $4,650 in fiscal 1997 and 1996, respectively. Domestic income from operations before income taxes amounted to $23,729 and $11,023 in fiscal 1997 and 1996, respectively. The mix of foreign and domestic earnings, income tax credits, the recognition of income tax loss and tax credit carryforwards, changes in previously established valuation allowances for deferred tax assets, and certain Orbit merger costs not being deductible for income tax purposes in fiscal 1996 resulted in an estimated effective income tax rate of 29% and 36% in fiscal 1997 and 1996, respectively. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS - -------------------------------------------------------------------------------- At January 3, 1999, the Company had working capital of $87,310 and a current ratio of 1.4x, compared with working capital of $160,618 and a current ratio of 2.2x at December 28, 1997. Cash and cash equivalents at January 3, 1999, were $55,972, a decrease of $29,095 from $85,067 at December 28, 1997. This decrease resulted primarily from cash provided by fiscal 1998 operating and financing activities of $68,105 and $107,277, respectively, offset by cash used by 1998 investing activities of $204,424. Net cash flows used by investing activities amounted to $204,424 and $126,491 in fiscal 1998 and 1997, respectively. Capital expenditures amounted to $153,891 and $121,269 in fiscal 1998 and 1997, respectively. A significant portion of the capital expenditures in fiscal 1998 were related to the $89,900 purchase of a manufacturing facility in Germany, as more fully described in Note 4 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. Remaining capital expenditures represent the Company's continued investment in state-of-the-art, high-technology equipment, which enables the Company to accept increasingly complex and higher-volume orders and to meet current and expected production levels, as well as to replace or upgrade older equipment that was either returned or sold. The Company received proceeds of $3,362 and $2,717 from the sale of equipment in fiscal 1998 and 1997, respectively, to allow for the potential replacement of older equipment with state-of-the-art, high-technology equipment. The Company expects capital expenditures in fiscal 1999 to be in the range of $80,000 to $100,000. During 1998 and 1997, the Company made certain business acquisitions. The cash purchase price, net of cash acquired, for these acquisitions amounted to $53,895 and $7,939 in fiscal 1998 and 1997, respectively. The original purchase prices for these acquisitions are subject to adjustments for contingent consideration based upon the businesses achieving specified levels of earnings for varying periods, all of which end no later than June 2001. See Note 2 of the Company's 1998 Consolidated Financial Statements included elsewhere herein for information regarding business acquisitions. Net cash flows provided by financing activities amounted to $107,277 and $134,682 in fiscal 1998 and 1997, respectively, primarily resulting from the proceeds from issuance of long-term debt amounting to $137,500 and $150,000 in fiscal 1998 and 1997, respectively. These borrowings, as described in Note 5 of the Company's 1998 Consolidated Financial Statements included elsewhere herein, were used to fund the business acquisitions and purchases of manufacturing facilities described in Notes 2 and 4, respectively, of the Company's 1998 Consolidated Financial Statements included elsewhere herein. In addition, the Company repaid $3,375 and $2,455 in capital lease obligations in fiscal 1998 and 1997, respectively. The Company also repaid $5,593 and $10,219 in long-term debt in fiscal 1998 and 1997, respectively. The Company received $6,156 and $6,900 in proceeds from stock issued under its stock plans in fiscal 1998 and 1997, respectively. The Company repurchased 1,454,500 and 192,500 shares of its common stock at a cost of $24,335 and $4,209 in fiscal 1998 and 1997, respectively. The Company could repurchase an additional 353,000 shares of common stock in future years as a part of its share repurchase plan, subject to certain restrictions under its Credit Agreement. 21 8 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS (CONTINUED) - -------------------------------------------------------------------------------- In October 1998, the Company replaced its $80,000 senior secured revolving line-of-credit facility with a $210,000 Credit Agreement with a syndicate of domestic and foreign banks. The Credit Agreement is more fully described in Note 5 of the Company's 1998 Consolidated Financial Statements included elsewhere herein. The Company anticipates that it will from time to time borrow from its credit facility to fund its operations and growth. Debt issue costs associated with the issuance of the Company's $210,000 Credit Agreement amounted to $3,076 in fiscal 1998. Debt issue costs associated with the issuance of the $150,000 senior subordinated notes and the Company's line-of-credit amounted to $5,335 in fiscal 1997. As of February 18, 1999, substantially all of the Company's convertible subordinated notes were converted into approximately 4,600,000 shares of common stock and the unconverted portion was redeemed for $101. Management believes that its current level of working capital, together with cash generated from operations, existing cash reserves, leasing capabilities, and line-of-credit availability will be adequate to fund the Company's current capital expenditure plan for fiscal 1999. The Company intends to continue its acquisition strategy and it is possible that future acquisitions may be significant. If available resources are not sufficient to finance the Company's acquisitions, the Company would be required to seek additional equity or debt financing. There can be no assurance that such funds, if needed, will be available on terms acceptable to the Company or at all. The Company's operations are subject to certain federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing processes. The Company believes that it is currently operating in compliance with applicable regulations and does not believe that costs of compliance with these laws and regulations will have a material effect upon its capital expenditures, results from operations or competitive position. The Company determines the amount of its accruals for environmental matters by analyzing and estimating the range of possible costs in light of information currently available. The imposition of more stringent standards or requirements under environmental laws or regulations, the results of future testing and analysis undertaken by the Company at its operating facilities, or a determination that the Company is potentially responsible for the release of hazardous substances at other sites could result in expenditures in excess of amounts currently estimated to be required for such matters. No assurance can be given that actual costs will not exceed amounts accrued or that costs will not be incurred with respect to sites as to which no problem is currently known. Further, there can be no assurance that additional environmental matters will not arise in the future. See Note 9 of the Company's Consolidated Financial Statements included elsewhere herein for a description of commitments and contingencies. YEAR 2000 ISSUE - -------------------------------------------------------------------------------- The Year 2000 date conversion issue is the result of computer programs being written using two digits rather than four to define the applicable year. This issue affects computer systems that have time-sensitive programs that may not properly recognize the Year 2000. This could result in major system failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in normal business activities. Management has implemented a company-wide program to prepare its financial, manufacturing, and other critical systems and applications for the Year 2000. This comprehensive program was developed to ensure the Company's information technology assets, including embedded microprocessors ("IT assets") and non-IT assets are Year 2000 ready. The Company has formed a Year 2000 project team of approximately 75 employees, overseen by a corporate officer, which team is responsible for monitoring the progress of the program and ensuring timely completion. The team has a detailed project plan in place with tasks, milestones, critical paths, and dates identified. 22 9 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) The Company's comprehensive program covers the following six phases: (i) inventory of all IT and non-IT assets; (ii) assessment of repair requirements; (iii) repair of IT and non-IT assets; (iv) testing of individual IT and non-IT assets to determine the correct manipulation of dates and date-related data; (v) communication with the Company's significant suppliers and customers to determine the extent to which the Company is vulnerable to any failures by them to address the Year 2000 issue; and (vi) creation of contingency plans in the event of Year 2000 failures. Implementation of the program is ongoing with all of the operating entities having completed the inventory phase. Each operating company has identified those software programs and related hardware that are non-compliant and is in the process of developing remediation or replacement plans and establishing benchmark dates for completion of each phase of those plans. The Company anticipates that all mission-critical software and hardware will be compliant by the third quarter of 1999. The Company has yet to begin system integration testing. Until system integration testing is substantially in process, the Company cannot fully estimate the risks of its Year 2000 issue. To date, management has not identified any IT assets that present a material risk of not being Year 2000-ready, or for which a suitable alternative cannot be implemented. However, as the program proceeds into subsequent phases, it is possible that the Company may identify assets that do present a risk of a Year 2000-related disruption. It is also possible that such a disruption could have a material adverse effect on financial condition and results of operations. As of January 3, 1999, the Company is approximately 80% complete in contacting suppliers who provide both critical IT assets and non-information technology related goods and services (e.g. transportation, packaging, production materials, production supplies, etc.). The Company mailed surveys to its suppliers in order to (i) evaluate the suppliers' Year 2000 compliance plans and state of readiness and (ii) determine whether a Year 2000-related event will impede the ability of such suppliers to continue to provide such goods and services as the Year 2000 is approached and reached. For a vast majority of those suppliers of IT assets who have responded, the Company has received assurances that these assets will correctly manipulate dates and date-related data as the Year 2000 is approached and reached. The Company has received responses from approximately 70% of suppliers of non-IT assets. The Company is in the process of reviewing responses for accuracy and adequacy, and sending follow-up surveys or contacting suppliers directly via phone for those non-responsive suppliers. The Company also relies, both domestically and internationally, upon government agencies, utility companies, telecommunications services, and other service providers outside of the Company's control. There is no assurance that such suppliers, governmental agencies, or other third parties will not suffer a Year 2000 business disruption. Such failures could have a material adverse affect on the Company's financial condition and results of operations. Further, the Company has initiated formal communications with its significant suppliers, customers and critical business partners to determine the extent to which the Company may be vulnerable in the event those parties fail to properly remediate their own Year 2000 issues. The Company has taken steps to monitor the progress made by those parties, and intends to test critical system interfaces as the Year 2000 approaches. The Company will develop appropriate contingency plans in the event that a significant exposure is identified relative to the dependencies on third-party systems. While the Company is not presently aware of any such significant exposure, there can be no guarantee that the systems of third parties on which the Company relies will be converted in a timely manner, or that a failure to properly convert by another company would not have a material adverse effect on the Company. The program calls for the development of contingency plans for the Company's at-risk business functions. Because the Company has not completed testing of mission critical systems, and, accordingly, has not fully assessed its risks from potential Year 2000 failures, the Company has not yet developed specific Year 2000 contingency plans. The Company will develop such plans if the results of testing mission-critical systems identify a business function risk. In addition, as a normal course of business, the Company maintains and deploys contingency plans to address various other potential business interruptions. These plans may be applicable to address the interruption of support provided by third parties resulting from their failure to be Year 2000-ready. 23 10 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) YEAR 2000 ISSUE (CONTINUED) - -------------------------------------------------------------------------------- The Company does not expect the costs associated with its Year 2000 efforts to be substantial. To date, the Company estimates that it has spent approximately $1,854 on implementation of the program, with the majority of the work being performed by Company employees. Less than $7,000 has been allocated to address the Year 2000 issue. The Company's aggregate cost estimate includes certain internal recurring costs, but does not include time and costs that may be incurred by the Company as a result of the failure of any third parties, including suppliers, to become Year 2000-compliant or costs to implement any contingency plans. The Company is expensing as incurred all costs related to the assessment and remediation of the Year 2000 issue. These costs are being funded through operating cash flows. Certain inventory and manufacturing software-related projects were accelerated to ensure Year 2000 compliance. However, such acceleration did not increase the anticipated costs of the projects. The Company has not deferred any specific information technology project as a result of the implementation of the program. The Company is committed to achieving Year 2000 compliance; however, because a significant portion of the problem is external to the Company and therefore outside its direct control, there can be no assurances that the Company will be fully Year 2000 compliant. If the modifications and conversions required to make the Company Year 2000-ready are not made, or are not completed on a timely basis, the resulting problems could have a material impact on the operations of the Company. This impact could, in turn, have a material adverse effect on the Company's results of operations and financial condition. NEW ACCOUNTING STANDARDS - -------------------------------------------------------------------------------- The FASB has issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in its statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, gains and losses) are recognized in earnings or in other comprehensive income each reporting period, depending on the intended use of the derivative and the resulting designation. Generally, changes in the fair value of derivatives not designated as a hedge, as well as changes in fair value of fair-value designated hedges (and the item being hedged), are required to be reported in earnings. Changes in fair value of other types of designated hedges are generally reported in other comprehensive income. The ineffective portion of a designated hedge, as defined, is reported in earnings immediately. The Company will be required to adopt SFAS 133 as of January 3, 2000. The Company has not completed the process of evaluating the impact, if any, that will result from adopting SFAS 133. This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Report contain "forward-looking" statements about matters that are inherently difficult to predict. Those statements include statements regarding the intent, belief or current expectations of the Company and its management. Some of the important factors that affect these statements have been described above as each subject is discussed. Such forward-looking statements involve risks and uncertainties that may affect future developments such as, for example, the ability to deal with the Year 2000 issue, including problems that may arise on the part of third parties. 24 11 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in thousands) The Company's primary market risk exposures are in the areas of interest-rate risk and foreign currency exchange rate risk. To manage the volatility relating to these exposures, the Company may enter into various derivative transactions to hedge the exposures. The Company does not hold or issue any derivative financial instruments for trading or speculative purposes. The Company incurs interest expense on loans made under its Credit Agreement at interest rates that are fixed for a maximum of six months. Borrowings under the Credit Agreement bear interest, at the Company's option, at either: (i) the Applicable Base Rate ("ABR") (as defined in the Credit Agreement) plus the Applicable Margin for ABR Loans ranging between 0.00% and 0.75%, based on certain financial ratios of the Company, or (ii) the Eurodollar Rate (as defined in the Credit Agreement) plus the Applicable Margin for Eurodollar Loans ranging between 1.00% and 2.25%, based on certain financial ratios of the Company. The Eurodollar Rate is subject to market risks and will fluctuate. The Company had no open interest rate hedge positions to reduce its exposure to changes in interest rates at January 3, 1999. The following table summarizes the principal cash flows and related weighted average interest rates by expected maturity dates for the Company's outstanding long-term debt as of January 3, 1999:
- ------------------------------------------------------------------------------------------------ 1999 2000 2001 2002 2003 THEREAFTER TOTAL ---------------------------------------------------------------------- Fixed rate $ - - - - - 150,000 150,000 Average interest rate - - - - - 8.5% 8.5% Variable rate $ 16,000 18,000 20,000 22,000 61,500 - 137,500 Average interest rate 7.0% 7.0% 7.2% 7.3% 7.4% - 7.3% ================================================================================================
The fair value of the Company's fixed rate debt approximated $143,685 at January 3, 1999. Interest rates on variable debt are estimated by using the average implied forward London Interbank Offer Rate rates for the year of maturity based on the yield curve in effect at January 3, 1999, plus the borrowing margin in effect under the Credit Agreement at January 3, 1999. The Company conducts a significant amount of its business and has a number of operating facilities in countries outside of the United States. Substantially all of the Company's business outside the United States is conducted in U.S. dollar-denominated transactions. Some transactions of the Company and its subsidiaries are made in currencies different from their functional currencies. In order to minimize foreign exchange transaction risk, the Company selectively hedges certain of its foreign exchange exposures through forward exchange contracts, principally relating to nonfunctional currency monetary assets and liabilities. The strategy of selective hedging can reduce the Company's vulnerability to certain of its foreign currency exposures, and the Company expects to continue this practice in the future. Gains and losses on these foreign currency hedges are generally offset by corresponding losses and gains on the underlying transaction. To date, the Company's hedging activity has been immaterial, and there were no open foreign exchange contracts as of the balance sheet dates included in the accompanying Consolidated Financial Statements. As of January 3, 1999, the Company had the following unhedged net foreign currency monetary asset (liability) positions:
- ----------------------------------------------------------------------------- U.S. DOLLAR FOREIGN CURRENCY EQUIVALENT ASSETS ASSETS (LIABILITY) (LIABILITY) ----------------------------------------------------- German Deutsche Mark 4,300 $ 2,600 British Pound Sterling 88 147 Irish Punt 989 1,500 Chinese Renminbi 38,100 4,600 Hong Kong Dollar (42,000) (5,430) Malaysian Ringgit 4,081 1,074 =============================================================================
The Company believes that its revenues and operating expenses currently incurred in foreign currencies are immaterial, and therefore any associated market risk is unlikely to have a material adverse affect on the Company's business, results of operations or financial condition. 25 12 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ INDEPENDENT AUDITOR'S REPORT The Board of Directors The DII Group, Inc.: We have audited the accompanying consolidated balance sheet of The DII Group, Inc. and subsidiaries (the "Company") as of January 3, 1999 and December 28, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the 53 and 52 weeks then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 3, 1999 and December 28, 1997, and the results of its operations and its cash flows for the 53 and 52 weeks then ended in conformity with generally accepted accounting principles. We also audited the adjustments described in Note 12 that were applied to restate the 1996 financial statements to give retroactive effect to the change in the method of accounting for earnings per share in accordance with Statement of Financial Accounting Standards No. 128 "Earnings Per Share." In our opinion, such adjustments are appropriate and have been properly applied. DELOITTE & TOUCHE LLP Denver, Colorado January 28, 1999 (February 18, 1999 as to the redemption of convertible subordinated notes described in Note 6) 26 13 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ INDEPENDENT AUDITOR'S REPORT The Board of Directors The DII Group, Inc. We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of The DII Group, Inc. and subsidiaries (the "Company") for the 52 weeks ended December 29, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of the Company for the 52 weeks ended December 29,1996 in conformity with generally accepted accounting principles. KPMG LLP Denver, Colorado January 28, 1997 27 14 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data)
FOR THE FISCAL YEARS - ----------------------------------------------------------------------------------------- 1998 1997 1996 ---------- ---------- --------- NET SALES: Systems assembly and distribution $ 589,286 514,078 274,651 Printed wiring boards 208,696 128,107 72,851 Other 127,561 137,418 111,391 --------------------------------------- Total net sales 925,543 779,603 458,893 --------------------------------------- COST OF SALES: Cost of sales 786,611 647,663 370,610 Non-recurring charges 74,182 -- 11,883 --------------------------------------- Total cost of sales 860,793 647,663 382,493 --------------------------------------- Gross profit 64,750 131,940 76,400 Selling, general, and administrative expenses 77,318 68,783 48,540 Non-recurring charges 2,454 -- 4,649 Interest income (2,894) (1,744) (1,732) Interest expense 21,680 10,661 6,267 Amortization expense 4,661 3,968 3,118 Other, net 63 607 (115) --------------------------------------- Income (loss) before income taxes (38,532) 49,665 15,673 Income tax expense (benefit) (21,500) 14,345 5,638 --------------------------------------- Net income (loss) $ (17,032) 35,320 10,035 ========================================================================================= EARNINGS (LOSS) PER COMMON SHARE: Basic $ (0.68) 1.43 0.42 Diluted $ (0.68) 1.26 0.40 ========================================================================================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND EQUIVALENTS OUTSTANDING: Basic 24,888 24,719 23,678 Diluted 24,888 30,702 25,074 =========================================================================================
See accompanying notes to consolidated financial statements. 28 15 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except par value data)
- ----------------------------------------------------------------------------------------- JANUARY 3, DECEMBER 28, 1999 1997 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 55,972 85,067 Accounts receivable, net of allowance for doubtful accounts of $5,900 and $2,893 153,861 132,590 Inventories 66,745 74,059 Deferred income taxes 7,249 769 Other assets 11,570 7,766 ------------------------ Total current assets 295,397 300,251 ------------------------ Property, plant and equipment 326,226 207,257 Goodwill, net of accumulated amortization of $12,130 and $8,223 97,475 70,371 Debt issue costs, net of accumulated amortization of $2,247 and $1,208 9,319 7,282 Deferred income taxes 11,428 -- Other assets 7,464 7,568 ------------------------ $ 747,309 592,729 ========================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 122,536 98,688 Accrued expenses 32,414 16,099 Accrued compensation and benefits 11,720 13,667 Accrued interest payable 6,769 4,688 Current portion of capital lease obligations 5,617 2,482 Current portion of long-term debt 29,031 4,009 ------------------------ Total current liabilities 208,087 139,633 ------------------------ Long-term debt, net of current portion 271,864 151,703 Convertible subordinated notes payable 86,235 86,250 Capital lease obligations, net of current portion 1,820 4,842 Deferred income taxes -- 739 Other 3,582 2,214 Commitments and contingent liabilities Stockholders' equity: Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued -- -- Common stock, $0.01 par value; 90,000,000 and 45,000,000 shares authorized; 26,169,344 and 25,328,914 shares issued; and 24,522,344 and 25,136,414 shares outstanding 262 253 Additional paid-in capital 124,410 117,612 Retained earnings 93,071 110,103 Treasury stock, at cost; 1,647,000 and 192,500 shares (28,544) (4,209) Accumulated other comprehensive loss (4,139) (4,095) Deferred compensation (9,339) (12,316) ------------------------ Total stockholders' equity 175,721 207,348 ------------------------ $ 747,309 592,729 =========================================================================================
See accompanying notes to consolidated financial statements 29 16 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands)
ADDITIONAL PREFERRED COMMON PAID-IN RETAINED TREASURY STOCK STOCK CAPITAL EARNINGS STOCK ----------- ----------- ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1995 $ -- 228 87,360 64,748 -- ======================================================================================================================== Net income -- -- -- 10,035 -- Foreign currency translation adjustments -- -- -- -- -- Net comprehensive income Issuance of 938,562 shares of common stock under employee stock plans -- 9 1,686 -- -- Tax benefit on common stock issued under employee stock plans -- -- 846 -- -- Amortization of deferred employee stock compensation -- -- -- -- -- Deferred employee stock compensation -- -- 1,733 -- -- Issuance of 173,332 shares of common stock under deferred employee stock compensation plan -- 2 (2) -- -- Issuance of 14,750 shares of common stock under directors' stock plan -- -- 234 -- -- ----------- ----------- ----------- ----------- ----------- BALANCE AT DECEMBER 29, 1996 -- 239 91,857 74,783 -- ======================================================================================================================== Net income -- -- -- 35,320 -- Foreign currency translation adjustments -- -- -- -- -- Net comprehensive income Issuance of 1,180,136 shares of common stock under employee stock plans -- 12 6,888 -- -- Tax benefit on common stock issued under employee stock plans -- -- 6,029 -- -- Treasury stock, at cost (192,500 shares) -- -- -- -- (4,209) Amortization of deferred employee stock compensation -- -- -- -- -- Deferred employee stock compensation -- -- 12,698 -- -- Issuance of 212,332 shares of common stock under deferred employee stock compensation plan -- 2 (2) -- -- Issuance of 7,616 shares of common stock under directors' stock plan -- -- 142 -- -- ----------- ----------- ----------- ----------- ----------- BALANCE AT DECEMBER 28, 1997 -- 253 117,612 110,103 (4,209) ======================================================================================================================== Net loss -- -- -- (17,032) -- Foreign currency translation adjustments -- -- -- -- -- Net comprehensive loss Issuance of 555,935 shares of common stock under employee stock plans -- 6 6,150 -- -- Tax benefit on common stock issued under employee stock plans -- -- 1,635 -- -- Treasury stock, at cost (1,454,500 shares) -- -- -- -- (24,335) Amortization of deferred employee stock compensation -- -- -- -- -- Deferred employee stock compensation -- -- (1,172) -- -- Issuance of 274,836 shares of common stock under deferred employee stock compensation plan -- 3 (3) -- -- Issuance of 8,859 shares of common stock under directors' stock plan -- -- 173 -- -- Conversion of convertible notes (800 shares) -- -- 15 -- -- ----------- ----------- ----------- ----------- ----------- BALANCE AT JANUARY 3, 1999 $ -- 262 124,410 93,071 (28,544) ======================================================================================================================== ACCUMULATED OTHER COMPREHENSIVE DEFERRED LOSS COMPENSATION TOTAL ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1995 (3,443) (3,344) 145,549 ============================================================================================ Net income -- -- 10,035 Foreign currency translation adjustments (406) -- (406) ----------- Net comprehensive income 9,629 Issuance of 938,562 shares of common stock under employee stock plans -- -- 1,695 Tax benefit on common stock issued under employee stock plans -- -- 846 Amortization of deferred employee stock compensation -- 1,084 1,084 Deferred employee stock compensation -- (1,733) -- Issuance of 173,332 shares of common stock under deferred employee stock compensation plan -- -- -- Issuance of 14,750 shares of common stock under directors' stock plan -- -- 234 ----------- ----------- ----------- BALANCE AT DECEMBER 29, 1996 (3,849) (3,993) 159,037 ============================================================================================ Net income -- -- 35,320 Foreign currency translation adjustments (246) -- (246) ----------- Net comprehensive income 35,074 Issuance of 1,180,136 shares of common stock under employee stock plans -- -- 6,900 Tax benefit on common stock issued under employee stock plans -- -- 6,029 Treasury stock, at cost (192,500 shares) -- -- (4,209) Amortization of deferred employee stock compensation -- 4,375 4,375 Deferred employee stock compensation -- (12,698) -- Issuance of 212,332 shares of common stock under deferred employee stock compensation plan -- -- -- Issuance of 7,616 shares of common stock under directors' stock plan -- -- 142 ----------- ----------- ----------- BALANCE AT DECEMBER 28, 1997 (4,095) (12,316) 207,348 ============================================================================================ Net loss -- -- (17,032) Foreign currency translation adjustments (44) -- (44) ----------- Net comprehensive loss (17,076) Issuance of 555,935 shares of common stock under employee stock plans -- -- 6,156 Tax benefit on common stock issued under employee stock plans -- -- 1,635 Treasury stock, at cost (1,454,500 shares) -- -- (24,335) Amortization of deferred employee stock compensation -- 1,805 1,805 Deferred employee stock compensation -- 1,172 -- Issuance of 274,836 shares of common stock under deferred employee stock compensation plan -- -- -- Issuance of 8,859 shares of common stock under directors' stock plan -- -- 173 Conversion of convertible notes (800 shares) -- -- 15 ----------- ----------- ----------- BALANCE AT JANUARY 3, 1999 (4,139) (9,339) 175,721 ============================================================================================
See accompanying notes to consolidated financial statements. 30 17 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
FOR THE FISCAL YEARS - ------------------------------------------------------------------------------------------- 1998 1997 1996 - ------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (17,032) 35,320 10,035 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and fixed asset impairment charge 81,077 18,374 24,842 Amortization and goodwill impairment charge 5,262 3,968 3,544 Provision for doubtful receivables 854 1,237 519 Deferred income taxes (17,012) 2,179 (1,855) Loss (gain) on sales of equipment 92 (11) (26) Stock plan compensation 1,978 4,517 1,318 Other 3,511 (4,637) (17,551) Changes in operating assets and liabilities, excluding effects of acquisitions: Accounts receivable (15,737) (52,297) (16,504) Inventories 10,782 (26,474) 5,586 Other assets (4,371) (3,472) (1,832) Accounts payable 12,591 50,619 (871) Accrued expenses 6,110 22,284 254 -------------------------------- Net cash provided by operating activities 68,105 51,607 7,459 =========================================================================================== CASH FLOWS FROM INVESTING ACTIVITIES: Payments for business acquisitions, net of cash acquired (53,895) (7,939) (2,056) Additions to property, plant, and equipment (153,891) (121,269) (33,274) Proceeds from sales of property, plant, and equipment 3,362 2,717 276 -------------------------------- Net cash used by investing activities (204,424) (126,491) (35,054) =========================================================================================== CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of capital leases (3,375) (2,455) (2,480) Repayments of long-term debt (5,593) (10,219) (4,060) Proceeds from issuance of long-term debt 137,500 150,000 1,190 Debt issuance costs (3,076) (5,335) (297) Proceeds from stock issued under stock plans 6,156 6,900 1,695 Payments to acquire treasury stock (24,335) (4,209) -- Proceeds from notes receivable -- -- 1,000 -------------------------------- Net cash provided (used) by financing activities 107,277 134,682 (2,952) -------------------------------- Effect of exchange rate changes on cash (53) 259 24 -------------------------------- Net increase (decrease) in cash and cash equivalents (29,095) 60,057 (30,523) -------------------------------- Cash and cash equivalents at beginning of year 85,067 25,010 55,533 -------------------------------- Cash and cash equivalents at end of year $ 55,972 85,067 25,010 ===========================================================================================
See accompanying notes to consolidated financial statements. 31 18 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a BACKGROUND - ------------------------------------------------------------------------------- The Dii Group, Inc. (the "Dii Group" or the "Company") was incorporated in March 1993 as Dovatron International, Inc., in order to serve as a holding company to effectuate the spin-off of Dover Corporation's electronic outsourcing business, which occurred on May 21, 1993. As more fully described in Note 2 below, the Company merged (the "Merger") with Orbit Semiconductor, Inc. ("Orbit"), on August 22, 1996, and ultimately Orbit became a wholly owned subsidiary of the Dii Group. This transaction was accounted for as a pooling-of-interests and, accordingly, all prior period financial statements have been restated to reflect the combined operations of the two companies. The Company's fiscal year consists of either a 52-week or 53-week period ending on the Sunday nearest to December 31. Accordingly, the accompanying consolidated financial statements are presented as of January 3, 1999 and December 28, 1997, and for the 53 weeks ended January 3, 1999 and 52 weeks ended December 28, 1997 and December 29, 1996. Each fiscal year is referred to herein as fiscal 1998, 1997 and 1996, respectively. b DESCRIPTION OF BUSINESS - ------------------------------------------------------------------------------- The Dii Group is a leading provider of electronics design and manufacturing services, which operates through a global network of independent business units. The Company provides the following related products and services to customers in the global electronics manufacturing industry: DESIGN AND SEMICONDUCTOR SERVICES - Through Dii Technologies the Company provides printed circuit board and design services, as well as design for manufacturability and test and total life cycle planning. Through Dii Semiconductor (formerly known as Orbit Semiconductor), the Company provides the following application-specific integrated circuit ("ASIC") design services to its OEM customers: o Conversion services from field programmable gate arrays ("FPGAs") to ASICs. These services focus on designs that utilize primarily digital signals, with only a small amount of analog signals. o Design services for mixed-signal ASICs. These services focus on designs that utilize primarily analog signals, with only a small amount of digital signals. o Silicon integration design services. These services utilize silicon design modules that are used to accelerate complex ASIC designs, including system-on-a-chip. Dii Semiconductor utilizes external foundry suppliers for its customers' silicon manufacturing requirements, thereby using a "fabless" manufacturing approach. By integrating the combined capabilities of design and semiconductor services, the Company can compress the time from product concept to market introduction and minimize product development costs. PRINTED WIRING BOARDS - The Company manufactures high density, complex multilayer printed wiring boards and back panels through Multek. SYSTEMS ASSEMBLY AND DISTRIBUTION - The Company assembles complex electronic circuits and provides final system configuration ("box build") and distribution through Dovatron. These services are commonly referred to as contract electronics manufacturing ("CEM"). By offering comprehensive and integrated design and manufacturing services, the Company believes that it is better able to differentiate its product and service offerings from those of its competitors, develop long-term relationships with its customers, and enhance profitability. PROCESS TECHNOLOGIES - The Company also has a non-core business unit know as Process Technologies International ("PTI"). Through this business unit, the Company manufactures surface mount printed circuit board solder cream stencils through IRI International and Chemtech; manufactures in-circuit and functional test software and hardware through TTI Testron; and manufactures depaneling equipment and automated handling systems used in the printed circuit board assembly process through Cencorp Automation Systems. 32 19 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) Management has undertaken an initiative to divest of this non-core business unit, in order to sharpen its focus on the Company's core businesses of custom semiconductor design, printed wiring board design and fabrication, and systems assembly and distribution. The Company does not believe that a sale of PTI would result in any adverse impact on the Company's 1999 consolidated financial position. If the Company sells PTI, the Company's consolidated revenues and operating results will be adversely impacted (by less than 10%) until such time as the proceeds are reinvested back into the Company's core businesses of custom semiconductor design, printed wiring board design and fabrication, and systems assembly and distribution. Operating results may also be affected by a number of factors including the economic conditions in the markets the Company serves; price and product competition; the level of volume and the timing of orders; product mix; the amount of automation employed on specific manufacturing projects; efficiencies achieved by inventory management; fixed asset utilization; the level of experience in manufacturing a particular product; customer product delivery requirements; shortages of components or experienced labor; the integration of acquired businesses; start-up costs associated with adding new geographical locations; expenditures required for research and development; and failure to introduce, or lack of market acceptance of, new processes, services, technologies, and products on a timely basis. Each of these factors has had in the past, and may have in the future, an adverse effect on the Company's operating results. The Dii Group has actively pursued acquisitions in furtherance of its strategy to be the fastest and most comprehensive provider of custom design, engineering and manufacturing services for original equipment customers, from microelectronic circuits through the final assembly and distribution of finished products. 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 requires the dedication of management resources, which may distract attention from the day-to-day business of the Company. A majority of the Company's sales are to customers in the electronics industry, which is subject to rapid technological change, product obsolescence, and price competition. The factors affecting the electronics industry, in general, or any of the Company's major customers, in particular, could have a material adverse effect on the Company's operating results. The electronics industry has historically been cyclical and subject to significant economic downturns at various times, which are characterized by diminished product demand, accelerated erosion of average selling prices, and overcapacity. The Company's customers also are subject to short product life cycles and pricing and margin pressures, which risks are in turn borne by the Company. The Company seeks a well-balanced customer profile across most sectors of the electronics industry in order to reduce exposure to a downturn in any particular sector. The primary sectors within the electronics industry served by the Company are office automation, mainframes and mass storage, data communications, computers and peripherals, telecommunications, industrial and instrumentation, and medical. The Company offers manufacturing capabilities in three major electronics markets of the world (North America, Europe and Asia). The Company's operations located outside of the United States generated approximately 43%, 42%, and 25% of total net sales in fiscal 1998, 1997, and 1996, respectively. The Company's international operations subject the Company to the risks of doing business abroad, including currency fluctuations, export duties, import controls and trade barriers, restrictions on the transfer of funds, greater difficulty in accounts receivable collection, burdens of complying with a wide variety of foreign laws, and, in certain parts of the world, political and economic instability. 33 20 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) c BASIS OF CONSOLIDATION - -------------------------------------------------------------------------------- The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated. d TRANSLATION OF FOREIGN CURRENCIES - -------------------------------------------------------------------------------- The Company's primary functional currency is the U.S. dollar. Foreign subsidiaries with a functional currency other than the U.S. dollar translate net assets at year-end exchange rates, while income and expense accounts are translated at weighted-average exchange rates. Adjustments resulting from these translations are reflected in stockholders' equity as cumulative foreign currency translation adjustments. Some transactions of the Company and its subsidiaries are made in currencies different from their functional currencies. Gains and losses from these transactions are included in income as they occur. To date, the effect on income of such amounts has been immaterial. 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. Gains and losses resulting from these agreements are deferred and reflected as adjustments to the related foreign currency transactions. 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. To date, the Company's hedging activity has been immaterial, and there were no open foreign exchange contracts as of the balance sheet dates included in the accompanying Consolidated Financial Statements. As of January 3, 1999, the Company had the following unhedged net foreign currency monetary asset (liability) positions:
- ------------------------------------------------------------------- U.S. Dollar FOREIGN CURRENCY Equivalent ASSETS Assets (LIABILITY) (Liability) ----------------------------- German Deutsche Mark 4,300 $ 2,600 British Pound Sterling 88 147 Irish Punt 989 1,500 Chinese Renminbi 38,100 4,600 Hong Kong Dollar (42,000) (5,430) Malaysian Ringgit 4,081 1,074 ===================================================================
e CASH EQUIVALENTS - -------------------------------------------------------------------------------- For purposes of the statements of cash flows, the Company considers all investment instruments with original maturities of three months or less to be cash equivalents. f INVENTORIES - -------------------------------------------------------------------------------- Inventory costs include material, labor, and overhead. An allowance is provided to reduce inventories to the lower of cost or market. Consideration is given to deterioration, obsolescence, and other factors when establishing the allowance. Cost is determined using the first-in, first-out (FIFO) method. g PROPERTY, PLANT, AND EQUIPMENT - -------------------------------------------------------------------------------- Property, plant, and equipment includes the cost of land, buildings, machinery and equipment, and significant improvements of existing plant and equipment. Expenditures for maintenance, repairs, and minor renewals are expensed as incurred. Plant and equipment are depreciated on straight-line methods over the estimated useful lives of the assets, which are 30 years for buildings and 3 to 10 years for machinery and equipment. h GOODWILL AND DEBT ISSUANCE COSTS - -------------------------------------------------------------------------------- Goodwill arising from business acquisitions is amortized on the straight-line basis over 15 to 30 years. Debt issuance costs are amortized on the straight-line basis over the term of the related debt. i IMPAIRMENT OF ASSETS - -------------------------------------------------------------------------------- Long-lived assets, including goodwill, are reviewed for impairment if events or circumstances indicate the carrying amount of these assets may not be recoverable. If this review indicates that these assets will not be recoverable, based on the forecasted undiscounted future operating cash flows expected to result from the use of these assets and their eventual disposition, the Company's carrying value of these assets is reduced to fair value. Except as disclosed in Note 7, management does not believe current events or circumstances indicate that its long-lived assets, including goodwill, are impaired as of January 3, 1999. 34 21 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) j INCOME TAXES - -------------------------------------------------------------------------------- Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. k EMPLOYEE BENEFIT PLANS - -------------------------------------------------------------------------------- The Company maintains various defined contribution plans for employees who have completed certain length of service and age requirements. Participants may elect to contribute a certain portion of their compensation on a pre-tax basis to these plans. The Company matches various percentages of the participants' contributions up to a maximum percentage of their compensation. The Company also maintains various deferred profit sharing plans for certain employees who have completed certain length of service requirements with certain business units. The Company may, subject to approval by the Board of Directors, contribute a portion of its profits to these Plans. Such contributions will be allocated to employees of the business units based upon their salary and years of service. In connection with the purchase of a manufacturing facility in Germany, as discussed in Note 4, the Company assumed a defined benefit pension plan for the employees of that facility. As of January 3, 1999, plan assets approximated the accumulated benefit obligation. Pension expense for the period from the date of purchase to January 3, 1999, was immaterial. Additionally, the Company provides a nonqualified deferred compensation plan for select senior executives and directors of the Company. Contributions to the deferred compensation plan are held in an irrevocable "rabbi trust." The participants elect to make contributions of portions of their cash and incentive stock compensation on a pre-tax basis to the plan. The Company matches various percentages of the participants' cash compensation contributions up to a maximum percentage of such contributions. The Company's contribution to all of its employee benefit plans amounted to $1,983, $1,233, and $464 in fiscal 1998, 1997, and 1996, respectively. l FAIR VALUE OF FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- Unless otherwise stated herein, the fair value of the Company's financial instruments approximates their carrying amount due to the relatively short periods to maturity of the instruments and/or variable interest rates of the instruments, which approximate current market interest rates. m COMMITMENTS AND CONTINGENCIES - -------------------------------------------------------------------------------- Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when the amount of assessment and/or remediation costs are probable and can be reasonably estimated. The costs for a specific clean-up site are discounted if the aggregate amount of the obligation and the amount and timing of the cash payments for that site are fixed or reliably determinable, generally based upon information derived from the remediation plan for that site. Recoveries from third parties that are probable of realization are separately recorded, and are not offset against the related liability. n REVENUE RECOGNITION - -------------------------------------------------------------------------------- The Company recognizes revenue upon shipment of product to its customers. o EARNINGS PER SHARE - -------------------------------------------------------------------------------- Basic and diluted earnings-per-share ("EPS") amounts for all periods presented have been calculated, and where necessary restated, to conform to the requirements of Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic EPS excludes dilution and is computed by dividing earnings available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS assumes the conversion of the convertible subordinated notes, if dilutive, and the issuance of common stock for other potentially dilutive equivalent shares outstanding. 35 22 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) p PERVASIVENESS OF ESTIMATES - -------------------------------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. q RECLASSIFICATIONS - -------------------------------------------------------------------------------- Certain 1997 and 1996 balances have been reclassified to conform with the 1998 presentation. r COMPREHENSIVE INCOME - -------------------------------------------------------------------------------- The Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130), effective January 1, 1998. SFAS 130 requires that changes in equity during a reporting period, except transactions with owners in their capacity as owners (for example, the issuance of common stock and dividends paid on common stock) and transactions reported as direct adjustments to retained earnings, be reported as a component of comprehensive income. Comprehensive income is required to be reported in a financial statement that is displayed with the same prominence as other financial statements. Disclosure of comprehensive income for the fiscal years ended January 3, 1999, December 28, 1997, and December 29, 1996, are included in the accompanying financial statements as part of the statement of stockholders' equity. NOTE 2 BUSINESS COMBINATIONS In August 1998 the Company acquired Greatsino Electronic Technology, a printed wiring board fabricator and contract electronics manufacturer with operations in the People's Republic of China. The cash purchase price, net of cash acquired, amounted to $51,795. The initial purchase price is subject to adjustments for contingent consideration of no more than approximately $40,000 based upon the business achieving specified levels of earnings through August 31, 1999. The fair value of the assets acquired, excluding cash acquired, amounted to $55,699 and liabilities assumed were $21,801, including estimated acquisition costs. The cost in excess of net assets acquired amounted to $17,897. In addition, as of January 3, 1999, the Company accrued $9,000 of contingent consideration. During fiscal 1998, 1997, and 1996, the Company completed certain other business combinations that are immaterial to the Company's results from operations and financial position. The cash purchase price, net of cash acquired, amounted to $2,100, $7,939, and $2,056, in fiscal 1998, 1997, and 1996, respectively. The fair value of the assets acquired and liabilities assumed from these acquisitions was immaterial. The cost in excess of net assets acquired through these acquisitions amounted to $9,133 and $3,677 in fiscal 1997 and 1996, respectively. The costs of acquisitions have been allocated on the basis of the estimated fair value of assets acquired and liabilities assumed. Goodwill is subject to future adjustments from contingent purchase price adjustments for varying periods, all of which end no later than June 2001. The Company increased goodwill and notes payable to sellers of businesses acquired in the amount of $11,550 and $1,134 for contingent purchase price adjustments during fiscal 1998 and 1996, respectively. There were no contingent purchase price adjustments in fiscal 1997. The acquisitions described above were accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of income do not include any revenue or expenses related to these acquisitions prior to their respective closing dates. The pro forma results for fiscal 1998, 1997, and 1996, assuming these acquisitions had been made at the beginning of the prior year, would not be materially different from reported results. On August 22, 1996, the Dii Group issued 7,359,250 shares of the Dii Group common stock for all outstanding shares of Orbit common stock, based upon one share of Orbit common stock converted into 45/100ths (0.45) of a share of Dii Group common stock, and as further adjusted to account for the two-for-one stock split. Results of operations for the separate companies prior to the Merger and for the combined companies as restated are as follows: 36 23 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data)
Six months ended Jun. 30, 1996 (Unaudited) ---------------- NET SALES: Dii Group $ 196,230 Orbit 31,810 ---------------- Combined, as restated 228,040 ================================================= NET INCOME: Dii Group 9,499 Orbit 2,174 ---------------- Combined, as restated 11,673 =================================================
NOTE 3 INVENTORIES Inventories consisted of the following:
- ---------------------------------------------------------- Jan. 3, Dec. 28, 1999 1997 -------------------------- Raw materials $44,669 51,802 Work in process 24,922 24,890 Finished goods 6,622 2,839 -------------------------- 76,213 79,531 Less allowance 9,468 5,472 -------------------------- $66,745 74,059 ==========================================================
NOTE 4 PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment consisted of the following:
- ---------------------------------------------------------- Jan. 3, Dec. 28, 1999 1997 -------------------------- Land $ 12,816 7,714 Buildings 125,886 48,859 Machinery and equipment 234,221 203,777 Construction in progress 40,313 9,938 -------------------------- 413,236 270,288 Less accumulated depreciation and amortization 87,010 63,031 -------------------------- $326,226 207,257 ==========================================================
In October 1998, the Company acquired Hewlett-Packard Company's ("HP") printed wiring board fabrication facility located in Boeblingen, Germany, and its related production equipment, inventory and other assets for a purchase price of approximately $89,900, subject to certain post-closing adjustments. In August 1997, the Company acquired International Business Machine's ("IBM") Austin, Texas, printed wiring board fabrication facility, and its related production equipment, inventory, and intellectual property, for a purchase price of approximately $46,064. NOTE 5 LONG-TERM DEBT Long-term debt consisted of the following:
- ---------------------------------------------------------------- Jan. 3, Dec. 28, 1999 1997 ------------------------ Senior subordinated notes $150,000 150,000 Bank term loan 100,000 -- Revolving line-of- credit advances 37,500 -- Notes payable with interest rates ranging from 7.74% to 9.05% 1,845 5,712 Non-interest-bearing notes payable to sellers of businesses acquired due in 1999 11,550 -- ------------------------ Total long-term debt 300,895 155,712 Less current portion 29,031 4,009 ------------------------ Long-term debt, net of current portion $271,864 151,703 ================================================================
The aggregate maturities of long-term debt for fiscal years subsequent to January 3, 1999, are as follows: $29,031 in 1999; $18,356 in 2000; $20,008 in 2001; $22,000 in 2002; $61,500 in 2003; and $150,000 in 2007. 37 24 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) LONG-TERM DEBT (CONTINUED) - -------------------------------------------------------------------------------- The senior subordinated notes bear interest at 8.5% and mature on September 15, 2007. Interest is payable on March 15 and September 15 of each year. The Company may redeem the notes on or after September 15, 2002. The indenture contains certain covenants that, among other things, limit the ability of the Company and certain of its subsidiaries to (i) incur additional debt, (ii) issue or sell capital stock of certain subsidiaries, (iii) engage in asset sales, (iv) incur layered debt, (v) create liens on its properties and assets, and (vi) make distributions or pay dividends. The covenants are subject to a number of significant exceptions and qualifications.The fair value of the Company's senior subordinated notes approximated $143,685 at January 3, 1999 and approximated its carrying amount at December 28, 1997. On October 30, 1998, the Company replaced its $80,000 senior secured revolving line-of-credit facility with a $210,000 Credit Agreement (the "Agreement") with a syndicate of domestic and foreign banks. The Agreement provides for a $100,000 5-year term loan ("Bank term loan"), and a $110,000 revolving line-of-credit facility ("Revolver"). The Revolver expires on November 1, 2003. Borrowings under the Agreement bear interest, at the Company's option, at either: (i) the Applicable Base Rate ("ABR") (as defined in the Agreement) plus the Applicable Margin for ABR Loans ranging between 0.00% and 0.75%, based on certain financial ratios of the Company; or (ii) the Eurodollar Rate (as defined in the Agreement) plus the Applicable Margin for Eurodollar Loans ranging between 1.00% and 2.25%, based on certain financial ratios of the Company. The Company is required to pay a quarterly commitment fee ranging from 0.25% to 0.50% per annum, based on certain financial ratios of the Company, of the unused commitment under the Revolver. At January 3, 1999, the weighted-average interest rate for the Company's Bank term loan was 7.15%. At January 3, 1999, borrowings of $37,500 were outstanding under the Revolver at a weighted-average interest rate of 7.21%. The credit facility is secured by substantially all of the Company's assets, and contains certain restrictions on the Company's ability to (i) incur certain debt, (ii) create liens on its properties and assets, (iii) make certain investments and capital expenditures, (iv) merge or consolidate with other entities, (v) pay dividends or make distributions, (vi) repurchase or redeem common stock, or (vii) dispose of assets. The Agreement also requires that the Company maintain certain financial covenants, including, among other things, a maximum ratio of consolidated funded debt to EBITDA (earnings before interest, taxes, depreciation, and amortization), a minimum ratio of consolidated interest coverage, and minimum levels of consolidated net worth, as defined, during the term of the Agreement. At January 3, 1999, the Company was in compliance with all loan covenants. The Company made long-term debt interest payments of $13,004, $1,353, and $1,091 during fiscal 1998, 1997, and 1996, respectively. NOTE 6 CONVERTIBLE SUBORDINATED NOTES - -------------------------------------------------------------------------------- The fair market value of the Company's 6% convertible subordinated notes approximated $107,794 and $127,969, based upon the last sales price on January 3, 1999, and December 28, 1997, respectively. Interest is payable on April 15 and October 15 of each year. As of February 18, 1999, substantially all of the Company's convertible subordinated notes were converted into approximately 4,600,000 shares of common stock and the unconverted portion was redeemed for $101. The Company made convertible subordinated note interest payments of $5,175 during fiscal 1998 and 1997, and $5,247 in 1996. NOTE 7 NON-RECURRING CHARGES - -------------------------------------------------------------------------------- During fiscal 1998, the Company recognized non-recurring pre-tax charges of $76,636, substantially all of which related to the operations of the Company's wholly owned subsidiary, Orbit Semiconductor. The Company decided to sell Orbit's 6-inch, 0.6 micron wafer fabrication facility ("Fab") and adopt a fabless manufacturing strategy to complement Orbit's design and engineering services. The charges were primarily due to the impaired recoverability of inventory, intangible assets and fixed assets, and other costs associated with the exit of semiconductor manufacturing. The manufacturing facility was ultimately sold in January 1999. As discussed below, $74,182 of the non-recurring pre-tax charges have been classified as a component of cost of sales. 38 25 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) Of the total non-recurring pre-tax charges, $1,398 relate to employee termination costs and have been classified as a component of costs of sales. As of January 3, 1999, approximately 40 people have been terminated, and another 170 people were terminated when the Fab was sold in the first quarter of fiscal 1999. The Company paid approximately $498 of employee termination costs during fiscal 1998. The remaining $900 is classified as accrued compensation and benefits as of January 3,1999 and was paid out in the first quarter of fiscal 1999. The non-recurring pre-tax charges include approximately $53,340 for the write-down of long-lived assets to fair value. The fair value of these assets was based on the sale price of the Fab. These assets primarily relate to the property, plant, and equipment sold. This amount has been classified as a component of cost of sales. The non-recurring pre-tax charges include approximately $12,500 for losses on sales contracts, incremental amounts of uncollectible accounts receivable, and estimated incremental costs for sales returns and allowances. Of this amount, $10,767 was realized during fiscal 1998 and $1,733 is expected to be realized in the first quarter of fiscal 1999 and is included in accrued expenses at January 3, 1999. These losses are classified as a component of cost of sales. The non-recurring pre-tax charges also include approximately $9,398 for losses on inventory write-downs and exit costs. The Company has written off and disposed of approximately $5,750 of inventory, which have been classified as a component of cost of sales. The loss on the sale of the Fab includes $3,648 of incremental costs and contractual obligations for items such as lease termination costs, litigation, environmental clean-up costs, and other facility exit costs incurred directly as a result of the exit plan. Of the $3,648, approximately $1,194 have been classified as a component of cost of sales. The Company had a remaining liability of $3,305 related to these exit costs, which have been classified as accrued expenses as of January 3, 1999. Non-recurring charges in 1996 amounted to $16,532 and included $4,649 of costs associated with the Orbit Merger described in Note 2 and $11,883 of costs associated with the closure of Orbit's 4-inch, 1.2 micron wafer fabrication facility and the move into its new 6-inch, 0.6 micron facility. The $11,883 of closure costs, which were classified in cost of sales, include provisions of (i) $7,970 associated with the impairment of long-lived assets associated with the closure of Orbit's 4-inch, 1.2 micron wafer fabrication facility, (ii) $1,500 for 4-inch wafer inventory not recoverable on the 6-inch fabrication process, (iii) $1,763 associated with the write-off of Orbit's investment in a subsidiary established to expand its manufacturing capacity in Israel, and (iv) $650 of expenses associated with closure and exit costs of the 4-inch, 1.2 micron wafer fabrication facility. The Israel expansion was no longer required with the acquisition of the 6-inch, 0.6 micron facility. The Company completed the transition into its 6-inch, 0.6 micron facility and sold its 4-inch, 1.2 micron wafer fabrication facility during the first quarter of 1998. All previously established provisions associated with the closure were completely utilized in fiscal 1997 or the first quarter of 1998. The original accrual estimates approximated the actual amounts required to complete the transaction. NOTE 8 INCOME TAXES Income (loss) before income taxes for domestic and foreign operations were as follows:
FOR THE FISCAL YEARS ---------------------------------- 1998 1997 1996 ---------------------------------- Domestic $(71,253) 23,729 11,023 Foreign 32,721 25,936 4,650 ---------------------------------- $(38,532) 49,665 15,673 ================================================================================================ INCOME TAXES (BENEFIT) WERE ALLOCATED AS FOLLOWS: Income (loss) from operations $(21,500) 14,345 5,638 Stockholders' equity (for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes) (1,635) (5,805) (846) ---------------------------------- $(23,135) 8,540 4,792 ================================================================================================
39 26 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) INCOME TAXES (CONTINUED) Income tax expense (benefit) attributable to income from operations consists of:
- -------------------------------------------------------------------------------- CURRENT DEFERRED TOTAL ---------------------------------- FISCAL 1998: U.S. Federal $ (7,983) (15,710) (23,693) State (185) (1,479) (1,664) Foreign 3,680 177 3,857 ---------------------------------- $ (4,488) (17,012) (21,500) ================================== FISCAL 1997: U.S. Federal $ 8,983 297 9,280 State 672 1,339 2,011 Foreign 2,511 543 3,054 ---------------------------------- $ 12,166 2,179 14,345 ================================== FISCAL 1996: U.S. Federal $ 5,859 (1,500) 4,359 State 489 (176) 313 Foreign 1,145 (179) 966 ---------------------------------- $ 7,493 (1,855) 5,638 ================================================================================
- ----------------------------------------------------------------------------------------------- FOR THE FISCAL YEARS 1998 1997 1996 ------------------------------- THE SIGNIFICANT COMPONENTS OF DEFERRED TAX EXPENSE (BENEFIT) ATTRIBUTABLE TO INCOME FROM OPERATIONS ARE: Deferred tax expense (exclusive of the effects of other components listed below) $(19,414) 812 (3,891) Charge in lieu of taxes resulting from initial recognition of acquired tax liabilities that are allocated to goodwill related to an acquired entity -- (326) -- Increase in the valuation allowance for deferred tax assets 2,402 1,693 2,036 ------------------------------- $(17,012) 2,179 (1,855) ================================================================================================
Income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35 percent for fiscal 1998 and 1997, respectively, and 34 percent for fiscal 1996 to income (loss) before income taxes as a result of the following:
FOR THE FISCAL YEARS - -------------------------------------------------------------------------------------------------- 1998 1997 1996 --------------------------------- Computed "expected" tax expense (benefit) $(13,486) 17,383 5,329 Increase (reduction) in income taxes resulting from: Foreign tax rate differential (7,695) (5,825) (560) State income taxes, net of federal income tax benefit (1,098) 1,307 207 Tax credits and carryforwards (1,166) (786) (1,498) Change in the valuation allowance for deferred tax assets 2,402 1,693 2,036 Other (457) 573 124 --------------------------------- $(21,500) 14,345 5,638 ==================================================================================================
40 27 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
- ------------------------------------------------------------------------------ JAN. 3, 1999 DEC. 28, 1997 ---------------------------- DEFERRED TAX ASSETS: Inventories $ 1,604 1,499 Deferred revenues 5,595 542 Deferred compensation 1,594 1,522 Compensated absences 1,093 815 Allowance for doubtful accounts 593 664 Accrued liabilities 3,598 713 Net operating loss and tax credit carryforwards 7,284 581 Federal and state credits 6,628 3,983 Merger costs 368 492 Other 22 555 --------------------------- Total gross deferred tax assets 28,379 11,366 Less valuation allowance 6,966 4,564 --------------------------- 21,413 6,802 ============================================================================== DEFERRED TAX LIABILITIES: Accumulated depreciation -- 2,718 Goodwill 2,723 2,674 Leasing -- 985 Other 13 395 --------------------------- Total gross deferred tax liabilities 2,736 6,772 --------------------------- Net deferred tax asset $18,677 30 ==============================================================================
At January 3, 1999, approximately $17,483 of tax losses were available to carry forward. These carryforwards generally expire in tax years 1999 through 2018. State manufacturing investment tax credits of $4,081 expire in tax years 2002 through 2005. State investment tax credits of $567 expire in tax years 2008 through 2012. State research and development tax credits and alternative minimum tax credits total $397 and $1,583, respectively, and carry forward with no expiration. Capital loss carryforwards totaling $254 expire in 1999. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the established valuation allowance. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries, as such earnings are not intended by management to be repatriated in the foreseeable future. Deferred income taxes have not been provided on undistributed foreign earnings of $74,562 as of January 3, 1999. Determination of the amount of the unrecognized deferred tax liability on these undistributed earnings is not practicable. The Company made income tax payments of $2,575, $5,235, and $5,936 in fiscal 1998, 1997, and 1996, respectively. 41 28 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) NOTE 9 COMMITMENTS AND CONTINGENCIES As of January 3, 1999, and December 28, 1997, the Company has financed a total of $8,849 and $10,758, respectively, in machinery and equipment purchases with capital leases. Accumulated amortization for machinery and equipment under capital leases totals $3,426 and $2,790 at January 3, 1999, and December 28, 1997, respectively. These capital leases have interest rates ranging from 6.77% to 9.05%. The Company also has several non-cancelable operating leases, primarily for equipment. These leases generally contain renewal options and require the Company to pay all executory costs, such as maintenance and insurance. The capital and operating leases expire in various years through 2005, and require the following minimum lease payments:
- -------------------------------------------------------------------------------------- OPERATING CAPITAL ------------------------- 1999 $ 3,670 5,938 2000 3,438 2,168 2001 3,127 120 2002 1,817 - 2003 1,157 - Thereafter 1,136 - ------------------------- Total minimum lease payments $ 14,345 8,226 ========= Less amount representing interest 789 ------- Present value of net minimum capital lease payments 7,437 Less current portion 5,617 ------- Obligations under capital leases, excluding current portion $ 1,820 ======================================================================================
Rental expense for operating leases amounted to $6,474, $7,213, and $4,623 in fiscal 1998, 1997, and 1996, respectively. The Company has approximately $14,294 of capital commitments as of January 3, 1999. The majority of these commitments are expected to be completed by the end of fiscal 1999. In 1997 two related complaints, as amended, were filed in the District Court of Boulder, Colorado, and the U.S. District Court for the District of Colorado, against the Company and certain of its officers. The lawsuits purport to be brought on behalf of a class of persons who purchased the Company's common stock during the period from April 1, 1996, through September 8, 1996, and claim violations of Colorado and federal laws based on allegedly false and misleading statements made in connection with the offer, sale, or purchase of the Company's common stock at allegedly artificially inflated prices, including statements made prior to the Company's acquisition of Orbit. The complaints seek compensatory and other damages, as well as equitable relief. The Company filed motions to dismiss both amended complaints. The motion to dismiss the state court complaint has been denied, and the Company has filed its answer denying that it misled the securities market. The motion to dismiss the federal court complaint is still pending. Both actions were brought by the same plaintiffs' law firm as the Orbit action discussed below. A May 1999 trial date for the state court action has been vacated, and a new trial date has not been set. No trial date has been set in the federal court action. Discovery has commenced in the state court action. The Company believes that the claims asserted in both actions are without merit, and intends to defend against such claims vigorously. A class action complaint (as amended in March 1996) for violations of federal securities law was filed against Orbit and three of its officers in 1995 in the U.S. District Court for the Northern District of California. The amended complaint was dismissed on November 12, 1996, with leave to amend only as to certain specified claims relating to statements made by securities analysts. In January 1997 a second amended complaint was filed. The second amended complaint alleges that Orbit and three of its officers are responsible for actions of securities analysts that allegedly misled the market for Orbit's then existing public common stock. The second amended complaint seeks relief under Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The second amended complaint seeks compensatory and other damages, as well as equitable relief. In September 1997, Orbit filed its answer to the second amended complaint denying responsibility for the actions of securities analysts and further denying that it misled the securities market. The 42 29 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) parties have entered into a Memorandum of Understanding reflecting a proposed settlement of the action subject to the final terms, which are being negotiated. In addition to the above matters, the Company is involved in certain other litigation arising in the ordinary course of business. Although management is of the opinion that these matters will not have a material adverse effect on the consolidated financial position or results of operations of the Company, the ultimate outcome of these matters cannot, at this time, be predicted, in light of the uncertainties inherent in litigation. The Company has joined together with other potentially responsible parties ("PRPs") to negotiate with the New York Department of Environmental Conservation (NYDEC) concerning the performance of a remedial investigation/feasibility study (RI/FS) at the Roblin Steel Site. In connection therewith, the Company executed the Roblin Steel Site Deminimus Contributors Participation Agreement. The Company's share of the agreement is less than 2%. A Consent Order concerning the performance of a RI/FS was reached with the NYDEC in July of 1997. In April 1998 the Company entered into Consent Orders with NYDEC concerning the performance of a RI/FS with respect to environmental matters at a formerly owned facility in Kirkwood, New York, and a facility that is owned and leased out to a third party in Binghamton, New York. 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 the above environmental matters. The Company has accrued the minimum estimated costs, which amounts are immaterial, associated with these matters in the accompanying 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. NOTE 10 STOCKHOLDERS' EQUITY On July 29, 1997, the Company's Board of Directors declared a two-for-one stock split of the Company's common stock effected in the form of a stock dividend, which was distributed on September 2, 1997, to shareholders of record as of August 15, 1997. All share and per-share data included in this report have been retroactively restated to reflect the split. During 1998 and 1997, the Company repurchased 1,454,500 and 192,500 shares of its common stock at a cost of $24,335 and $4,209, respectively. The Company could repurchase an additional 353,000 shares of common stock in future years as a part of its share repurchase plan, subject to certain restrictions under its Credit Agreement. Each outstanding share of common stock carries a dividend of one preferred share purchase right ("Right"). The Rights are not exercisable until the earlier of (i) ten days following a public announcement that, without consent of the Company, a person or group (an "Acquiring Person") has acquired beneficial ownership of 20% or more of the voting power of all outstanding securities of the Company 43 30 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) STOCKHOLDERS' EQUITY (CONTINUED) - -------------------------------------------------------------------------------- or (ii) ten days following the commencement of a tender or exchange offer that would result in a person or group becoming an Acquiring Person, without the prior consent of the Company. In the event that a person or group becomes an Acquiring Person, each holder of a Right, other than the Acquiring Person, shall have the right to receive, upon exercise, that number of shares of the Common Stock of the Company having a market value of two times the exercise price of the Right. In addition, after a person or group becomes an Acquiring Person, if the Company is involved in a merger or other business combination transaction in which the Company is not the surviving corporation, holders of the Rights, other than the Acquiring Person, will be entitled to purchase shares of the acquiring company at a similar discount. The Rights will expire, unless earlier redeemed by the Company, on May 3, 2004. NOTE 11 STOCK PLANS Under the Company's 1993 Stock Option Plan, the Compensation Committee of the Board of Directors is authorized to grant stock options to purchase up to an aggregate of 1,100,000 shares of common stock. In addition, under the 1994 Stock Incentive Plan, the Committee is also authorized to make awards of performance shares and/or grant stock options to purchase up to an aggregate of 4,000,000 shares of common stock. Under the terms of these Plans, shares may be awarded or options may be granted to key employees to purchase shares of the Company's common stock. Options are granted at a purchase price equal to the fair market value of the common stock on the date of the grant, and performance shares are awarded in the form of shares of restricted common stock. At the time of the Merger, Orbit had three stock option plans, the KMOS Semiconductor, Inc., 1989 Stock Option Plan ("1989 Plan"), the KMOS Semiconductor, Inc., 1990 Non-Qualified Stock Option Plan ("1990 Plan"), and the Orbit Semiconductor, Inc., 1994 Stock Incentive Plan ("1994 Orbit Plan"), under which incentive and non-qualified stock options were granted to key employees, directors, and consultants. The options were generally granted at the fair market value of Orbit's stock on the date of grant. As a result of the merger, outstanding options to purchase Orbit common stock at the time of the Merger were converted into options to acquire an aggregate of 1,990,492 shares of Dii Group common stock, which is equal to the product of the number of shares of Orbit common stock that were issuable upon exercise of such options multiplied by the Exchange Ratio and as further adjusted to account for the two-for-one stock split. At the time of conversion, the exercise price of the converted options was determined by dividing the original exercise price of such options by the Exchange Ratio. Stock options will no longer be granted under the Orbit stock option plans. The following table summarizes the stock option transactions under the Company's Stock Option Plans:
- -------------------------------------------------------------------------------- SHARES UNDERLYING WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE ------------------------------------- OPTIONS OUTSTANDING AT DEC. 31, 1995 3,513,884 7.28 Granted 344,250 10.34 Exercised (330,872) 2.79 Canceled (138,592) 10.96 ================================================================================ OPTIONS OUTSTANDING AT DEC. 29, 1996 3,388,670 7.81 Granted 627,700 16.08 Exercised (1,082,680) 5.60 Canceled (373,100) 9.43 ================================================================================ OPTIONS OUTSTANDING AT DEC. 28, 1997 2,560,590 10.53 Granted 1,596,134 14.20 Exercised (327,734) 7.96 Canceled (340,723) 14.01 ================================================================================ OPTIONS OUTSTANDING AT JAN. 3, 1999 3,488,267 11.99 OPTIONS EXERCISABLE AT JAN. 3, 1999 1,519,855 9.90 ================================================================================
44 31 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) The following table summarizes stock option information under the Company's Stock Option Plans:
OPTIONS OUTSTANDING AT JAN. 3, 1999 OPTIONS EXERCISABLE AT JAN. 3, 1999 - ------------------------------------------------------------------------------------------------ WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE REMAINING CONTRACTUAL NUMBER WEIGHTED-AVERAGE OUTSTANDING EXERCISE PRICE TERM (IN YEARS) OUTSTANDING EXERCISE PRICE - ------------------------------------------------------------------------------------------------ 784,785 $ 7.18 4.27 758,069 $ 7.17 1,056,430 9.96 8.98 181,083 9.01 603,912 10.66 7.19 353,844 10.73 613,856 15.64 8.82 123,549 14.75 429,284 22.44 8.84 103,310 22.90 - ------------------------------------------------------------------------------------------------ 3,488,267 $ 11.99 7.56 1,519,855 $ 9.90 ================================================================================================
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related Interpretations, in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The weighted-average grant date fair value of options granted was $5.20, $8.56, and $6.52 for fiscal 1998, 1997, 1996 respectively, using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rates of 5.41%, 5.47%, and 5.76% in fiscal 1998, 1997, and 1996, respectively; volatility factors of the expected market price of the Company's common stock of 52% in fiscal 1998, 51% in fiscal 1997, and 50% in fiscal 1996; a weighted-average expected life of the option of three years; and no expected dividend yields. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The Company's pro forma information follows:
FISCAL YEARS - ------------------------------------------------------------------------- 1998 1997 1996 ------------------------------------------- PRO FORMA: Net income (loss) $ (19,453) 33,272 8,019 Basic earnings (loss) per share $ (.78) 1.35 0.34 Diluted earnings (loss) per share $ (.78) 1.08 0.32 =========================================================================
Pro forma net income (loss) reflects only options granted in fiscal 1998, 1997, and 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost for options granted prior to January 1, 1996, are not considered. 45 32 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) STOCK PLANS (CONTINUED) - -------------------------------------------------------------------------------- Under the 1993 Stock Option Plan and the 1994 Stock Incentive Plan, most outstanding options expire ten years from the date of grant and vest over a three-year period. All outstanding options under the 1994 Orbit Plan, the 1989 Plan, and 1990 Plan were fully vested on January 3, 1999, and expire no later than 10 years after grant date. The Compensation Committee of the Board of Directors awarded 456,000, 250,000, and 142,000 shares in fiscal 1998, 1997, and 1996, respectively, to key executives under the 1994 Stock Incentive Plan. Shares vest over a period of time, which in no event exceeds eight years. Certain shares may vest at an accelerated rate upon the achievement of certain annual earnings-per-share targets established by the Compensation Committee. Non vested shares for individual participants who are no longer employed by the Company on the plan termination date are forfeited. Participants will receive all unissued shares upon their death or disability, or in the event of a change of control of the Company. The shares are not reported as outstanding until vested. The number of shares vested amounted to 62,500, 262,336, and 212,332 for fiscal 1998, 1997, and 1996, respectively. Unearned compensation equivalent to the market value at the date the shares were awarded is charged to stockholders' equity and is amortized to expense based upon the estimated number of shares expected to be issued in any particular year. Unearned compensation expense amounting to $1,805, $4,375, and $1,084 was amortized to expense during fiscal 1998, 1997, and 1996, respectively. The weighted-average fair value of performance shares awarded in 1998, 1997, and 1996 was $19.97, $10.67, and $12.21 per share, respectively. As of January 3, 1999, there are 92,445 shares available for future grant under the Company's 1993 Stock Option Plan and 1994 Stock Incentive Plan. The Company's Non-Employee Directors' Stock Compensation Plan (the "Directors' Plan") provides for the automatic grant to each non-employee director of the Company of 2,000 shares of common stock per annum as consideration for regular service as a director. Shares will be issued in quarterly installments at the end of each fiscal quarter. The Company recognizes quarterly compensation expense equal to the fair market value of the stock to be issued at the end of each quarter. The aggregate number of shares which may be issued under the Directors' Plan is 60,000 shares, and the plan will terminate on December 31, 2004. As of January 3, 1999, there are 24,557 shares available for future grant under this plan. The weighted-average fair value of director shares awarded in fiscal 1998, 1997, and 1996 was $18.36, $21.95, and $12.90 per share, respectively. The Company also has a 1994 Employee Stock Purchase Plan under which all U.S. and international employees may be granted the opportunity to purchase up to 1,000,000 shares of common stock at 85% of market value on the first or last business day of a six-month payment period, whichever is lower. As of January 3, 1999, there are 613,721 shares available for sale under this plan. The shares sold under this plan in fiscal 1998, 1997, and 1996 amounted to 228,201, 64,224, and 57,076, respectively. The weighted-average fair value of shares sold under this plan in fiscal 1998, 1997, and 1996 was $17.13, $16.33, and $11.97 per share, respectively. Compensation expense pursuant to SFAS No. 123 associated with this plan in fiscal 1998, 1997, and 1996 was immaterial. 46 33 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) NOTE 12 EARNINGS PER SHARE Earnings (loss) per common share ("EPS") data were computed as follows:
FOR THE FISCAL YEARS - ---------------------------------------------------------------------------------------------------------- 1998 1997 1996 ---------------------------------- BASIC EPS: Net income (loss) $(17,032) 35,320 10,035 Shares used in computation: Weighted-average common shares outstanding 24,888 24,719 23,678 Basic EPS $ (0.68) 1.43 0.42 ========================================================================================================== DILUTED EPS: Net income (loss) $(17,032) 35,320 10,035 Plus income impact of assumed conversions: Interest expense (net of tax) on convertible subordinated notes -- 3,105 -- Amortization (net of tax) of debt issuance cost on convertible subordinated notes -- 260 -- ---------------------------------- Net income (loss) available to common stockholders $(17,032) 38,685 10,035 ========================================================================================================== SHARES USED IN COMPUTATION: Weighted-average common shares outstanding 24,888 24,719 23,678 Shares applicable to exercise of dilutive options -- 1,242 1,280 Shares applicable to deferred stock compensation -- 141 116 Shares applicable to convertible subordinated notes -- 4,600 -- ---------------------------------- Shares applicable to diluted earnings 24,888 30,702 25,074 ---------------------------------- Diluted EPS $ (0.68) 1.26 0.40 ==========================================================================================================
The common equivalent shares from common stock options, deferred stock compensation and convertible subordinated notes were antidilutive for fiscal 1998, and therefore were not assumed to be converted for diluted earnings-per-share computations. Additionally, the convertible subordinated notes were antidilutive for fiscal 1996, and therefore not assumed converted for diluted earnings-per-share computations. 47 34 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) NOTE 13 BUSINESS CONCENTRATIONS AND GEOGRAPHIC AREAS During the fourth quarter of fiscal 1998, the Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." The Company's businesses are organized, managed, and internally reported as three reportable segments. These segments, which are based on differences in products, technologies, and services are Systems Assembly and Distribution, Printed Wiring Boards, and Other (which includes Dii Semiconductor and PTI). See Note 1(b) for further information regarding the products and services provided by these segments. These segments offer products and services across most sectors of the electronics industry in order to reduce exposure to downturn in any particular sector. Transactions between segments are recorded at cost. The Company's businesses are operated on an integrated basis and are characterized by substantial intersegment cooperation, cost allocations, and marketing efforts. Substantially all interest expense is incurred at Corporate. Therefore, management does not represent that these segments, if operated independently, would report the operating income and other financial information shown.
FOR THE FISCAL YEARS - ----------------------------------------------------------------------------------------------- 1998 1997 1996 NET SALES: Systems assembly and distribution $ 589,286 514,078 274,651 Printed wiring boards 208,696 128,107 72,851 Other 127,561 137,418 111,391 --------------------------------------- $ 925,543 779,603 458,893 =============================================================================================== INCOME (LOSS) BEFORE INCOME TAXES*: Systems assembly and distribution $ 32,558 30,645 13,621 Printed wiring boards 29,084 26,935 17,442 Other 6,647 12,048 11,152 Unallocated general corporate (30,185) (19,963) (10,010) --------------------------------------- $ 38,104 49,665 32,205 =============================================================================================== IDENTIFIABLE ASSETS AT THE END OF EACH FISCAL YEAR: Systems assembly and distribution $ 238,027 209,886 126,253 Printed wiring boards 390,194 170,503 92,594 Other 79,453 143,110 96,281 Unallocated general corporate 39,635 69,230 20,723 --------------------------------------- $ 747,309 592,729 335,851 =============================================================================================== DEPRECIATION AND AMORTIZATION**: Systems assembly and distribution $ 10,629 6,915 7,326 Printed wiring boards 10,925 7,008 5,627 Other 10,283 7,628 7,230 Unallocated general corporate 1,162 791 677 --------------------------------------- $ 32,999 22,342 20,860 =============================================================================================== CAPITAL EXPENDITURES: Systems assembly and distribution $ 21,317 25,493 10,869 Printed wiring boards 118,818 61,326 6,586 Other 11,912 34,334 15,377 Unallocated general corporate 1,844 116 442 --------------------------------------- $ 153,891 121,269 33,274 ===============================================================================================
* Excludes non-recurring charges of $76,636 and $16,532 in fiscal 1998 and 1996, respectively, which related primarily to other services. See Note 7 for additional information regarding the non-recurring charges. ** Excludes non-recurring charges related to property, plant, and equipment and goodwill impairment charges of $53,340 and $7,970 in fiscal 1998 and 1996, respectively, which related primarily to other services. See Note 7 for additional information regarding the non-recurring charges. 48 35 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) The following summarizes financial information by geographic areas:
FOR THE FISCAL YEARS - -------------------------------------------------------------------------------------------------- 1998 1997 1996 ------------------------------------------ NET SALES: North America $ 637,795 543,469 356,917 Europe 175,675 150,174 65,348 Asia 112,073 85,960 36,628 TRANSFERS BETWEEN GEOGRAPHIC AREAS: North America 166 3,021 1,500 Europe 85 61 33 Asia 1,091 220 48 Eliminations (1,342) (3,302) (1,581) ------------------------------------------ $ 925,543 779,603 458,893 ================================================================================================== INCOME (LOSS) BEFORE INCOME TAXES: North America $ (38,053) 47,780 23,551 Europe 20,027 17,635 6,063 Asia 9,874 4,035 (1,471) Unallocated general corporate (30,380) (19,785) (12,470) ------------------------------------------ $ (38,532) 49,665 15,673 ================================================================================================== LONG-LIVED ASSETS AT THE END OF EACH FISCAL YEAR: North America $ 232,134 257,673 155,681 Europe 110,296 12,466 7,335 Asia 80,836 7,065 6,971 Unallocated general corporate 9,955 7,706 3,197 ------------------------------------------ $ 433,020 284,910 173,184 ==================================================================================================
Export sales from the United States are immaterial At any given time, certain customers may account for significant portions of the Company's business. Hewlett-Packard accounted for 10% and 17% of net sales in fiscal 1998 and 1997, respectively. IBM accounted for 10% of net sales in fiscal 1998. No other customer accounted for more than 10% of net sales in fiscal 1998, 1997, or 1996. The Company's top ten customers accounted for 48%, 50%, and 43% of net sales in fiscal 1998, 1997, and 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 would have a material adverse effect on the Company's operating results. The Company has few material, firm, long-term commitments or volume guarantees from its customers. In addition, customer orders can be canceled and volume levels can be changed or delayed. From time to time, some of the Company's customers have terminated their manufacturing arrangements with the Company, and other customers have reduced or delayed the volume of design and manufacturing services performed by the Company. The timely replacement of canceled, delayed, or reduced contracts with new business cannot be assured, and termination of a manufacturing relationship or change, reduction, or delay in orders could have a material adverse effect on the Company's operating results. In the past, changes in customer orders have had a significant impact on the Company's results of operations due to corresponding changes in the level of overhead absorption. Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties completely failed to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company has concentrations of credit risk in accounts receivable from its top ten customers. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintained reserves for potential credit losses of $5,900 and $2,893 at January 3, 1999, and December 28, 1997, respectively. In addition, the Company has concentrations of credit risk in cash and cash equivalents, which are maintained at recognized financial institutions. The Company performs ongoing financial evaluations of these financial institutions. 49 36 THE DII GROUP, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) NOTE 14 SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following summarizes quarterly financial information for the years ended January 3, 1999, and December 28, 1997:
- ---------------------------------------------------------------------------------------------------- GROSS PROFIT NET BASIC EARNINGS DILUTED EARNINGS NET SALES (LOSS) INCOME (LOSS) (LOSS) PER SHARE (LOSS) PER SHARE ---------------------------------------------------------------------------------- 1998 QUARTERS First $ 235,374 (18,714) (32,047) (1.27) (1.27) Second 221,938 33,142 6,127 0.24 0.23 Third 205,917 32,022 6,532 0.26 0.25 Fourth 262,314 18,300 2,356 0.10 0.09 -------------------------------------------- $ 925,543 64,750 (17,032) (0.68) (0.68) ================================================================================================ 1997 QUARTERS First $ 137,080 26,180 5,077 0.21 0.20 Second 184,097 32,679 7,540 0.31 0.27 Third 212,864 33,302 9,955 0.40 0.35 Fourth 245,562 39,779 12,748 0.50 0.44 -------------------------------------------- $ 779,603 131,940 35,320 1.43 1.26 ================================================================================================
The Company recorded $54,000 and $22,636 of non-recurring charges during the first and fourth quarters of fiscal 1998, respectively, relating to Orbit's semiconductor wafer fabrication facility. See Note 7 for additional information regarding the non-recurring charges. 50 EX-21.1 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT AS OF JANUARY 3, 1999
SUBSIDIARIES STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION DOVatron International, Inc. Delaware DOVatron de Mexico, S.A. de C.V. Mexico Multilayer Technology, Inc. California Orbit Semiconductor, Inc. Delaware KMOS Semiconductor, Inc. Delaware Cencorp Inc. Delaware DOVatron (Ireland) B.V. The Netherlands Chemtech (U.K.) Ltd. United Kingdom The DII Group, Inc. Singapore Pte. Ltd. Singapore DOVatron Malaysia Sdn. Bhd Malaysia Design Solutions, Inc. California Dovatron Mexico, Inc. Delaware Dovatron Nevada, Inc. Nevada The DII Group Asia Ltd. Hong Kong Multilayer Technology and Co KG Germany Multilayer Technology Geschaftsfuhruntos Germany DOVatron Vernaltunls GMBH Germany DOVatron Czech A.S. Czech Republic The DII Group (BVI) Co Ltd. British Virgin Islands DII Europe B.V. The Netherlands DII International Holdings C.V. The Netherlands
EX-23.1 8 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors The DII Group, Inc.: We consent to the incorporation by reference in registration statements Nos. 33-73556, 33-90572, 33-79940, 333-10999, 333-11001, 333-11005 and 333-11007 of the DII Group, Inc. on Form S-8, of our reports dated January 28, 1999 (February 18, 1999 as to the redemption of convertible subordinated notes described in Note 6), appearing in this Annual Report on Form 10-K of the DII Group, Inc. for the 53 weeks ended January 3, 1999. DELOITTE & TOUCHE LLP Denver, Colorado March 17, 1999 EX-23.2 9 CONSENT OF KPMG 1 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT The Board of Directors The DII Group, Inc.: We consent to the incorporation by reference in registration statements Nos. 33-73556, 33-90572, 33-79940, 333-10999, 333-11001, 333-11005 and 333-11007 on Form S-8, and No. 33-80175 on Form S-3 of The DII Group, Inc. of our reports dated January 28, 1997, relating to the consolidated statements of operations, stockholders' equity and cash flows of the DII Group, Inc. for the 52 weeks ended December 29, 1996 and related schedule, which reports appear in the 1998 Annual Report on Form 10-K of The DII Group, Inc. KPMG LLP Denver, Colorado March 17, 1999 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 OTHER JAN-03-1999 DEC-29-1997 JAN-03-1999 55,972 0 159,761 5,900 66,745 295,397 413,236 87,010 747,309 208,087 0 0 0 262 175,721 747,309 925,543 925,543 860,793 860,793 83,627 869 21,680 (38,532) (21,500) (17,032) 0 0 0 (17,032) (0.68) (0.68)
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